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D6NSCYcBD5gMZwczlbM6 | Robert V. Prongay (SBN 270796)
rprongay@glancylaw.com
Charles Linehan (SBN 307439)
clinehan@glancylaw.com
Pavithra Rajesh (SBN 323055)
prajesh@glancylaw.com
GLANCY PRONGAY & MURRAY LLP
1925 Century Park East, Suite 2100
Los Angeles, California 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Attorneys for Plaintiff Joseph Fazio
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
Case No.
JOSEPH FAZIO, Individually and on Behalf
of All Others Similarly Situated,
Plaintiff,
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
v.
DEMAND FOR JURY TRIAL
EARGO, INC., CHRISTIAN GORMSEN, and
ADAM LAPONIS,
Defendant.
Plaintiff Joseph Fazio (“Plaintiff”), individually and on behalf of all others similarly situated,
by and through his attorneys, alleges the following upon information and belief, except as to those
allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff’s information
and belief is based upon, among other things, his counsel’s investigation, which includes without
limitation: (a) review and analysis of regulatory filings made by Eargo, Inc. (“Eargo” or the
“Company”) with the United States (“U.S.”) Securities and Exchange Commission (“SEC”); (b)
review and analysis of press releases and media reports issued by and disseminated by Eargo; and
(c) review of other publicly available information concerning Eargo.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or otherwise
acquired Eargo securities between February 25, 2021 and September 22, 2021, inclusive (the “Class
Period”). Plaintiff pursues claims against the Defendants under the Securities Exchange Act of 1934
(the “Exchange Act”).
2.
Eargo is a medical device company. It claims that its hearing aids “are the first and
only virtually invisible, rechargeable, completely-in-canal, FDA-regulated, exempt Class I and
Class II devices for the treatment of hearing loss.”
3.
On August 12, 2021, after the market closed, Eargo revealed that claims submitted
to the Company’s largest third-party payor, which accounted for 80% of Eargo’s accounts
receivable, had not been paid since March 1, 2021.
4.
On this news, the Company’s share price fell $8.00, or over 24%, to close at $24.70
per share on August 13, 2021, on unusually heavy trading volume.
5.
On September 22, 2021, after the market closed, Eargo revealed that “it is the target
of a criminal investigation by the U.S. Department of Justice (the ‘DOJ’) related to insurance
reimbursement claims the Company has submitted on behalf of customers covered by federal
employee health plans.” Moreover, the DOJ is the “principal contact related to the subject matter of
the [ongoing] audit” of Eargo by an insurance company that is the Company’s largest third-party
payor. As a result of the foregoing, Eargo withdrew its full year financial guidance.
6.
On this news, the Company’s share price fell $14.81, or over 68%, to close at $6.86
per share on September 23, 2021, on unusually heavy trading volume.
7.
Throughout the Class Period, Defendants made materially false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that Eargo had
improperly sought reimbursements from certain third-party payors; (2) that the foregoing was
reasonably likely to lead to regulatory scrutiny; (3) that, as a result and because the reimbursements
at issue involved the Company’s largest third-party payor, Eargo’s financial results would be
adversely impacted; and (4) that, as a result of the foregoing, Defendants’ positive statements about
the Company’s business, operations, and prospects were materially misleading and/or lacked a
reasonable basis.
8.
As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
in the market value of the Company’s securities, Plaintiff and other Class members have suffered
significant losses and damages.
JURISDICTION AND VENUE
9.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act
(15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. §
240.10b-5).
10.
This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§ 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
11.
Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and Section
27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the alleged fraud
or the effects of the fraud have occurred in this Judicial District. Many of the acts charged herein,
including the dissemination of materially false and/or misleading information, occurred in
substantial part in this Judicial District. In addition, the Company’s principal executive offices are
located in this District.
12.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
13.
Plaintiff Joseph Fazio, as set forth in the accompanying certification, incorporated
by reference herein, purchased Eargo securities during the Class Period, and suffered damages as a
result of the federal securities law violations and false and/or misleading statements and/or material
omissions alleged herein.
14.
Defendant Eargo is incorporated under the laws of Delaware with its principal
executive offices located in San Jose, California. Eargo’s common stock trades on the NASDAQ
exchange under the symbol “EAR.”
15.
Defendant Christian Gormsen (“Gormsen”) was the Company’s Chief Executive
Officer (“CEO”) at all relevant times.
16.
Defendant Adam Laponis (“Laponis”) was the Company’s Chief Financial Officer
(“CFO”) at all relevant times.
17.
Defendants Gormsen and Laponis (collectively the “Individual Defendants”),
because of their positions with the Company, possessed the power and authority to control the
contents of the Company’s reports to the SEC, press releases and presentations to securities analysts,
money and portfolio managers and institutional investors, i.e., the market. The Individual
Defendants were provided with copies of the Company’s reports and press releases alleged herein
to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to
prevent their issuance or cause them to be corrected. Because of their positions and access to
material non-public information available to them, the Individual Defendants knew that the adverse
facts specified herein had not been disclosed to, and were being concealed from, the public, and that
the positive representations which were being made were then materially false and/or misleading.
The Individual Defendants are liable for the false statements pleaded herein.
SUBSTANTIVE ALLEGATIONS
Background
18.
Eargo is a medical device company. It claims that its hearing aids “are the first and
only virtually invisible, rechargeable, completely-in-canal, FDA-regulated, exempt Class I and
Class II devices for the treatment of hearing loss.”
Materially False and Misleading
Statements Issued During the Class Period
19.
The Class Period begins on February 25, 2021. On that day, Eargo announced its
fourth quarter and full year 2020 financial results in a press release that stated, in relevant part:
Recent Highlights:
• Net revenues of $22.4 million in the fourth quarter and $69.2 million for the
full year of 2020, representing 110.8% and 110.9% increases, respectively,
over the corresponding periods of 2019
• Gross systems shipped of 12,096 in the fourth quarter and 38,243 for the full
year of 2020, representing 67.7% and 67.8% increases, respectively, over the
corresponding periods of 2019
• Return accrual rate of 24.4% in the fourth quarter and 25.9% for the full year
of 2020, representing a 9.6 and 9.0 percentage point improvement,
respectively, over the corresponding periods of 2019
• Gross margin of 70.6% in the fourth quarter and 68.4% for the full year of
2020, representing a 15.4 and 16.6 percentage point improvement,
respectively, over the corresponding periods of 2019; non-GAAP gross
margin of 70.8% in the fourth quarter and 68.5% for the full year of 2020
representing a 15.5 and 16.6 percentage point improvement, respectively,
over the corresponding periods of 2019
*
*
*
Full Year 2021 Financial Guidance
• Net revenue of between $87 million and $93 million
• GAAP gross margin of between 68% and 71%
• Non-GAAP gross margin of between 70% and 72%
20.
On March 16, 2021, Eargo filed its annual report on Form 10-K for the period ended
December 31, 2020 (the “2020 10-K”), affirming the previously reported financial results.
Regarding reimbursements from third-party payors, the report stated:
Changes in third-party coverage and reimbursement may impact our ability to
grow and sell our products.
Our products are primarily purchased on a cash-pay basis and currently only have
limited coverage by third-party payors. Third-party coverage and reimbursement
may increase for certain hearing aids but not our products, or could decrease for our
products, which could reduce our market share. The process for determining whether
a third-party payor will provide coverage for a product may be separate from the
process for establishing the reimbursement rate that such a payor will pay for the
product. A payor’s decision to provide coverage for a product does not imply that an
adequate reimbursement rate will be approved. Further, one payor’s determination
to provide coverage for a product does not assure that other payors will also provide
such coverage. Third-party coverage and reimbursement may never become
available to us at sufficient levels.
21.
On May 12, 2021, Eargo announced its first quarter 2021 financial results in a press
release that stated, in relevant part:
Recent Highlights:
• Net revenues of $22.0 million, up 74.0% year-over-year
• Gross systems shipped of 11,704, up 66.5% year-over-year
• Return accrual rate of 23.2%, a 4.4 percentage point improvement year-over-
year
• GAAP gross margin of 71.4%, up 8.2 percentage points year-over-year; non-
GAAP gross margin of 72.2%, up 9.0 percentage points year-over-year
*
*
*
Full Year 2021 Financial Guidance
• Increasing net revenue guidance from between $87 million and $93 million
to between $89 million and $93 million
• Reiterating GAAP gross margin guidance of between 68% and 71%
• Reiterating non-GAAP gross margin of between 70% and 72%
22.
On May 13, 2021, Eargo filed its quarterly report on Form 10-Q for the period ended
March 31, 2021 (the “1Q21 10-Q”), affirming the previously reported financial results. Regarding
third-party payors, it stated, in relevant part:
A significant portion of our revenue is dependent upon reimbursement from third-
party payors. Any material changes to third-party coverage or reimbursement
could significantly impact our business and our ability to grow and sell our
products.
A significant portion of our revenue depends on payments from third-party payors
that we submit claims to on behalf of our customers. If there are decreases in hearing
aid benefits offered under these plans, our ability to seek third-party reimbursement
could be reduced. Decreases in hearing benefits could lead to changes in the amount
these plans will pay for hearing aids, the types of providers these plans allow their
members to see for hearing aids, or how often the plans will pay for hearing aids. If
we fail to maintain access to existing levels of coverage and reimbursement for our
products, our business and operating results could be adversely affected.
We currently submit claims on behalf of customers to a concentrated number of third-
party payors under certain benefit plans. Additionally, third-party payors periodically
conduct pre- and post-payment reviews, including audits of previously submitted
claims, and we are currently experiencing and may experience such reviews and
audits of claims in the future. For example, we are currently subject to a routine
audit with our largest third-party payor, who accounted for approximately 57% of
the Company’s gross accounts receivable as of March 31, 2021. Such reviews and
audits of our claims have resulted and could in the future result in significant delays
in payment, and could result in material recoupments of previous claims paid or
denials of pending or future claims, which could impact our ability to recognize
revenue, reduce our net sales and profitability, or result in the loss of our ability to
submit claims to certain third-party payors for payment.
(Second emphasis added.)
23.
The above statements identified in ¶¶ 19-22 were materially false and/or misleading,
and failed to disclose material adverse facts about the Company’s business, operations, and
prospects. Specifically, Defendants failed to disclose to investors: (1) that Eargo had improperly
sought reimbursements from certain third-party payors; (2) that the foregoing was reasonably likely
to lead to regulatory scrutiny; (3) that, as a result and because the reimbursements at issue involved
the Company’s largest third-party payor, Eargo’s financial results would be adversely impacted; and
(4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business,
operations, and prospects were materially misleading and/or lacked a reasonable basis.
24.
The truth began to emerge on August 12, 2021, after the market closed, when Eargo
revealed that claims submitted to the Company’s largest third-party payor had not been paid since
March 1, 2021. In a press release announcing its second quarter 2021 financial results, Eargo stated,
in relevant part:
Accounts receivable, net was $15.4 million as of June 30, 2021. The increase in
accounts receivable from March 31, 2021 was primarily due to a claims audit by an
insurance company that is our largest third-party payor, who accounted for
approximately 80% of our gross accounts receivable as of June 30, 2021. During the
audit, claims since March 1, 2021 have not been paid. The Company is in active
discussions with the payor and continues to work toward conclusion of the audit.
Full Year 2021 Financial Guidance
• Increasing net revenue guidance from between $89 million and $93 million
to between $93 million and $96 million
• Reiterating GAAP gross margin guidance of between 68% and 71%
• Reiterating non-GAAP gross margin of between 70% and 72%
25.
Moreover, the same day, Eargo filed its quarterly report on Form 10-Q for the period
ended June 30, 2021 (the “2Q21 10-Q”), affirming the previously reported financial results.
Regarding third-party payors, the report stated:
A significant portion of our revenue is dependent upon reimbursement from third-
party payors. Any material changes to third-party coverage or reimbursement or
adverse outcomes of third-party payor audits could significantly impact our
business and our ability to grow and sell our products.
A significant portion of our revenue depends on payments from third-party payors
that we submit claims to on behalf of our customers. If there are decreases in hearing
aid benefits offered under these plans, our ability to seek third-party reimbursement
could be reduced. Decreases in hearing benefits could lead to changes in the amount
these plans will pay for hearing aids, the types of providers these plans allow their
members to see for hearing aids, or how often the plans will pay for hearing aids. If
we fail to maintain access to existing levels of coverage and reimbursement for our
products, our business and operating results could be adversely affected.
We currently submit claims on behalf of customers to a concentrated number of third-
party payors under certain benefit plans. Additionally, third-party payors periodically
conduct pre- and post-payment reviews, including audits of previously submitted
claims, and we are currently experiencing and may experience such reviews and
audits of claims in the future. For example, we are currently subject to a claims
audit with our largest third-party payor, who accounted for approximately 80% of
our gross accounts receivable as of June 30, 2021, during which claims submitted
since March 1, 2021 have not been paid. Reimbursement claims submitted to
another insurance company are also currently undergoing an audit, and to date
claims from this insurance company have been processed and approved consistent
with normal business practices during the audit. In addition to the risk that the
insurance companies may deny the claims subject to the current audits, and we have
received some denials to date, it is possible that they may seek recoupments of
previous claims paid and deny any future claims. While we believe the claims
submitted are valid and reimbursable with these insurance companies, and there
exist processes for appeal and, if necessary, corrective action, an unfavorable
outcome of the ongoing audits could have a material adverse effect on our future
financial results, including our revenue recognition, sales return rate and bad debt
reserve. We are unable to provide assurances regarding the outcome of these audits.
Such reviews and audits of our claims have resulted and could in the future result in
significant delays in payment, and could result in material recoupments of previous
claims paid or denials of pending or future claims, which could impact our ability to
recognize revenue, reduce our net sales and profitability, or result in the loss of our
ability to submit claims to certain third-party payors for payment.
(Second and third emphases added.)
26.
On this news, the Company’s share price fell $8.00, or over 24%, to close at $24.70
per share on August 13, 2021, on unusually heavy trading volume.
27.
The 2Q21 10-Q also stated that the Company may be subject to penalties for
violations of certain healthcare laws and regulations. Specifically, it stated:
If we fail to comply with U.S. or foreign federal and state healthcare regulatory
laws, we could be subject to penalties, including, but not limited to, administrative,
civil and criminal penalties, damages, fines, disgorgement, exclusion from
participation in governmental healthcare programs and the curtailment of our
operations, any of which could adversely impact our reputation and business
operations.
To the extent our products are or become covered by any federal or state government
healthcare program, our operations and business practices may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations. These laws
may constrain the business or financial arrangements and relationships through
which we conduct our operations, including our sales and marketing practices,
consumer incentive and other promotional programs and other business practices.
Such laws include, without limitation:
*
*
*
• the U.S. federal false claims laws, including the False Claims Act, which can
be enforced through whistleblower actions, and civil monetary penalties
laws, which, among other things, impose criminal and civil penalties against
individuals or entities for knowingly presenting, or causing to be presented,
to the U.S. federal government, claims for payment or approval that are false
or fraudulent, knowingly making, using or causing to be made or used, a false
record or statement material to a false or fraudulent claim, or from knowingly
making a false statement to avoid, decrease or conceal an obligation to pay
money to the U.S. federal government. In addition, the government may
assert that a claim including items and services resulting from a violation of
the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim
for purposes of the False Claims Act;
28.
The above statements identified in ¶¶ 24-25, 27 were materially false and/or
misleading, and failed to disclose material adverse facts about the Company’s business, operations,
and prospects. Specifically, Defendants failed to disclose to investors: (1) that Eargo had improperly
sought reimbursements from certain third-party payors; (2) that the foregoing was reasonably likely
to lead to regulatory scrutiny; (3) that, as a result and because the reimbursements at issue involved
the Company’s largest third-party payor, Eargo’s financial results would be adversely impacted; and
(4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business,
operations, and prospects were materially misleading and/or lacked a reasonable basis.
Disclosures at the End of the Class Period
29.
On September 22, 2021, after the market closed, Eargo revealed that “it is the target
of a criminal investigation by the U.S. Department of Justice (the ‘DOJ’) related to insurance
reimbursement claims the Company has submitted on behalf of customers covered by federal
employee health plans.” Moreover, the DOJ is the “principal contact related to the subject matter of
the [ongoing] audit” of Eargo by an insurance company that is the Company’s largest third-party
payor. As a result of the foregoing, Eargo withdrew its full year financial guidance. Specifically, the
Company filed a Form 8-K with the SEC that stated, in relevant part:
On September 21, 2021, Eargo, Inc. (the “Company”) was informed that it is the
target of a criminal investigation by the U.S. Department of Justice (the “DOJ”)
related to insurance reimbursement claims the Company has submitted on behalf of
its customers covered by federal employee health plans. The Company is cooperating
with the investigation. In addition, the Company intends to work with the
government with the objective of validating the process to support any future claims
that the Company may submit for reimbursement.
As previously disclosed, the Company has been the subject of an ongoing claims
audit by an insurance company that is the Company’s largest third-party payor. The
Company has been informed by the insurance company that the DOJ is now the
principal contact related to the subject matter of the audit.
In light of this information, the Company is withdrawing its financial guidance for
the fiscal year ending December 31, 2021.
30.
On this news, the Company’s share price fell $14.81, or over 68%, to close at $6.86
per share on September 23, 2021, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
31.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and entities that purchased
or otherwise acquired Eargo securities between February 25, 2021 and September 22, 2021,
inclusive, and who were damaged thereby (the “Class”). Excluded from the Class are Defendants,
the officers and directors of the Company, at all relevant times, members of their immediate families
and their legal representatives, heirs, successors, or assigns, and any entity in which Defendants
have or had a controlling interest.
32.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Eargo’s shares actively traded on the NASDAQ.
While the exact number of Class members is unknown to Plaintiff at this time and can only be
ascertained through appropriate discovery, Plaintiff believes that there are at least hundreds or
thousands of members in the proposed Class. Millions of Eargo shares were traded publicly during
the Class Period on the NASDAQ. Record owners and other members of the Class may be identified
from records maintained by Eargo or its transfer agent and may be notified of the pendency of this
action by mail, using the form of notice similar to that customarily used in securities class actions.
33.
Plaintiff’s claims are typical of the claims of the members of the Class as all members
of the Class are similarly affected by Defendants’ wrongful conduct in violation of federal law that
is complained of herein.
34.
Plaintiff will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in class and securities litigation.
35.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b)
whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of Eargo; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
36.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation makes it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
UNDISCLOSED ADVERSE FACTS
37.
The market for Eargo’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures to
disclose, Eargo’s securities traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired Eargo’s securities relying upon the
integrity of the market price of the Company’s securities and market information relating to Eargo,
and have been damaged thereby.
38.
During the Class Period, Defendants materially misled the investing public, thereby
inflating the price of Eargo’s securities, by publicly issuing false and/or misleading statements
and/or omitting to disclose material facts necessary to make Defendants’ statements, as set forth
herein, not false and/or misleading. The statements and omissions were materially false and/or
misleading because they failed to disclose material adverse information and/or misrepresented the
truth about Eargo’s business, operations, and prospects as alleged herein.
39.
At all relevant times, the material misrepresentations and omissions particularized in
this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or misleading
statements about Eargo’s financial well-being and prospects. These material misstatements and/or
omissions had the cause and effect of creating in the market an unrealistically positive assessment
of the Company and its financial well-being and prospects, thus causing the Company’s securities
to be overvalued and artificially inflated at all relevant times. Defendants’ materially false and/or
misleading statements during the Class Period resulted in Plaintiff and other members of the Class
purchasing the Company’s securities at artificially inflated prices, thus causing the damages
complained of herein when the truth was revealed.
LOSS CAUSATION
40.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
41.
During the Class Period, Plaintiff and the Class purchased Eargo’s securities at
artificially inflated prices and were damaged thereby. The price of the Company’s securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’ losses.
SCIENTER ALLEGATIONS
42.
As alleged herein, Defendants acted with scienter since Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations of the federal
securities laws. As set forth elsewhere herein in detail, the Individual Defendants, by virtue of their
receipt of information reflecting the true facts regarding Eargo, their control over, and/or receipt
and/or modification of Eargo’s allegedly materially misleading misstatements and/or their
associations with the Company which made them privy to confidential proprietary information
concerning Eargo, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
43.
The market for Eargo’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, Eargo’s securities traded at artificially inflated prices during the Class Period. On February
25, 2021, the Company’s share price closed at a Class Period high of $61.16 per share. Paintiff and
other members of the Class purchased or otherwise acquired the Company’s securities relying upon
the integrity of the market price of Eargo’s securities and market information relating to Eargo, and
have been damaged thereby.
44.
During the Class Period, the artificial inflation of Eargo’s shares was caused by the
material misrepresentations and/or omissions particularized in this Complaint causing the damages
sustained by Plaintiff and other members of the Class. As described herein, during the Class Period,
Defendants made or caused to be made a series of materially false and/or misleading statements
about Eargo’s business, prospects, and operations. These material misstatements and/or omissions
created an unrealistically positive assessment of Eargo and its business, operations, and prospects,
thus causing the price of the Company’s securities to be artificially inflated at all relevant times, and
when disclosed, negatively affected the value of the Company shares. Defendants’ materially false
and/or misleading statements during the Class Period resulted in Plaintiff and other members of the
Class purchasing the Company’s securities at such artificially inflated prices, and each of them has
been damaged as a result.
45.
At all relevant times, the market for Eargo’s securities was an efficient market for
the following reasons, among others:
(a)
Eargo shares met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b)
As a regulated issuer, Eargo filed periodic public reports with the SEC and/or
the NASDAQ;
(c)
Eargo regularly communicated with public investors via established market
communication mechanisms, including through regular dissemination of press releases on the
national circuits of major newswire services and through other wide-ranging public disclosures,
such as communications with the financial press and other similar reporting services; and/or
(d)
Eargo was followed by securities analysts employed by brokerage firms who
wrote reports about the Company, and these reports were distributed to the sales force and certain
customers of their respective brokerage firms. Each of these reports was publicly available and
entered the public marketplace.
46.
As a result of the foregoing, the market for Eargo’s securities promptly digested
current information regarding Eargo from all publicly available sources and reflected such
information in Eargo’s share price. Under these circumstances, all purchasers of Eargo’s securities
during the Class Period suffered similar injury through their purchase of Eargo’s securities at
artificially inflated prices and a presumption of reliance applies.
47.
A Class-wide presumption of reliance is also appropriate in this action under the
Supreme Court’s holding in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972),
because the Class’s claims are, in large part, grounded on Defendants’ material misstatements and/or
omissions. Because this action involves Defendants’ failure to disclose material adverse
information regarding the Company’s business operations and financial prospects—information that
Defendants were obligated to disclose—positive proof of reliance is not a prerequisite to recovery.
All that is necessary is that the facts withheld be material in the sense that a reasonable investor
might have considered them important in making investment decisions. Given the importance of
the Class Period material misstatements and omissions set forth above, that requirement is satisfied
here.
NO SAFE HARBOR
48.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. The
statements alleged to be false and misleading herein all relate to then-existing facts and conditions.
In addition, to the extent certain of the statements alleged to be false may be characterized as forward
looking, they were not identified as “forward-looking statements” when made and there were no
meaningful cautionary statements identifying important factors that could cause actual results to
differ materially from those in the purportedly forward-looking statements. In the alternative, to the
extent that the statutory safe harbor is determined to apply to any forward-looking statements
pleaded herein, Defendants are liable for those false forward-looking statements because at the time
each of those forward-looking statements was made, the speaker had actual knowledge that the
forward-looking statement was materially false or misleading, and/or the forward-looking statement
was authorized or approved by an executive officer of Eargo who knew that the statement was false
when made.
FIRST CLAIM
Violation of Section 10(b) of The Exchange Act and
Rule 10b-5 Promulgated Thereunder
Against All Defendants
49.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
50.
During the Class Period, Defendants carried out a plan, scheme and course of conduct
which was intended to and, throughout the Class Period, did: (i) deceive the investing public,
including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and other
members of the Class to purchase Eargo’s securities at artificially inflated prices. In furtherance of
this unlawful scheme, plan and course of conduct, Defendants, and each defendant, took the actions
set forth herein.
51.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements
not misleading; and (iii) engaged in acts, practices, and a course of business which operated as a
fraud and deceit upon the purchasers of the Company’s securities in an effort to maintain artificially
high market prices for Eargo’s securities in violation of Section 10(b) of the Exchange Act and Rule
10b-5. All Defendants are sued either as primary participants in the wrongful and illegal conduct
charged herein or as controlling persons as alleged below.
52.
Defendants, individually and in concert, directly and indirectly, by the use, means or
instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about Eargo’s financial well-
being and prospects, as specified herein.
53.
Defendants employed devices, schemes and artifices to defraud, while in possession
of material adverse non-public information and engaged in acts, practices, and a course of conduct
as alleged herein in an effort to assure investors of Eargo’s value and performance and continued
substantial growth, which included the making of, or the participation in the making of, untrue
statements of material facts and/or omitting to state material facts necessary in order to make the
statements made about Eargo and its business operations and future prospects in light of the
circumstances under which they were made, not misleading, as set forth more particularly herein,
and engaged in transactions, practices and a course of business which operated as a fraud and deceit
upon the purchasers of the Company’s securities during the Class Period.
54.
Each of the Individual Defendants’ primary liability and controlling person liability
arises from the following facts: (i) the Individual Defendants were high-level executives and/or
directors at the Company during the Class Period and members of the Company’s management team
or had control thereof; (ii) each of these defendants, by virtue of their responsibilities and activities
as a senior officer and/or director of the Company, was privy to and participated in the creation,
development and reporting of the Company’s internal budgets, plans, projections and/or reports;
(iii) each of these defendants enjoyed significant personal contact and familiarity with the other
defendants and was advised of, and had access to, other members of the Company’s management
team, internal reports and other data and information about the Company’s finances, operations, and
sales at all relevant times; and (iv) each of these defendants was aware of the Company’s
dissemination of information to the investing public which they knew and/or recklessly disregarded
was materially false and misleading.
55.
Defendants had actual knowledge of the misrepresentations and/or omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such defendants’
material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose
and effect of concealing Eargo’s financial well-being and prospects from the investing public and
supporting the artificially inflated price of its securities. As demonstrated by Defendants’
overstatements and/or misstatements of the Company’s business, operations, financial well-being,
and prospects throughout the Class Period, Defendants, if they did not have actual knowledge of the
misrepresentations and/or omissions alleged, were reckless in failing to obtain such knowledge by
deliberately refraining from taking those steps necessary to discover whether those statements were
false or misleading.
56.
As a result of the dissemination of the materially false and/or misleading information
and/or failure to disclose material facts, as set forth above, the market price of Eargo’s securities
was artificially inflated during the Class Period. In ignorance of the fact that market prices of the
Company’s securities were artificially inflated, and relying directly or indirectly on the false and
misleading statements made by Defendants, or upon the integrity of the market in which the
securities trades, and/or in the absence of material adverse information that was known to or
recklessly disregarded by Defendants, but not disclosed in public statements by Defendants during
the Class Period, Plaintiff and the other members of the Class acquired Eargo’s securities during the
Class Period at artificially high prices and were damaged thereby.
57.
At the time of said misrepresentations and/or omissions, Plaintiff and other members
of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other
members of the Class and the marketplace known the truth regarding the problems that Eargo was
experiencing, which were not disclosed by Defendants, Plaintiff and other members of the Class
would not have purchased or otherwise acquired their Eargo securities, or, if they had acquired such
securities during the Class Period, they would not have done so at the artificially inflated prices
which they paid.
58.
By virtue of the foregoing, Defendants violated Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder.
59.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the
other members of the Class suffered damages in connection with their respective purchases and
sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of The Exchange Act
Against the Individual Defendants
60.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
61.
Individual Defendants acted as controlling persons of Eargo within the meaning of
Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions and their
ownership and contractual rights, participation in, and/or awareness of the Company’s operations
and intimate knowledge of the false financial statements filed by the Company with the SEC and
disseminated to the investing public, Individual Defendants had the power to influence and control
and did influence and control, directly or indirectly, the decision-making of the Company, including
the content and dissemination of the various statements which Plaintiff contends are false and
misleading. Individual Defendants were provided with or had unlimited access to copies of the
Company’s reports, press releases, public filings, and other statements alleged by Plaintiff to be
misleading prior to and/or shortly after these statements were issued and had the ability to prevent
the issuance of the statements or cause the statements to be corrected.
62.
In particular, Individual Defendants had direct and supervisory involvement in the
day-to-day operations of the Company and, therefore, had the power to control or influence the
particular transactions giving rise to the securities violations as alleged herein, and exercised the
same.
63.
As set forth above, Eargo and Individual Defendants each violated Section 10(b) and
Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their position as
controlling persons, Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and other members of
the Class suffered damages in connection with their purchases of the Company’s securities during
the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class members
against all defendants, jointly and severally, for all damages sustained as a result of Defendants’
wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this
action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: October 6, 2021
GLANCY PRONGAY & MURRAY LLP
By:
s/ Pavithra Rajesh
Robert V. Prongay
Charles Linehan
Pavithra Rajesh
1925 Century Park East, Suite 2100
Los Angeles, California 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: info@glancylaw.com
Counsel for Plaintiff Joseph Fazio
EARGO, INC. (EAR) SECURITIES LITIGATION
I, Joseph Fazio, certify that:
1.
I have reviewed the Complaint and authorize its filing and/or the filing of a Lead
Plaintiff motion on my behalf.
2.
I did not purchase the Eargo, Inc. securities that are the subject of this action at
the direction of plaintiff’s counsel or in order to participate in any private action
arising under this title.
3.
I am willing to serve as a representative party on behalf of a class and will testify
at deposition and trial, if necessary.
4.
My transactions in Eargo, Inc. securities during the Class Period set forth in the
Complaint are as follows:
(See attached transactions)
5.
I have not sought to serve, nor served, as a representative party on behalf of a
class under this title during the last three years, except for the following:
6.
I will not accept any payment for serving as a representative party, except to
receive my pro rata share of any recovery or as ordered or approved by the court,
including the award to a representative plaintiff of reasonable costs and expenses
(including lost wages) directly relating to the representation of the class.
I declare under penalty of perjury that the foregoing are true and correct statements.
9/25/2021
________________
_________________________________________
Date
Joseph Fazio
Joseph Fazio's Transactions in Eargo, Inc. (EAR)
Date
Transaction Type
Quantity
Unit Price
6/25/2021
Bought
100
$37.8564
7/9/2021
Bought
150
$31.8000
7/9/2021
Bought
100
$31.2800
7/9/2021
Bought
100
$32.9800
7/9/2021
Bought
100
$34.0000
7/9/2021
Sold
-300
$34.9000
8/12/2021
Bought
10
$31.9200
8/12/2021
Bought
10
$31.7500
8/13/2021
Bought
50
$26.3000
8/13/2021
Bought
5
$25.1795
8/13/2021
Bought
50
$30.0000
8/16/2021
Bought
100
$24.5900
8/17/2021
Bought
10
$24.0950
8/17/2021
Bought
50
$24.7200
8/18/2021
Bought
50
$23.9000
8/19/2021
Bought
25
$21.4750
8/19/2021
Bought
5
$22.2100
8/19/2021
Bought
10
$22.6900
8/20/2021
Bought
5
$21.5400
8/25/2021
Bought
50
$21.5000
8/30/2021
Bought
10
$21.2000
8/31/2021
Bought
15
$20.0500
8/31/2021
Bought
10
$19.9000
9/1/2021
Bought
5
$20.4494
9/2/2021
Bought
100
$20.4000
9/7/2021
Bought
10
$20.7657
9/10/2021
Bought
70
$20.5000
9/13/2021
Bought
100
$20.6470
9/16/2021
Bought
50
$21.4630
9/20/2021
Bought
50
$20.8198
9/22/2021
Bought
50
$21.7050
| securities |
0-aQEYcBD5gMZwczLhRp | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CLASS ACTION
KELLEY HELLMAN,
on behalf of herself and all others
similarly situated,
COMPLAINT
Plaintiff,
Civil Action No.
v.
_____________________
VW CREDIT, INC.,
Defendant.
NATURE OF CLAIM
1.
This is a proceeding for declaratory relief and monetary damages to redress the
deprivation of rights secured to plaintiff and all other employees of VW Credit, Inc. (“VW
Credit” or “defendant”), similarly situated, by the Fair Labor Standards Act of 1938 (“FLSA”),
as amended, 29 U.S.C. § 201 et seq. and the Illinois Minimum Wage Law, 820 ILCS § 105/1
et seq. (“IMWL”).
JURISDICTION AND VENUE
2.
The jurisdiction of this Court is invoked pursuant to 28 U.S.C. § 1331, 28
U.S.C. § 1343 (3) and (4) conferring original jurisdiction upon this Court of any civil action
to recover damages or to secure equitable relief under any Act of Congress providing for the
protection of civil rights; under 28 U.S.C. § 1337 conferring jurisdiction of any civil action
arising under any Act of Congress regulating interstate commerce; and under 29 U.S.C. §
216(b) conferring jurisdiction of any civil action arising under the FLSA.
3.
This Court’s pendent jurisdiction for claims arising under Illinois law is also
invoked.
4.
Venue is appropriate in the Northern District of Illinois since the allegations
arose in this district and plaintiff resides in this district.
CLASS ACTION ALLEGATIONS
5.
Plaintiff brings her FLSA claim as a collective action under 29 U.S.C. §216(b).
Plaintiff’s consent form to act as a representative plaintiff under the FLSA is attached hereto
as Exhibit A.
6.
Plaintiff brings her IMWL claim as a class action under Fed. R. Civ. P. 23.
7.
The IMWL claim is properly maintainable as a class action under Federal Rule
of Civil Procedure 23.
8.
The class action is maintainable under subsections (1), (2), (3) and (4) of Rule
9.
The class is defined as all current and former employees whose primary job
duty related to approving loans, evaluating whether to issue loans to individual loan
applicants and/or evaluating loan applications under credit guides and approving loans if they
meet standards and who were classified as exempt by defendant.
10.
The class includes those employees whose title has been reclassified as non-
exempt.
11.
The class size is believed to be over 50 employees.
- 2 -
12.
The named plaintiff will adequately represent the interests of the class members
because she is similarly situated to the class members and her claims are typical of, and
concurrent to, the claims of the other class members.
13.
Common questions of law and fact predominate in this action because the
claims of all class members are based on whether VW Credit’s policy of not paying statutory
overtime to employees who perform underwriting functions for hours worked in excess of
forty per week violates Illinois law.
14.
There are no known conflicts of interest between the named plaintiff and the
other class members.
15.
The class counsel, Thomas & Solomon LLP and Werman Salas P.C., are
qualified and able to litigate the class members’ claims.
16.
The class counsel concentrate their practice in employment litigation, and their
attorneys are experienced in class action litigation, including class actions arising under federal
and state wage and hour laws.
17.
The class action is maintainable under subsection (1) of Rule 23(b) because
prosecuting separate actions by individual class members across the jurisdictions in which
defendant does business would create the risk of inconsistent adjudications, resulting in
incompatible standards of conduct for defendant.
18.
The class action is maintainable under subsection (3) of Rule 23(b) because
common questions of law and fact predominate among the class members and because the
class action is superior to other available methods for the fair and efficient adjudication of the
- 3 -
controversy.
19.
The class is also maintainable under Rule 23(c)(4) with respect to particular
PARTIES
A.
Defendant
20.
Defendant VW Credit Inc. is a Delaware corporation.
21.
VW Credit is an enterprise engaged in the sale of goods crossing interstate lines.
22.
VW Credit employed 50 or more people during the relevant time of this lawsuit.
VW Credit is an enterprise engaged in interstate commerce whose annual gross volume of
sales made is not less than $500,000.
23.
Defendant was plaintiff’s “employer” as defined by the FLSA, 29 U.S.C. §
203(d), and IMWL, 820 ILCS 105/3(d).
B.
Plaintiff and Class Members
24.
Named plaintiff Kelley Hellman was an employee of defendant under the
relevant statutes at all relevant times. Specifically, Plaintiff Hellman was employed by
defendant from approximately December 2010 until November 2012 at defendant’s
Libertyville, Illinois location. Plaintiff Hellman customarily worked over 40 hours per week.
25.
The Class Members are those employees of defendant, as defined above, who
were suffered or permitted to work by defendant and not paid their statutorily required rate
of pay for all hours worked.
- 4 -
FACTUAL BACKGROUND
26.
Named plaintiff, and other employees similarly situated to named plaintiff,
customarily worked more than 40 hours in a week and were not compensated at a rate of
one-and-a-half times their hourly rate as required by the FLSA and Illinois law.
27.
VW Credit is in the business of extending credit to customers.
28.
One of the products VW Credit produces for its customers is loans.
29.
Underwriting job functions are integral to VW Credit’s production of these
products.
30.
Defendant’s policy is to not pay statutory overtime to employees who perform
the job functions set forth above.
31.
This policy of not paying statutory overtime to employees who perform
underwriting functions exists in all VW Credit facilities everywhere in the country.
32.
This is a nationwide policy.
33.
VW Credit’s policy of not paying statutory overtime to employees who perform
underwriting job functions is long-standing and, upon information and belief, has been in
effect for at least six years.
34.
This failure to pay overtime as required by the FLSA and Illinois law was willful.
35.
Defendant has failed to maintain adequate and required records on the hours
worked by the plaintiff and class members as required by the FLSA and Illinois law.
36.
Defendant has failed to pay plaintiff’s and class members’ wages as required
by Illinois law.
- 5 -
FIRST CAUSE OF ACTION
FLSA
37.
Plaintiff realleges the above paragraphs as if fully restated herein.
38.
Defendant violated its obligations under the FLSA and is liable to the named
plaintiff and those plaintiffs similarly situated.
SECOND CAUSE OF ACTION
IMWL
39.
Plaintiff realleges the above paragraphs as if fully restated herein.
40.
Defendant violated its obligations under the IMWL and is liable to named
plaintiff and those plaintiffs similarly situated.
WHEREFORE, plaintiff demands judgment against defendant in her favor and that
she be given the following relief:
a) an order preliminarily and permanently restraining defendant from engaging in
the aforementioned pay violations; and
b) an award to plaintiffs of the value of the hours and wages which were not
properly compensated under the FLSA and Illinois law; and
c) liquidated damages under the FLSA equal to the sum of the amount of wages
and overtime which were not properly paid to plaintiffs; and
d) prejudgment interest on the back wages in accordance with 815 ILCS 205/2
and punitive damages pursuant to the formula set forth in 820 ILCS 105/12(a);
and
e) an award to plaintiffs of the actual losses sustained by plaintiffs as a direct result
of the violation; and
f) an award of consequential damages to plaintiffs as a result of the acts and
practices of defendant; and
- 6 -
g) an award of compensatory damages in an amount determined by the jury to
be able to reasonably compensate plaintiffs; and
h) an award of attorneys’ fees, expenses, expert fees and costs incurred by
plaintiffs in vindicating their rights; and
i) an award to plaintiffs of the value of the unpaid back wages due defendant’s
employees; and
j) an award of pre and post judgment interest; and
k) such other and further legal or equitable relief as this Court deems to be just
and appropriate.
Respectfully submitted,
Dated: February 25, 2015
s/ Douglas M. Werman
One of Plaintiff’s Attorneys
W
WERMAN SALAS P.C.
Douglas M. Werman, Esq.
77 W. Washington Street, Suite 1402
Chicago, IL 60602
(312) 419-1008
dwerman@flsalaw.com
THOMAS & SOLOMON LLP
J. Nelson Thomas, Esq. (pro hac vice
admission anticipated)
Michael J. Lingle, Esq. (pro hac vice
admission anticipated)
693 East Avenue
Rochester, New York 14607
Telephone: (585) 272-0540
nthomas@theemploymentattorneys.com
mlingle@theemploymentattorneys.com
- 7 -
| employment & labor |
ubDaCocBD5gMZwczYQIe | UNITED STATES DISTRCT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO.
)
MICHAEL SCRIBNER, on behalf of
)
himself and all others similarly situated, )
)
Plaintiff,
)
)
v.
)
JURY DEMANDED
)
OCEAN STATE JOBBERS, INC.,
)
)
Defendant.
)
COLLECTIVE ACTION COMPLAINT
I.
INTRODUCTION
1.
This is an action brought on behalf of all assistant store managers
employed by Defendant Ocean State Jobbers, Inc. (hereinafter, “Ocean State” or
“Defendant”) for failure to pay overtime wages in violation of the Fair Labor Standards
Act (“FLSA”), 29 U.S.C. §§ 201 et seq. As set forth below, Ocean State has
misclassified Plaintiff and others similarly situated as exempt from the FLSA’s
requirement to pay employees overtime for hours worked in excess of 40 per week. In
fact, the primary duties of Ocean State’s assistant store managers are not management
and the assistant store managers do not qualify for any of the FLSA’s recognized
exemptions to the overtime pay requirement. As a result of this misclassification, Ocean
State has failed to pay Plaintiff or any of its assistant store managers time-and-a-half for
their overtime hours. Moreover, Ocean State assistant store managers, including
Plaintiff, routinely work in excess of 40 hours per week.
1
2.
Plaintiff brings this action on behalf of himself and all other similarly
situated employees of Defendant who have been improperly misclassified and denied
time-and-a-half for hours worked in excess of 40 per week. These employees have
worked at Ocean State’s stores in Connecticut, Massachusetts, New Hampshire, New
York, Rhode Island and Vermont at any time since April **, 2011. Plaintiff seeks
reimbursement of overtime wages, for himself and any individuals who opt-in to this
litigation, as well as liquidated damages, attorneys’ fees and costs, as provided for by
II.
PARTIES
3.
Plaintiff Michael Scribner (“Plaintiff” or “Scribner”) is an adult resident of
Newmarket, New Hampshire. Scribner has worked for Defendant as an assistant store
manager since October 2010, first in Defendant’s Portsmouth, New Hampshire store
and, since July 2012, in Defendant’s Hookset, New Hampshire store. Scribner routinely
works 50 or more hours a week for Defendant but has never been paid time-and-a-half
for hours worked over 40 in a single week.
4.
Plaintiff brings this action on his own behalf and on behalf of all similarly
situated individuals who have worked as assistant store managers for Defendant and
who may choose to opt-in to this action pursuant to 29 U.S.C. § 216(b).
5.
Plaintiff and all other Ocean State assistant store managers are similarly
situated because they are all subject to Defendant’s common plan or practice of
classifying individuals in that position as exempt from overtime and denying them time-
and-a-half pay for hours worked over 40 in a single week as a result.
2
6.
Defendant Ocean State Jobbers, Inc. is a corporation with its principal
office in North Kingstown, Rhode Island. Defendant, on its own and through various
affiliated corporations and limited liability companies, owns and operates numerous
Ocean State Job Lot stores throughout New York and New England.
7.
Defendant creates and enforces company-wide policies and procedures
that govern the operations of each of its stores. Among other topics, these corporate
policies and procedures govern recruitment, hiring, training, compensation,
management, and termination of store personnel, including assistant store managers.
8.
Defendant is an employer for purposes of the FLSA because it retains the
power to hire and fire assistant store managers; supervises and controls the work of
assistant store managers – including the conditions of employment – through its agents;
maintains employment records for assistant store managers; and has the authority to
set rates, schedules and methods of payment for those employees.
III.
JURISDICTION AND VENUE
9.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331
because Plaintiff has brought a claim pursuant to federal law, namely, the Fair Labor
Standards Act, 29 U.S.C. § 201, et seq.
10.
Venue is proper in this district, pursuant to 28 U.S.C. § 1391(b)(1)
because Defendant does business in Massachusetts, with over 46 stores in the
Commonwealth, more than any other state in which Defendant operates.
3
IV.
FACTS
11.
Plaintiff Scribner has been employed as an assistant store manager for
Defendant since October 2010, first in its Portsmouth, New Hampshire store and, since
July 2012, in its Hookset, New Hampshire store.
12.
Ocean State requires that Plaintiff, like all assistant store managers, work
at least 48 hours per week and 54 hours per week during certain times of the year.
Plaintiff has routinely worked more than 40 hours per week during his tenure with
Ocean State.
13.
Defendant classifies all of its assistant store managers, including Plaintiff,
as “exempt” from the overtime requirements of the FLSA, regardless of the size,
location or sales volume of the employee’s store. As a result of this classification,
Ocean State does not pay its assistant store managers time-and-a-half for hours
worked over 40 in a given week.
14.
Despite this classification, Plaintiff and other assistant store managers
spend well over fifty percent of their time performing non-exempt work, including:
unloading shipments of merchandise to the stores, sorting and processing merchandise
and stocking shelves.
15.
Individuals apply for a position as an assistant store manager with Ocean
State by completing a standardized, online job application that is processed in
Defendant’s corporate headquarters.
16.
Once hired, assistant store managers are trained by Defendants using
uniform training materials prepared by Defendant and through corporate trainers who
4
travel throughout the Northeast to ensure compliance with Defendant’s training
requirements.
17.
Assistant store managers share a common job description and all report
directly to a store manager.
18.
All of Ocean State’s assistant store managers are subject to common
corporate policies and procedures created by Defendant.
19.
The job duties and responsibilities of Ocean State’s assistant store
managers do not require the employees to exercise discretion or independent judgment
on matters of any significance.
20.
Assistant store managers do not have the authority to hire or fire other
store employees.
21.
Assistant store managers are closely supervised by Defendant’s more
senior employees and agents.
22.
Assistant store managers are paid on a salary basis, at a flat weekly rate,
regardless of how many hours they work per week. Assistant store managers’
compensation is comparable to Defendant’s non-exempt store associates when the
overtime they spend on the job is taken into account.
23.
The primary value of assistant store managers to Defendant is not any
managerial tasks they perform but the non-exempt, primarily manual labor they perform
for the company.
24.
Defendant’s failure to pay Plaintiff and other assistant store managers
time-and-a-half for their overtime hours, despite their eligibility for overtime pay, is a
willful violation of the FLSA.
5
COUNT I
VIOLATION OF THE FAIR LABOR STANDARDS ACT
Defendant’s knowing and willful failure to pay Plaintiff and other similarly situated
individuals who may choose to opt-in to this case the overtime compensation to which
they are entitled violates the federal Fair Labor Standards Act, 29 U.S.C. § 201, et seq.
DEMAND FOR RELIEF
Plaintiff requests a trial by jury on these claims.
WHEREFORE, Plaintiff requests that this Court enter the following relief:
a. Permission to notify similarly situated individuals of their right to opt in to this
action, pursuant to 29 U.S.C. § 216(b);
b. An award of unpaid overtime compensation;
c. An award of liquidated damages;
d. Attorneys’ fees and costs;
e. Pre-judgment and post-judgment interest; and
f. Any other relief to which Plaintiff or other individuals who opt-in to this case may
be entitled.
6
Respectfully submitted,
MICHAEL SCRIBNER, Individually and
on behalf of others similarly situated
By: /s/ Shannon Liss-Riordan
Shannon Liss-Riordan, BBO # 640716
Sara Smolik, BBO # 661341
Lichten & Liss-Riordan, P.C.
100 Cambridge Street, 20th Floor
Boston, MA 02114
(617) 994.5800
(617) 994.5801
sliss@llrlaw.com
ssmolik@llrlaw.com
Richard E. Hayber, pro hac vice
anticipated
Hayber Law Firm, LLC
221 Main Street, Suite 502
Hartford, CT 06106
Fed No.: ct11629
(860) 522-8888
(860) 218-9555 (facsimile)
rhayber@hayberlawfirm.com
Jordan M. Lewis
Kelley/Uustal, PLC
Courthouse Law Plaza
700 SE 3rd Ave, Third Floor
Ft. Lauderdale, FL 33316
100 Washington Avenue South
(954) 522-6601
(954) 522-6608 (facsimile)
jml@kulaw.com
Attorneys for Plaintiffs
April 2, 2014
7
| employment & labor |
oA-sFocBD5gMZwczvzFu | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
SHEHAN WIJESINHA, individually and
)
on behalf of all others similarly-situated,
)
)
Plaintiffs,
)
)
vs.
)
)
DIRECTV, LLC, a foreign limited
)
liability company,
)
)
Defendant
)
)
CLASS ACTION COMPLAINT
1.
Shehan Wijesinha (“Plaintiff”) brings this class action for damages, injunctive
relief, and any other available legal or equitable remedies, resulting from the illegal actions of
DirecTV, LLC (“Defendant”) in negligently, and/or willfully, contacting Plaintiff on Plaintiff’s
cellular telephone without his prior express consent in violation of the Telephone Consumer
Protection Act, 47 U.S.C. § 227 et seq., (“TCPA”). Plaintiff alleges as follows upon personal
knowledge as to himself and his own acts and experiences, and, as to all other matters, upon
information and belief, including investigation conducted by his attorneys.
JURISDICTION AND VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1331 as Plaintiff’s complaint alleges
violations of a federal statute. Jurisdiction is also proper under 28 U.S.C. § 1332(d)(2) because
Plaintiff alleges a national class, which will result in at least one class member belonging to a
different state than that of Defendant. Plaintiff seeks up to $1,500.00 (one-thousand-five-hundred
dollars) in damages for each call in violation of the TCPA, which, when aggregated among a
proposed class numbering in the tens of thousands, or more, exceeds the $5,000,000.00 (five-
million dollars) threshold for federal court jurisdiction under the Class Action Fairness Act
(“CAFA”). Therefore, both the elements of diversity jurisdiction and CAFA jurisdiction are
present.
3.
Venue is proper in the United States District Court for the Southern District of
Florida pursuant to 28 U.S.C. § 1391(b) and (c) because Defendant is deemed to reside in any
judicial district in which it is subject to the court’s personal jurisdiction, and because Defendant
provides and markets its services within this district thereby establishing sufficient contacts to
subject it to personal jurisdiction. Moreover, and on information and belief, Defendant has made
the same calls complained of by Plaintiff within this judicial district, such that some of
Defendant’s acts in making such calls have occurred within this district.
PARTIES
4.
Plaintiff is a natural person and a citizen and resident of the State of Florida.
5.
DirecTV, LLC is a limited liability company organized and existing under the
laws of the State of California.
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
6.
The TCPA was passed into law in 1991. The TCPA regulates and restricts the use
of automatic telephone equipment.
7.
The TCPA protects consumers from unwanted calls and text messages that are
made with autodialers and with prerecorded messages.
8.
Specifically, 47 U.S.C. § 227(b) provides:
(1) Prohibitions
It shall be unlawful for any person within the United States, or any
person outside the United States if the recipient is within the
United States—
(A) to make any call (other than a call made for emergency
purposes or made with the prior express consent of the called
party) using any automatic telephone dialing system or an artificial
or prerecorded voice—
*
*
*
(iii) to any telephone number assigned to a paging service, cellular
telephone service, specialized mobile radio service, or other radio
common carrier service, or any service for which the called party is
charged for the call;
9.
Individuals, including Plaintiff and members of the Class, who receive calls in
violation of the TCPA suffer concrete injuries analogous to common law torts such as invasion
of privacy, intrusion on seclusion, trespass to chattels and conversion. See Palm Beach Golf
Center v. John G. Sarris, D.D.S., P.A., 781 F.3d 1245, 1250–51 (11th Cir. 2015) (owner of
facsimile machine has Article III standing to sue where he loses use of that machine); Soppet v.
Enhanced Recovery Co., LLC, 679 F.3d 637, 638 (7th Cir. 2012) (“An automated call to a
landline phone can be an annoyance; an automated call to a cell phone adds expense to
annoyance”); Bagg v. Ushealth Group, Inc., Case No. 6:15-cv-1666-Orl-37GJK, 2016 WL
1588666, at *3 (M.D. Fla. Apr. 20, 2016)(“‘Courts have consistently held that the TCPA protects
a species of privacy interest in the sense of seclusion,’ and recognize that the sending of an
unsolicited fax constitutes an invasion of privacy.”)(quoting Park Univ. Enters., Inc. v. Am. Cas.
Co. of Reading, PA, 442 F.3d 1239, 1249 (10th Cir. 2006)); Jamison v. Esurance Insurance
Services, Inc., Case No. 3:15-CV-2484-B, 2016 WL 320646, at *3 (N.D. Tex. Jan. 27,
2016)(“From this, the Court concludes that an individual suffers an injury in fact from
unauthorized telephone contact when it causes an incurrence of charges, a reduction in usable
minutes, or occupation of the telephone line, making it unavailable for other use.”); Johnson v.
Navient Solutions, Inc., Case No. 1:15-cv-00716-LJM-MJD, 2015 WL 8784150, at *2 (S.D. Ind.
Dec. 15, 2015)(“Based on the allegations in the Complaint and the TCPA’s protection of
Johnson’s privacy rights, the Court concludes that Johnson has stated a claim for actual harm,
upon which he may rely to provide standing.”)(citing Schumacher v. Credit Protection Ass’n,
Cause No. 4:13–cv–00164–SEB–DML, 2015 WL 5786139, at *5 (S.D. In. Sept. 30,
2015)(“Here, [plaintiff’s] TCPA-created right to privacy was invaded by repeated automated
calls from CPA.”); Weisberg v. Kensington Professional and Associates, LLC, Case No. 15-cv-
08532, 2016 WL 1948785, at *3 (C.D. Cal. May 3, 2016)(“The invasion of privacy and the
allegation that the illegal calls cost Plaintiff and the class money — financial harm — are not
speculative future injuries or injuries based on the violation of rights provided in a statute.
Thus…Plaintiff does allege actual monetary damages.”); Lathrop v. Uber Technologies, Inc.,
Case No. 14-cv-05678-JST, 2016 WL 97511, at *4 (N.D. Cal. Jan. 8, 2016)(“Plaintiffs allege
they and members of the class ‘suffered damages in the form of text message, data, and other
charges to their cellular telephone plans.’ Id. ¶ 116. Based on the allegations in the Second
Amended Complaint, the Court concludes that Plaintiffs have sufficiently stated an injury in
fact.”); Fini v. Dish Network, L.L.C., 955 F.Supp.2d 1288, 1296–97 (M.D. Fla. 2013) (plaintiff
has standing to sue where she lost use of cellular service for which she previously had paid).
10.
The Federal Communications Commission (“FCC”) is empowered to issue rules
and regulations implementing the TCPA. According to the FCC’s findings, calls in violation of
the TCPA are prohibited because, as Congress found, automated or prerecorded telephone calls
are a greater nuisance and invasion of privacy than live solicitation calls, and such calls can be
costly and inconvenient. The FCC also recognized that wireless customers are charged for
incoming calls whether they pay in advance or after the minutes are used. Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278, Report
and Order, 18 FCC Rcd 14014 (2003).
11.
The FCC has issued rulings and clarified that in order to obtain an individual’s
consent, a clear, unambiguous, and conspicuous written disclosure must be provided to the
individual. See 2012 FCC Order, 27 FCC Rcd. at 1839 ("[R]equiring prior written consent will
better protect consumer privacy because such consent requires conspicuous action by the
consumer — providing permission in writing — to authorize autodialed or prerecorded
telemarketing calls...."). Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110, 1123-1124
(11th Cir. 2014).
12.
With respect to telemarketing, 47 C.F.R. § 64.1200(c) provides:
No person or entity shall initiate any telephone solicitation to:
(1)
Any residential telephone subscriber before the hour of 8
a.m. or after 9 p.m. (local time at the called party's location), or
(2)
A residential telephone subscriber who has registered his or
her telephone number on the national do-not-call registry of
persons who do not wish to receive telephone solicitations that is
maintained by the Federal Government. Such do-not-call
registrations must be honored indefinitely, or until the registration
is cancelled by the consumer or the telephone number is removed
by the database administrator.
13.
The term telephone solicitation means the initiation of a telephone call or message
for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or
services, which is transmitted to any person, excluding calls made with prior express written
consent, or made by or on behalf of a tax-exempt nonprofit organization. See 47 C.F.R. §
64.1200(f)(14); In re Joint Petition Filed by Dish Network, LLC, 28 FCC Rcd. 6574, 6574
(2013).
FACTUAL ALLEGATIONS PERTAINING TO PLAINTIFF SHEHAN WIJESINHA
14.
At all times relevant, Plaintiff was a citizen of the State of Florida. Plaintiff is,
and at all times mentioned herein was, a “person” as defined by 47 U.S.C. § 153 (39).
15.
In or around October 2013 Plaintiff entered into a two (2) year contract with
Defendant for television service.
16.
In October 2015, Plaintiff ended his contractual relationship with Defendant and
paid all amounts owed to Defendant.
17.
Over the course of the following months, Plaintiff received multiple automated
calls from Defendant to his cellular telephone with telephone number ending in 7557 (the “7557
Number”).
18.
In all calls answered by Plaintiff, individuals who claimed to work for Defendant
attempted to convince Plaintiff to return as Defendant’s customer.
19.
Defendant’s calls to Plaintiff featured a few seconds of silent “dead air” before
Plaintiff heard a human voice, which demonstrates that Defendant placed these calls using a
predictive dialer, which is an Automatic Telephone Dialing System within the scope of the
TCPA.
20.
Defendant’s calls to Plaintiff included at least two calls from telephone number
210-332-4065. Plaintiff’s telephone records indicate he received calls from this number on
various dates including December 29, 2015 and April 4, 2016.
21.
Calls placed to 210-332-4065 are answered by a recording which begins with
“Hello, you have reached DirecTV.”
22.
Plaintiff has never provided Defendant with consent to receive automated
solicitation calls.
23.
Plaintiff is the subscriber and sole user of the 7557 Number, and is financially
responsible for phone service to the 7557 Number.
24.
The 7557 Number has been registered with the National Do-Not-Call Registry1
since September 13, 2005.
25.
Defendant’s calls were a nuisance which briefly deprived Plaintiff of the use of
his phone, invaded his personal privacy, and wasted his time. Additionally, Plaintiff incurred a
reduction in his cellular battery life as a result of Defendant’s calls.
CLASS ACTION ALLEGATIONS
26.
Plaintiff brings this case as a class action pursuant to Fed. R. Civ. P. 23, on behalf
of himself and all others similarly situated.
27.
Plaintiff represents, and is a member of the following classes:
The ATDS Class consisting of: (1) all persons residing within the United States
(2) who received a telephone call from Defendant (3) to their cellular telephone
(4) within the four years prior to the filing of the Complaint in this action, (5) for
the purpose of selling or attempting to sell Defendant’s goods and/or services (6)
using an automatic telephone dialing system (7) who did not provide prior express
consent for such call(s).
The Former Customer Sub-Class consisting of: (1) all persons residing within
the United States (2) who received a telephone call from Defendant (3) to their
cellular telephone (4) within the four years prior to the filing of the Complaint in
this action, (5) for the purpose of convincing the recipient to return as a customer
of Defendant (6) using an automatic telephone dialing system (7) who did not
provide prior express consent for such call(s).
The DNC Class consisting of: (1) all persons within the United States who, (2)
within the four years prior to the filing of this Complaint, (3) received more than
one telephone call (4) to said person’s cellular telephone number (5) within any
12-month period, (6) by or on behalf of the same entity, (7) without their prior
express consent, (8) while listed on the national Do Not Call Registry.
Numerosity
28.
Upon information and belief, based off of Defendant’s identity as a national
television service provider as well as widespread internet complaints about Defendant’s
1 The National Do-Not-Call Registry allows individuals to register their phone numbers on a national “do-not-call
list," and prohibits most commercial telemarketers from calling the numbers on that list. Mainstream Marketing
Services, Inc. v. F.T.C., 358 F.3d 1228, (10th Cir. 2004).
telemarketing calls, the members of the class are believed to number in the thousands or millions
such that joinder of all members is impracticable.
29.
The exact number and identities of the Class members are unknown at this time
and can only be ascertained through discovery. Identification of the Class members is a matter
capable of ministerial determination from Defendants’ call records.
Common Questions of Law and Fact
30.
There are numerous questions of law and fact common to the Classes which
predominate over any questions affecting only individual members of the Class. Among the
questions of law and fact common to the Class are:
a. Whether Defendants made non-emergency calls to Plaintiff’s and Class members’
cellular telephones using an autodialer and/or prerecorded message;
b. Whether Defendants can meet its burden of showing that they obtained prior
express consent to make such calls;
c. Whether Defendants’ conduct was knowing and willful;
d. Whether Defendants are liable for damages, and the amount of such damages; and
e. Whether Defendants should be enjoined from such conduct in the future.
31.
The common questions in this case are capable of having common answers.
Defendant routinely places automated calls to telephone numbers assigned to cellular telephone
thus, Plaintiff and the Class members will have identical claims capable of being efficiently
adjudicated and administered in this case.
Typicality
32.
Plaintiff’s claims are typical of the claims of the Class members, as they are all
based on the same factual and legal theories.
Protecting the Interests of the Class Members
33.
Plaintiff is a representative who will fully and adequately assert and protect the
interests of the Classes, and has retained counsel who is experienced in prosecuting class actions.
Accordingly, Plaintiff is an adequate representative and will fairly and adequately protect the
interests of the Classes.
Proceeding Via Class Action is Superior and Advisable
34.
A class action is superior to all other available methods for the fair and efficient
adjudication of this lawsuit, because individual litigation of the claims of all members of the
Classes are economically unfeasible and procedurally impracticable. While the aggregate
damages sustained by the Classes are in the millions of dollars, the individual damages incurred
by each member of the Class resulting from Defendant’s wrongful conduct are too small to
warrant the expense of individual lawsuits. The likelihood of individual Class members
prosecuting their own separate claims is remote, and, even if every member of the Class could
afford individual litigation, the court system would be unduly burdened by individual litigation
of such cases.
35.
The prosecution of separate actions by members of the Class would create a risk
of establishing inconsistent rulings and/or incompatible standards of conduct for Defendants.
For example, one court might enjoin Defendants from performing the challenged acts, whereas
another may not. Additionally, individual actions may be dispositive of the interests of the
Class, although certain class members are not parties to such actions.
COUNT I
KNOWING AND/OR WILLFUL VIOLATIONS OF THE TCPA, 47 U.S.C. 227(b).
36.
Plaintiff re-alleges and incorporates the preceding paragraphs as if fully set forth
herein.
37.
Defendant violated the TCPA by making telephone calls to Plaintiff, the ATDS
Class members and the Former Customer Sub-Class members on their cellular phones without
first obtaining their prior express consent and using equipment which constitutes and automatic
telephone dialing system for the express purpose of marketing Defendant’s goods and/or
services.
38.
Defendant’s calls caused Plaintiff, the ATDS Class members, and the Former
Customer Sub-Class members concrete injuries including, but not limited to, invasion of their
personal privacy; nuisance and disruption in their daily lives; reduction in cellular telephone
battery life; and loss of use of their cellular telephones.
39.
As a result of the aforementioned violations of the TCPA, Plaintiff, the ATDS
Class, and the Former Customer Sub-Class are entitled to an award of $500.00 in statutory
damages for each call in negligent violation of the TCPA, or up to $1,500 in statutory damages
for each call in willful violation of the TCPA, pursuant to 47 U.S.C. § 227(b)(3)(B).
40.
Additionally, Plaintiff and the Class are entitled to and seek injunctive relief
prohibiting such future conduct.
WHEREFORE, Plaintiff and members of the Class demand a jury trial on all
claims so triable, and judgment against Defendant for the following:
a.
Injunctive relief prohibiting violations of the TCPA by Defendants in the future;
b.
Statutory damages of $500.00 for each and every call made in negligent violation
of the TCPA or $1,500 for each and every call made in willful violation of the
TCPA, pursuant to 47 U.S.C. § (b)(3)(B); and
c.
Such other relief as this Court deems just and proper.
COUNT II
VIOLATIONS OF THE TCPA, 47 U.S.C. § 227(c)
41.
Plaintiff re-alleges and incorporates paragraphs 1-35 as if fully set forth herein.
42.
Plaintiff and other members of the DNC Class received more than one telephone
call within a 12-month period, by or on behalf of Defendant, for the express purpose of
marketing Defendant’s goods and/or services without their written prior express consent.
43.
Defendant’s calls caused Plaintiff and the DNC Class members concrete injuries
including, but not limited to, invasion of their personal privacy; nuisance and disruption in their
daily lives; charges and/or reduction in cellular telephone battery life; and loss of use of their
cellular telephones.
44.
As a result of the aforementioned violations of the TCPA, Plaintiff and the DNC
Class are entitled to an award of up to $1,500.00 for each call in violation of the TCPA pursuant
to 47 U.S.C. § 227(c)(5).
45.
Additionally, Plaintiff and the DNC Class are entitled to and seek injunctive relief
prohibiting such future conduct.
WHEREFORE, Plaintiff and members of the Class demand a jury trial on all claims so
triable, and judgment against Defendant for the following:
a.
Injunctive relief prohibiting violations of the TCPA by Defendants in the future;
b.
Statutory damages of $1500.00 for each and every call made in violation of the
TCPA pursuant to 47 U.S.C. § (b)(3)(B); and
c.
Such other relief as this Court deems just and proper.
Dated: June 8, 2016
/s/ Scott D. Owens
Scott D. Owens, Esq.
Scott D. Owens, P.A.
3800 S. Ocean Drive, Suite 235
Hollywood, FL 33019
Telephone: (954) 589-0588
Fax: (954) 337-0666
scott@scottdowens.com
Attorney for Plaintiff and the putative
classes
| privacy |
YaIdCYcBD5gMZwcz4Qx0 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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DONALD NIXON, on behalf of himself and
all others similarly situated,
No.: ___________________
Plaintiffs,
CLASS ACTION COMPLAINT
v.
JURY TRIAL DEMANDED
ACORNS ADVISERS, LLC,
Defendant.
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INTRODUCTION
1.
Plaintiff DONALD NIXON (hereinafter “Plaintiff”), on behalf of himself and
others similarly situated, asserts the following claims against Defendant ACORNS
ADVISERS, LLC, for its failure to design, construct, maintain, and operate its
website to be fully accessible to and independently usable by Plaintiff and other
blind or visually-impaired people.
2.
Plaintiff is a visually-impaired and legally blind person who suffers from what
constitutes a “qualified disability” under the Americans with Disabilities Act of
1990 (“ADA”) and thus requires screen-reading software to read website content
using his computer. Plaintiff uses the terms “blind” or “visually-impaired” to refer
to all people with visual impairments who meet the legal definition of blindness in
that they have a visual acuity with correction of less than or equal to 20 x 200. Some
blind people who meet this definition have limited vision while others are
completely impaired and have no vision.
3.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
ADA.
4.
Because Defendant’s website, www.acorns.com (the “Website” or “Defendant’s
website”), is not equally accessible to blind and visually-impaired consumers, it
violates the ADA. Defendant’s website contains various and multiple access
barriers that make it difficult if not impossible for blind and visually-impaired
consumers to attempt to complete a transaction.
5.
Plaintiff seeks a permanent injunction to initiate a change in Defendant’s corporate
policies, practices, and procedures so that Defendant’s website will become and
remain accessible to blind and visually-impaired consumers.
JURISDICTION AND VENUE
6.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
7.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(a)(2) because a substantial
part of the acts and/or omissions giving rise to Plaintiff’s claims occurred in this
District. Defendant have also been and is continuing to commit the alleged acts
and/or omissions in this District that caused injury and violated Plaintiff’s rights
and the rights of other disabled individuals.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers. A substantial part of the
acts and omissions giving rise to Plaintiff’s claims occurred in this District: on
several separate occasions, Plaintiff has been denied the full use and enjoyment of
the facilities, goods and services offered to the general public, on Defendant’s
Website in Queens County. These access barriers that Plaintiff encountered have
caused a denial of Plaintiff’s full and equal access multiple times in the past, and
now deter Plaintiff on a regular basis from accessing the Defendant’s Website in
the future.
10.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
PARTIES
11.
Plaintiff DONALD NIXON, at all relevant times, is and was a resident of Queens,
New York.
12.
Plaintiff is a blind, visually-impaired handicapped person and a member of a
protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and
the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq., and
the NYCHRL.
13.
Defendant is and was at all relevant times a Delaware Limited Liability Company
doing business in New York.
14.
Defendant owns, manages, controls and maintains the Website, and its facilities,
goods, and services offered thereupon, is a public accommodation within the
definition of Title III of the ADA, 42 U.S.C. § 12181(7).
15.
A Website is a place of accommodation defined as “places of exhibition and
entertainment,” places of recreation,” and “service establishments.” 28 CFR §§
36.201 (a); 42 U.S.C. § 12181 (7).
NATURE OF ACTION
16.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-
impaired persons alike.
17.
Blind and visually impaired users of Windows operating system computers and
devices have several screen-reading software programs available to them. Some of
these programs are available for purchase and other programs are available without
the user having to purchase the program separately. Job Access With Speech
(“JAWS”), and NonVisual Desktop Access (“NVDA”) are among the most
popular.
18.
In today’s world, blind and visually-impaired people have the ability to access
websites using keyboards in conjunction with screen access software that vocalizes
the visual information found on a computer screen or displays the content on a
refreshable Braille display. This technology is known as screen-reading software.
Screen-reading software is currently the only method a blind or visually-impaired
person may independently access the internet. Unless websites are designed to be
read by screen-reading software, blind and visually-impaired persons are unable to
fully access websites, and the information, products, goods and contained thereon.
19.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same
content available to sighted users.
20.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the
Web Content Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-
established guidelines for making websites accessible to blind and visually-
impaired people. These guidelines are universally followed by most large business
entities and government agencies to ensure their websites are accessible.
21.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired
persons include, but are not limited to, the following:
a.
Alternative text (“alt-text”) or text equivalent for every non-text
element. Alt-text is an invisible code embedded beneath a graphical image on a website.
Web accessibility requires that alt-text be coded with each picture so that screen-reading
software can speak the alt-text where a sighted user sees pictures, which includes captcha
prompts. Alt-text does not change the visual presentation, but instead a text box shows
when the mouse moves over the picture;
b.
Videos that do not maintain audio descriptions;
c.
Title frames with text are not provided for identification and
navigation;
d.
Equivalent text is not provided when using scripts;
e.
Forms with the same information and functionality as for sighted
persons are not provided;
f.
Information about the meaning and structure of content is not
conveyed by more than the visual presentation of content;
g.
Text cannot be resized without assistive technology up to 200%
without losing content or functionality;
h.
If the content enforces a time limit, the user is not able to extend,
adjust or disable it;
i.
Web pages do not have titles that describe the topic or purpose;
j.
The purpose of each link cannot be determined from the link text
alone or from the link text and its programmatically determined link
context;
k.
One or more keyboard operable user interface lacks a mode of
operation where the keyboard focus indicator is discernible;
l.
The default human language of each web page cannot be
programmatically determined;
m.
When a component receives focus, it may initiate a change in
context;
n.
Changing the setting of a user interface component may
automatically cause a change of context where the user has not been advised
before using the component;
o.
Labels or instructions are not provided when content requires user
input, which include captcha prompts that require the user to verify that he
or she is not a robot;
p.
In content which is implemented by using markup languages,
elements do not have complete start and end tags, elements are not nested
according to their specifications, elements may contain duplicate attributes,
and/or any IDs are not unique;
q.
Inaccessible Portable Document Format (PDFs); and,
r.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be
programmatically set; and/or notification of changes to these items is not
available to user agents, including assistive technology.
STATEMENT OF FACTS
22.
Defendant is an investment platform. Defendant owns, operates, manages and
controls the website, www.acorns.com (its “Website”). The Website offers features
which should allow all consumers to access the services and which Defendant
ensures the delivery of such services throughout the United States, including New
York State.
23.
Defendant’s Website is integrated with its retail business operations, serving as its
gateway. The Website offers services to the general public. The Website offers
features which ought to allow users to learn about Defendant’s services, browse for
items, information, access navigation bar descriptions, prices, savings and/or
coupons and sale discount items, and avail consumers of the ability to peruse the
numerous items offered for sale. The features offered by www.acorns.com include
learning about the services, about the company, read reviews, and make
investments and transactions.
24.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff
and other blind or visually-impaired users access to its Website, thereby denying
the facilities and services that are offered and integrated with its investment
operations. Due to its failure and refusal to remove access barriers to its Website,
Plaintiff and visually-impaired persons have been and are still being denied equal
access to Defendant’s retail operations and the numerous facilities, goods, services,
and benefits offered to the public through its Website.
25.
Defendant’s Website is an investment platform without any physical location.
Thus, Defendant’s Website is the main point of sale for its business operation.
26.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff has visited the Website
on separate occasions using a screen-reader.
27.
During Plaintiff’s visits to the Website, www.acorns.com, the last occurring in
March of 2020, Plaintiff encountered multiple access barriers which effectively
denied him the full enjoyment of the goods and services of the Website. Plaintiff
visited Defendant’s Website with an intent to invest for his retirement. Despite his
efforts, however, Plaintiff was denied an experience similar to that of a sighted
individual due to the website’s lack of a range of features and accommodations,
which effectively barred Plaintiff from being able to make his desired investment.
28.
Many features on the Website lacks alt. text, which is the invisible code embedded
beneath a graphical image. As a result, Plaintiff was unable to differentiate what
options were on the screen due to the failure of the Website to adequately describe
its content.
29.
Many features on the Website also fail to add a label element or title attribute for
each field. This is a problem for the visually impaired because the screen reader
fails to communicate the purpose of the page element. It also leads to the user not
being able to understand what he or she is expected to insert into the subject field.
This was an issue on Defendant’s Website particularly in the select style section.
As a result, Plaintiff and similarly situated visually impaired users of Defendant’s
Website are unable to enjoy the privileges and benefits of the Website equally to
sighted users.
30.
Plaintiff has made multiple attempts to complete a transaction on www.acorns.com,
most recently in March of 2020, but was unable to do so independently because of
the many access barriers on Defendant’s website. These access barriers have caused
www.acorns.com to be inaccessible to, and not independently usable by, blind and
visually-impaired persons.
31.
The Website also contained a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, Plaintiff was redirected to an error page. However, the screen-reader failed
to communicate that the link was broken. As a result, Plaintiff could not get back
to his original search.
32.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do. The access barriers
Plaintiff encountered have caused a denial of Plaintiff’s full and equal access in the
past, and now deter Plaintiff on a regular basis from accessing the Website.
33.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, and services Defendant offers to the public on its Website.
The access barriers Plaintiff encountered have caused a denial of Plaintiff’s full and
equal access in the past, and now deter Plaintiff on a regular basis from visiting the
Website, presently and in the future.
34.
If the Website was equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
35.
Through his attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
36.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually-impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
37.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
38.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
39.
Because Defendant’s Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website
to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring Defendant to retain a qualified consultant
acceptable to Plaintiff (“Agreed Upon Consultant”) to assist Defendant to comply
with WCAG 2.1 guidelines for Defendant’s Website. Plaintiff seeks that this
permanent injunction requires Defendant to cooperate with the Agreed Upon
Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
on accessibility compliance under the WCAG 2.1 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.1 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.1
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
Websites, with contact information for users to report accessibility-related
problems.
40.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
41.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
42.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining its Website and has generated significant revenue from
the Website. These amounts are far greater than the associated cost of making its
Website equally accessible to visually impaired customers.
CLASS ACTION ALLEGATIONS
43.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
44.
Plaintiff, on behalf of himself and all others similarly situated, seeks certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
45.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
46.
Plaintiff’s claims are typical of the Class. The Class, similarly, to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
47.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
48.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
49.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
50.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
51.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
52.
Defendant’s Website is a public accommodation within the definition of Title III of
the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
53.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
54.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
55.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
56.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
57.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
58.
Plaintiff, on behalf of himself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
59.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
60.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
61.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
62.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
63.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
64.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
65.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
66.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
67.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
68.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
69.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
70.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
71.
Plaintiff, on behalf of himself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
72.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operations
and controls, fails to comply with applicable laws including, but not limited to, Title
III of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec.
Law § 296, et seq., and N.Y.C. Admin. Code § 8-107, et seq. prohibiting
discrimination against the blind.
73.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and his attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Forest Hills, New York
March 13, 2020
SHALOM LAW, PLLC.
By: /s/Jonathan Shalom
Jonathan Shalom, Esq.
105-13 Metropolitan Avenue
Forest Hills, New York 11375
Tel: (718) 971-9474
Email: Jshalom@JonathanShalomLaw.com
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
-MWSDYcBD5gMZwczGuaz |
CASE NO. 1:15-cv-1364
JURY TRIAL DEMANDED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
SHAMECA S. ROBERTSON , on Behalf of
Herself and All Others Similarly Situated,
Plaintiff,
vs.
ALLIED SOLUTIONS, LLC
Defendants.
CLASS ACTION COMPLAINT
Now comes the plaintiff, Shameca S. Robertson (“Robertson”) on behalf of herself and
all other similarly situated individuals and for her Class Action Complaint alleges the following
NATURE OF THE ACTION
1.
This class action seeks remedies under the Fair Credit Reporting Act, 15 U.S.C.
§ 1681, et seq. (“FCRA”) on behalf of consumers who were the subject of consumer reports
procured by Defendant, Allied Solutions, LLC (“Allied”) as a precondition of employment with
Allied during the period prescribed by 15 U.S.C. § 1681p (“the Class Period”) preceding the
filing of the Complaint.
PARTIES
2.
Robertson is and has been a resident of Marion County, Indiana, and is a
consumer as defined by 15 U.S.C. § 1681a.
3.
Allied Solutions, LLC is an Indiana limited liability company headquartered in
Carmel, Indiana.
4.
Further, Allied is a “person” using “consumer reports” to make “employment
decisions” and take “adverse action” against “consumers”, as those terms are defined by 15
U.S.C. § 1681a.
JURISDICTION AND VENUE
5.
The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and 15
U.S.C. § 1681p.
6.
Venue is proper in the Southern District of Indiana because Allied is subject to
personal jurisdiction in this District, maintains a place of business in this District, and makes
employment decisions regarding individuals residing in this District. 28 U.S.C. § 1391(c).
ROBERTSON’S EMPLOYMENT EXPERIENCE
7.
Robertson applied for a client support supervisor position with Allied and was
subsequently offered employment on or about May 14, 2015.
8.
Allied provided Robertson with an employment packet to complete and return
prior to her June 1, 2015 start date.
9.
Allied then engaged a consumer reporting agency to provide a consumer report,
which included public record information purportedly regarding Robertson.
10.
The information provided to Allied by the reporting agency included certain
non-conviction information pertaining to Robertson.
11.
Consumer reporting agencies traffic in the reputations of job applicants by
purchasing public records data from various sources and compiling the information into a
separate database used to generate consumer reports for a fee upon request.
12.
Consumer reporting agencies often make this information available to
employers instantly online, and rarely provide contemporaneous notice to job applicants that
adverse public record information has been shared with a prospective employer.
13.
On or about May 28, 2015, an Allied human resource officer advised Robertson
that her employment with Allied was terminated because of information contained in her
“criminal background check” report.
14.
At no time prior to withdrawing her employment opportunity, did Allied
provide Robertson with a copy of her background report or a written summary of her rights
under the FCRA.
15.
Because Allied denied Robertson this information, she was unable to address
the negative information contained in her consumer report before Allied took adverse action
against her.
ALLEGATIONS AS TO THE COMMON QUESTIONS
16.
Allied announces on its website that it has offices in 17 states and places
employees in more than 30 states.
17.
Upon information and belief, Allied has purchased consumer reports from
consumer reporting agencies for the last five (5) years, which are used as a basis to take adverse
action against job applicants.
18.
Allied purchases these consumer reports after hiring applicants and determining
that applicants are otherwise qualified for employment.
19.
Uniformly, Allied does not provide pre-adverse action notice to job applicants,
including a copy of the applicants’ consumer report and a statement of the applicants’ rights as
required by 15 U.S.C. § 1681b(b)(3) before making a decision regarding their employment.
20.
Allied’s violations of the FCRA have been willful, wanton and reckless in that
Allied knew, or reasonably should have known, that it was failing to comply with the
requirements of the FCRA.
21.
The specific requirements of 15 U.S.C. § 1681b(b)(3) have been the subject of
numerous federal district court, circuit court and Supreme Court decisions. Moreover, these
requirements have been the subject of numerous FTC staff opinions authored over the last 15
22.
More importantly, upon information and belief, Allied’s obligations under the
FCRA, including obligations under 15 U.S.C. § 1681b(b)(3) are made available by the
consumer reporting agency it uses to procure consumer reports.
23.
Moreover, Allied had actual knowledge that the FCRA required a reasonable
time period for applicants to dispute or explain information contained in a consumer report
before making a final hiring decision.
24.
Regulatory guidance provided by the FTC has explained the FCRA’s
requirement that employers like Allied must wait a “reasonable time” after providing notice
under 15 U.S.C. § 1681b(b)(3) to provide final adverse action notice to applicants.
25.
Such FTC staff opinions originate in 1997 and were publically available to
26.
Title 15 U.S.C. §1681n(a) permits a consumer to recover statutory and punitive
damages, along with attorney fees and costs for willful violations of the FCRA.
CLASS ACTION ALLEGATIONS
27.
Pursuant to FED. R. CIV. P. 23, Robertson brings this action on behalf of the
Class initially defined below:
All natural persons residing in the United States who applied for
employment with Allied during the Class Period and against whom
Allied made an adverse hiring decision based in whole or in part
on information contained in the consumer report without first
providing the applicant with a copy of the report and a written
summary of rights under the FCRA.
28.
Upon information and belief, the putative Class exceeds 1,000 members.
Information concerning the exact size of the putative class is within the exclusive possession of
29.
The Class members are so numerous that joinder of all members is impracticable.
30.
Robertson’s claims are typical of the claims of the other Class members as all
Class members were similarly affected by Allied’s unlawful conduct in violation of the FCRA.
31.
Robertson will fairly and adequately protect the interest of the Class members
and has retained counsel competent and experienced in complex class-action litigation.
Robertson is a member of the Class and does not have any interests antagonistic to or in conflict
with the members of the Class. Further, Robertson’s claims are the same as those of the Class,
which all arise from the same operative facts and are based upon the same legal theories.
32.
Common questions of law and fact exist as to all Class members and
predominate over any questions solely affecting individual Class members, including:
a. Whether Allied provided a copy of the consumer report to
the applicant or employee before making a decision to
decline, delay, withdraw employment or discharge the
applicant or employee based on the results thereof as
required by 15 U.S.C. § 1681b(b)(3)(A)(i); and
b. Whether Allied provided a written summary of the applicant
or employee’s rights under the FCRA before making a
decision to decline, delay, withdraw employment or
discharge the applicant or employee as required by 15 U.S.C
§ 1681b(b)(3)(A)(ii).
32.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy because the membership of the Class is so numerous and
involves claims that, taken individually, may not justify the costs and effort of bringing suit.
33.
Further, the prosecution of several actions by individual members of the Class
would create a risk of varying adjudications with respect to members of the Class, as well as
create inconsistent standards of conduct for those opposing the Class. Additionally, individual
actions by members of the Class may be dispositive of the interests of other members not parties
to the adjudication of the claim, which would impair or impede the ability of those individuals to
protect their interests.
COUNT ONE — CLASS CLAIM
FAILURE TO PROVIDE PRE-ADVERSE ACTION NOTICE
34.
Robertson re-alleges and incorporates by reference all preceding allegations of
law and fact.
35.
Allied willfully violated 15 U.S.C. § 1681b(b)(3)(A)(i) by failing to provide a
copy of the consumer report used to make an employment decision to Robertson and the Class
members before taking adverse action that was based in whole or in part on that report.
36.
Allied willfully violated 15 U.S.C. § 1681b(b)(3)(A)(ii) by failing to provide a
copy of the summary of rights required by this section to Robertson and the Class members
before taking adverse action that was based in whole or in part on a consumer report.
37.
Robertson and the Class members seek statutory damages for these violations
pursuant to 15 U.S.C. § 1681n(a)(1)(A).
38.
Robertson and the Class members also seek punitive damages for these violations
pursuant to 15 U.S.C. § 1681n(a)(2).
39.
Further Robertson and the Class members seek attorney fees and costs pursuant
to 15 U.S.C. § 1681n(a)(3).
WHEREFORE, Robertson and the putative class respectfully pray for the following
A.
An order certifying the proposed class herein pursuant to FED. R. CIV.
P. 23 and appointing the undersigned counsel to represent same;
B.
The creation of a common fund available to provide notice of and
remedy Allied’s unlawful conduct;
C.
Statutory and punitive damages for all class claims; and
D.
Attorneys’ fees, expenses and costs.
JURY DEMAND
Plaintiff Shameca S. Robertson and the putative class demand a trial by a jury as to all
issues presented herein.
Respectfully submitted,
/s/ Paul B. Poracky
KORANSKY, BOUWER & PORACKY, P.C.
Paul B. Poracky (#10899-45)
425 Joliet Street, Suite 425
Dyer, Indiana 46311
Telephone:
(219) 865-6700
Email:
PPoracky@KBLegal.net
O’TOOLE, McLAUGHLIN, DOOLEY &
PECORA CO., LPA
Matthew A. Dooley (OH 0081482)*
Anthony R. Pecora
(OH 0069660)*
5455 Detroit Road
Sheffield Village, Ohio 44054
Tel:
(440) 930-4001
Facsimile:
(440) 930-7208
Email:
apecora@omdplaw.com
mdooley@omdplaw.com
Counsel for Plaintiff and the Putative Class
*Pro Hac Admission to be filed
G:\28\28142-1\Complaint Robertson v Allied Solutions LLC (8 20 15).docx
| consumer fraud |
9kS-AokBRpLueGJZKLst | GRANOVSKY & SUNDARESH PLLC
BENJAMIN R. DELSON (Ohio Bar # 97257)
ALEXANDER GRANOVSKY (Ohio Bar # 92900)
600 Superior Ave. East, Suite 1300
Cleveland, Ohio 44114
Tel. (216) 600-7994 / Fax (646) 417-5500
delson@g-s-law.com / ag@g-s-law.com
Attorneys for PLAINTIFF GEORGE CARMICHAEL
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
CASE NO.:
21-cv-01961
GEORGE CARMICHAEL, on behalf of
himself and all other persons similarly
situated,
Plaintiff,
COLLECTIVE AND CLASS
v.
ACTION COMPLAINT
with JURY DEMAND
RAM JACK OHIO LLC and RICHARD
FOLLETT,
Defendants.
Plaintiff GEORGE CARMICHAEL ("Plaintiff" or "Carmichael"), on behalf of
himself and all other persons similarly situated, upon personal knowledge as to
himself and upon information and belief as to other matters, by his attorneys,
GRANOVSKY & SUNDARESH PLLC, brings this action as an opt-in collective action
for violations of the Fair Labor Standards Act, 29 U.S.C. § 201, et. seq., and
supporting regulations ("FLSA"), and as an opt-out Rule 23 class action for violations
of the Ohio Minimum Fair Wage Standards Act, O.R.C. §§4111.01-4111.99
("OMFWSA").
NATURE OF ACTION
1.
From approximately February 2021 to August 2021, Plaintiff George
Carmichael was employed by Defendant Ram Jack Ohio LLC ("Ram Jack"), a
company providing foundation inspection and repair services in northeastern Ohio,
and by Defendant Richard Follett, the owner and operator of Ram Jack (and, together
with Ram Jack, "Defendants").
2.
Carmichael worked long hours for Defendants, doing a little bit of everything:
driving Defendants' vehicles, overseeing Defendants' worksites and employees,
reading blueprints, operating Defendants' equipment, and generally getting the job
done for Defendants. He spent many hours every day travelling to and from
worksites to provide services to Defendants' far-flung customers.
3.
But, in violation of both the Fair Labor Standards Act, 29 U.S.C. § 201, et. seq.,
and supporting regulations ("FLSA"), and Ohio Minimum Fair Wage Standards Act,
O.R.C. §§4111.01-4111.99 ("OMFWSA"), and as detailed below, Defendants failed to
pay Carmichael any wages at all for certain hours that he worked, and failed to pay
him overtime wages for hours that he worked past forty in a given week.
4.
Upon information and belief, in failing to pay Carmichael, Defendants were
merely following company policy: as detailed below, Defendants followed across-the-
board pay policies that resulted in none of their hourly employees receiving all of their
proper wages under FLSA or OMFWSA.
5.
Carmichael, on behalf of himself and all other similarly situated employees
and former employees of Defendants, now brings this lawsuit seeking recovery
against Defendants for Defendants' violations of the FLSA, and alleges that he and
all others who elect to opt into this action pursuant to the collective action provisions
of 29 U.S.C. § 216(b) are entitled to recover from Defendants: (1) unpaid wages; (2)
unpaid overtime wages; (3) liquidated damages; and (4) attorneys’ fees and costs.
6.
Carmichael also brings this lawsuit as a class action pursuant to Rule 23 of the
Federal Rules of Civil Procedure on behalf of himself and all other similarly situated
employees and former employees of Defendants, seeking recovery against Defendants
for Defendants' violation of the OMFWSA, and alleges that he and all other members
of the class defined below are entitled to recover from Defendants: (1) unpaid wages;
(2) unpaid overtime wages; (3) liquidated damages; and (4) attorneys’ fees and costs.
JURISDICTION AND VENUE
7.
This Court has subject matter jurisdiction over Plaintiff's FLSA claims
pursuant to 28 U.S.C. §§ 1331.
8.
This Court has subject matter jurisdiction over Plaintiff's OMFWSA claims
pursuant to 28 U.S.C. § 1367.
9.
Venue is proper in this district pursuant to 28 U.S.C. § 1391 because a
substantial part of the acts or omissions giving rise to the claims herein occurred in
this District.
THE PARTIES
Plaintiff George Carmichael
10.
Plaintiff GEORGE CARMICHAEL was and is, at all relevant times, an adult
individual residing in the State of Ohio.
11.
Plaintiff brings this action as an opt-in collective action pursuant to FLSA, 29
U.S.C. § 216(b), on behalf of himself and all other individuals employed by Defendants
in Ohio to perform foundation inspection or repair services within three years of the
date this Complaint was filed (the "Collective Action Plaintiffs").
12.
Plaintiff also brings this action as an opt-out class action pursuant to Rule 23
of the Federal Rules of Civil Procedure, on behalf of himself and and all other
individuals employed by Defendants in Ohio to perform foundation inspection or
repair services within three years of the date this Complaint was filed (the "Ohio
Rule 23 Class").
13.
Plaintiff, the Collective Action Plaintiffs, and the Ohio Rule 23 Class are
current or former employees of Defendants within the meaning of the FLSA and the
OMFWSA.
14.
At all relevant times, Plaintiff and similarly situated employees worked in
interstate commerce, so as to fall within the protections of the FLSA.
15.
A written consent form for George Carmichael to serve as a party plaintiff in
this action is attached as Exhibit A to this Complaint.
Defendants Ram Jack Ohio LLC and Richard Follett
16.
Defendant Ram Jack Ohio LLC ("Ram Jack") is an Ohio corporation, with a
principal place of business located at 11709 Old State Rd., Chardon, OH 44024.
17.
According to the Ram Jack website, www.ramjack.com, "Ram Jack Ohio
provides expert foundation inspection and repair services to commercial and
residential customers in Cuyahoga, Lake, Geauga, Summit and surrounding
counties."
18.
Defendant Richard "Skip" Follett is an adult and a resident of Ohio, who lives
at 11709 Old State Rd., Chardon, OH 44024. Mr. Follett runs Ram Jack's operation
from the same property where Mr. Follett lives.
19.
Mr. Follett is the chief executive, owner and operator of Ram Jack's Chardon,
Ohio location.
20.
Mr. Follett exercises near complete control over the working conditions of the
employees at Ram Jack's Chardon, Ohio location. Mr. Follett determines who is
hired, who is fired, what hours each employee will be credited (and not credited) with
working, and what they will be paid for their work. Mr. Follett has near complete
control over all policies and practices, including all scheduling and payroll policies.
21.
Upon information and belief, at all times relevant to this Complaint,
Defendants' annual revenue has been not less than $500,000.00.
22.
At all times relevant to this Complaint, Defendants were and are an
“enterprise” as defined by the FLSA, and an “enterprise engaged in commerce” under
the FLSA, and employers engaged in interstate commerce and/or the production of
goods for commerce within the meaning of the FLSA.
23.
At all relevant times, Defendant Ram Jack and Defendant Follett were the
employers of Plaintiff, the Collective Action Plaintiffs and the members of the Ohio
Rule 23 Class within the meaning of the FLSA and OMFWSA.
24.
Defendants caused the violations set forth in this Complaint.
STATEMENT OF FACTS
25.
In about February 2021, Defendants hired Plaintiff George Carmichael.
26.
Carmichael's responsibilities included performing foundation inspection or
repair services for clients of Ram Jack.
27.
Carmichael's wage was $20 per hour.
28.
The man in charge of Ram Jack's Chardon Ohio location is Richard "Skip"
Follett. Mr. Follett runs Ram Jack's operation from the same property in Chardon,
Ohio where Mr. Follett lives.
29.
On a typical day, Carmichael arrived at Ram Jack's Chardon location at about
6:45 or 7:00 am.
30.
Shortly after arrival, Carmichael would clock in using an electronic punch
system operated by Defendants.
31.
Shortly after 7:00am there would be a morning meeting, during which
Defendants' employees, including Carmichael, would receive instructions about what
jobs would be performed that day, who would perform work on which job site, what
equipment and materials would be needed for each job site, and what repairs or
maintenance were needed on equipment or trucks.
32.
These morning meetings lasted approximately half an hour, sometimes longer.
33.
At the conclusion of the morning meeting, the workers would begin loading
equipment and materials onto trucks. This work typically lasted at least another half
hour, sometimes longer
34.
Typically, at about 8 in the morning, the morning meeting would be concluded,
the trucks would be loaded, and the Defendants' workers would be departing for their
job sites in the company's vehicles.
35.
It was common for job sites to be located an hour's drive or further from Ram
Jack's Chardon location.
36.
Defendants made it mandatory for their workers: (1) to congregate at Ram
Jack's Chardon location first thing in the morning, (2) to attend the morning meeting
to learn about their assignments, (3) to load the trucks and perform other preparatory
work to get ready for their assignment, and (4) to use Defendants' vehicles to travel
to job sites with their co-workers.
37.
Once at a job site, Carmichael would do a little bit of everything: oversee other
of Defendants' employees, read blueprints, operate Defendants' equipment, and
generally get the job done for Defendants' customers.
38.
Skip Follett instructed Carmichael and other of Defendants' employees to
make note, including on their time cards, of what time they left a job site for the day.
39.
When he was done for the day at a job site, Carmichael was required to return
to Ram Jack's Chardon location in Defendants' vehicle.
40.
Upon arrival at Ram Jack's Chardon location, Carmichael would perform a
further 15 or 20 minutes of work, unloading the truck and cleaning the truck and
equipment.
41.
At the end of his work day in Chardon, Carmichael would clock out using the
electronic punch system operated by Defendants.
42.
Depending on the nature of the job he had been assigned to that day,
Carmichael might punch out as early as about 3pm, or as late as 7pm or later.
43.
Carmichael's average day was about 10 hours long, but occasionally it was
much longer.
44.
For example, in about June of 2021, Carmichael was assigned to a job in Port
Clinton, a long drive from Chardon. On the two days that he worked on that Port
Clinton job, he worked from about 5am until about 9pm.
45.
Carmichael typically worked five or six days a week.
46.
Carmichael typically worked fifty hours a week, but occasionally he worked
much more.
47.
For example, there were weeks when Carmichael worked in excess of eighty
hours.
48.
Carmichael was not paid for all of the hours he worked. For example, in a
week where he worked in excess of forty hours, he might be paid for less than forty
hours.
49.
Carmichael was not paid overtime for all the overtime hours he worked. For
example, in a week where he worked in excess of forty hours, he might be paid for
more than forty hours, but at a "straight time" rate of $20/hr. for every one of those
hours (as opposed to being paid time-and-a-half, or $30/hr., for every hour after forty).
50.
Defendants did not maintain consistent nor accurate records of their
employees' hour or pay.
51.
Except for those times that an employee repeatedly insisted on receiving a pay
stub, Defendants would not provide employees with any written accounting of their
hours and pay.
52.
Indeed, rather than preserve them as required by law, Defendants regularly
discarded employees' time cards. Carmichael personally saw employee time cards
being disposed of in Defendants' trash cans.
53.
Skip Follett gave changing and inconsistent explanations for how his
employees were paid:
a. Mr. Follett stated that employees would be paid for time driving Ram
Jack vehicles, but would not be paid for time riding in Ram Jack
vehicles.
b. Upon information and belief, Mr. Follett stated to some employees that
they would be paid for time riding in Ram Jack vehicles on the way to
job sites, but would not be paid for time riding back from job sites.
c. Mr. Follett stated that employee hours would be tracked in two separate
tallies, with one tally for hours at the Chardon location and at actual job
sites, and a second tally for hours driving or riding Ram Jack vehicles.
Upon information and belief, the purpose of tallying these hours
separately was to reduce below forty the total number of hours in any
given tally, and thus justify the decision not to pay overtime.
d. Mr. Follett stated that employees would not be paid overtime, but would
be paid straight time for all hours worked in a week.
e. Mr. Follett stated that employees were not permitted to take lunch
breaks. Mr. Follett stated that employees would be docked one hour of
pay for taking a lunch break, even if the lunch break lasted less than
one hour.
f. Mr. Follett stated that employees' pay would be docked to compensate
for alleged damages to Ram Jack equipment.
54.
Upon information and belief, Mr. Follett also engaged in other practices
designed to not pay his employees.
55.
Upon information and belief, for the course of several pay periods in early 2021,
Defendants ceased paying some employees entirely. Mr. Follett told employees he
was "banking hours," and that Defendants would pay them for their hours worked at
some later point in time. Upon information and belief, Defendants did not pay those
employees for those hours.
56.
Carmichael repeatedly complained to Skip Follett about improper pay.
57.
Despite Carmichael's complaints, Defendants did not correct its pay practices.
58.
Carmichael's last day working for Defendants was August 13, 2021.
59.
At the time that he ceased working for Defendants, Defendants remained in
possession of certain tools and equipment owned by Carmichael, including a MAC air
ratchet (worth about $300), a green drill bit case with bits (worth about $60), and a
heavy chain and lock (worth about $80). As of the date of this Complaint, those items
have not been returned to Carmichael.
COLLECTIVE ACTION ALLEGATIONS
60.
Plaintiff incorporates by reference the facts and allegations of the preceding
paragraphs.
61.
All of Defendants' laborers were subject to the same illegal pay practices that
Carmichael was subject to.
62.
Carmichael therefore seeks to prosecute his FLSA claims as a collective action
on behalf of all persons similarly situated, that is: all persons who are, or were
formerly, employed by Defendants in Ohio, from three years before the filing of the
Complaint in this case to the entry of judgment in this case (the “Collective Action
Period”), to perform foundation inspection or repair services (the “Collective Action
Plaintiffs”).
63.
At all relevant times, Carmichael and the Collective Action Plaintiffs have
been subjected to wage and hour policies implemented by Defendants that
culminated in a willful failure and refusal to pay Carmichael and the Collective
Action Plaintiffs the minimum wage and/or proper overtime wages.
64.
Specifically, during the Collective Action Period Carmichael and the Collective
Action Plaintiffs were employed by Defendants, and regularly worked in excess of
forty hours per workweek for Defendants. Defendants willfully violated the rights of
Carmichael and the Collective Action Plaintiffs under the FLSA by not paying
Carmichael and the Collective Action Plaintiffs (i) the federal minimum wage for all
hours worked for Defendants, and (ii) overtime wages equal to one-and-one-half their
normal hourly wage for all hours worked for Defendants in excess of forty hours in a
workweek.
65.
The Collective Action Plaintiffs are readily ascertainable. For purposes of
notice and other purposes related to this action, their names and addresses are
readily available from the Defendant. Notice can be provided to the Collective Action
Plaintiffs via first class mail to the last address known to Defendant, and via text to
the last known cell phone number known to Defendant.
66.
The collective action is so numerous that joinder of all Plaintiffs is
impracticable. Although the precise number of such persons is unknown, and the
facts on which the calculation of that number are presently under the sole control of
the Defendant, upon information and belief there are more than twenty Plaintiffs of
the collective action who worked for Defendants during the Collective Action Period
as non-exempt hourly employees, most of whom would not be likely to file individual
suits because they lack adequate financial resources, access to attorneys or
knowledge of their claims.
67.
Carmichael will fairly and adequately protect the interests of the Collective
Action Plaintiffs: Carmichael has retained counsel that is experienced and competent
in the fields of employment law and collective action litigation. Carmichael has no
interests that are contrary to or in conflict with the Collective Action Plaintiffs.
68.
The Collective Action Plaintiffs are similarly situated to Carmichael in that,
upon information and belief, Defendants had a policy and practice of willfully
disregarding and purposefully evading recordkeeping requirements of the FLSA and
OMFWSA by failing to maintain accurate and complete records of hours and pay.
69.
The Collective Action Plaintiffs are also similarly situated to Carmichael in
that, upon information and belief, Defendants had a policy and practice of not paying
employees at all for certain hours of work, including hours spent in transit, and hours
docked for lunch.
70.
The Collective Action Plaintiffs are also similarly situated to Carmichael in
that, upon information and belief, Defendants had a policy and practice of not paying
employees overtime premium wages.
71.
Upon information and belief, these practices by Defendants were done willfully
to disguise the actual wages and overtime wages due Defendants' employees.
72.
A collective action is superior to other available methods for the fair and
efficient adjudication of this controversy, since joinder of all Collective Action
Plaintiffs is impracticable. Furthermore, inasmuch as the damages suffered by
individual Collective Action Plaintiffs might be relatively small, the expense and
burden of individual litigation make it virtually impossible for the Plaintiffs of the
collective action to individually seek redress for the wrongs done to them. There will
be no difficulty in the management of this action as a collective action.
73.
Questions of law and fact common to the members of the collective action
predominate over questions that may affect only individual Plaintiffs because
Defendants acted on grounds generally applicable to all Plaintiffs. Among the
common questions of law and fact common to all Plaintiffs are:
a.
Whether Defendants "employed" Carmichael and the Collective Action
Plaintiffs within the meaning of the FLSA;
b.
Whether Defendants failed to keep true and accurate records of hours
worked by, and wages paid to, Carmichael and the Collective Action Plaintiffs;
c.
What proof of hours worked is sufficient, where the employer fails in its
duty to maintain records of such hours;
d.
Under what circumstances an employer need and need not pay an
employee for time spent in transit, including under the Portal-to-Portal Act;
e.
Whether Defendants failed to pay Carmichael and the Collective Action
Plaintiffs for all hours of work;
f.
Whether Defendants failed to pay Carmichael and the Collective Action
Plaintiffs overtime premium wages for hours worked in excess of forty hours a
week;
g.
Whether Defendants' violations of the FLSA are willful as that term is
used in the context of those statutes;
h.
Whether Defendants are liable for all damages claimed hereunder,
including but not limited to compensatory, liquidated and statutory damages,
interests, costs and disbursements and attorneys’ fees.
74.
Carmichael knows of no difficulty that will be encountered in the management
of this litigation that would preclude its maintenance as a collective action.
75.
Carmichael has consented in writing to be a part of this action pursuant to 29
U.S.C. §216(b). Carmichael's signed consent form is attached as Exhibit A.
OHIO CLASS ACTION ALLEGATIONS
76.
Plaintiff incorporates by reference the facts and allegations of the preceding
paragraphs.
77.
All of Defendants' laborers were subject to the same illegal pay practices that
Carmichael was subject to.
78.
Carmichael therefore seeks to prosecute his OMFWSA claims both
individually and as a class action pursuant to Rule 23 (a) and (b) of the Federal Rules
of Civil Procedure on behalf of all similarly situated individuals in the State of Ohio,
that is: all persons who are, or were formerly, employed by Defendants in Ohio, from
three years before the filing of the Complaint in this case to the entry of judgment in
this case (the “Class Period”), to perform foundation inspection or repair services (the
“Ohio Rule 23 Class”).
79.
The members of the proposed Ohio Rule 23 Class are so numerous that joinder
of all members is impractical and inefficient such that the requirements of Rule
23(a)(1) are met. Although the precise number of such persons is unknown, and the
facts on which the calculation of that number are presently under the sole control of
the Defendant, upon information and belief there are more than twenty member of
the Ohio Rule 23 Class.
80.
There are common questions of law and fact affecting the member of the Ohio
Rule 23 Class, including:
a. Whether Defendants"employed" Carmichael and the members of the
Ohio Rule 23 Class within the meaning of the OMFWSA;
b. Whether Defendants failed to keep true and accurate records of hours
worked by, and wages paid to, Carmichael and the members of the Ohio
Rule 23 Class;
c. What proof of hours worked is sufficient, where the employer fails in its
duty to maintain records of such hours;
d. Under what circumstances an employer need and need not pay an
employee for time spent in transit under the OMFWSA;
e. Whether Defendants failed to pay Carmichael and the members of the
Ohio Rule 23 Class for all hours of work;
f. Whether Defendants failed to pay Carmichael and the members of the
Ohio Rule 23 Class overtime premium wages for hours worked in excess
of forty hours a week;
g. Whether Defendants' violations of the OMFWSA are willful as that term
is used in the context of those statutes;
h. Whether Defendants are liable for all damages claimed hereunder,
including but not limited to compensatory, liquidated and statutory
damages, interests, costs and disbursements and attorneys’ fees.
The requirements of Rule 23(a)(2) are met.
81.
Carmichael's claims are typical of the claims of the Rule 23 Class as a whole.
Carmichael and the Ohio Rule 23 Class have suffered harm due to Defendants' failure
to pay them the Ohio minimum wage for all hours worked, and due to Defendants'
failure to pay them overtime compensation equal to one-and-one-half their normal
hourly wage for all hours worked in excess of forty hours in a workweek. The
requirements of Rule 23(a)(3) are met.
82.
Carmichael will fairly and adequately protect the interests of the Collective
Action Plaintiffs: Carmichael has retained counsel that is experienced and competent
in the fields of employment law and collective action litigation. Carmichael has no
interests that are contrary to or in conflict with the Collective Action Plaintiffs. The
requirements of Rule 23(a)(4) are met.
83.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy, since joinder of all Collective Action Plaintiffs is
impracticable. Furthermore, inasmuch as the damages suffered by individual
Collective Action Plaintiffs might be relatively small, the expense and burden of
individual litigation make it virtually impossible for the Plaintiffs of the collective
action to individually seek redress for the wrongs done to them. In addition, class
certification is superior because it will obviate the need for unduly duplicative
litigation that might result in inconsistent judgments about Defendants' practices.
Certification under Rule 23(b)(3) is appropriate.
84.
There will be no difficulty in the management of this action as a collective
action.
85.
Plaintiff intends to send notice to all members of the proposed Ohio Rule 23
Class to the extent required by Rule 23.
COUNT ONE
On Behalf of Plaintiff and the Collective Action Plaintiffs Under the FLSA
86.
Plaintiff George Carmichael, on behalf of himself and the Collective Action
Plaintiffs, repeats, realleges, and incorporates by reference the foregoing allegations
as if set forth fully and again herein.
87.
Carmichael and the Collective Action Plaintiffs were not paid the federal
minimum wage for all hours worked for Defendants.
88.
Carmichael and the Collective Action Plaintiffs were not paid one-and-one-half
times their hourly wage for all hours worked for Defendants in excess of forty hours
in a workweek.
89.
As a result of Defendants' willful failure to pay Plaintiff George Carmichael
and each of the Collective Action Plaintiffs wages, including overtime wages,
Defendants violated the FLSA, 29 U.S.C. §201 et. seq..
90.
The foregoing conduct, as alleged, constitutes a willful violation of the FLSA
within the meaning of 29 U.S.C. §255(a).
91.
Due to Defendants' FLSA violations, Plaintiff and the Collective Action
Plaintiffs are entitled to recover from Defendants unpaid compensation and unpaid
overtime compensation, in an amount to be determined at trial, and an additional
equal amount as liquidated damages, plus interest, reasonable attorneys’ fees, and
costs and disbursements of this action, pursuant to 29 U.S.C. § 216(b).
COUNT TWO
On Behalf of Plaintiff and the Ohio Rule 23 Class Under the OMFWSA
92.
Plaintiff George Carmichael, on behalf of himself and the Ohio Rule 23 Class,
repeats, realleges, and incorporates by reference the foregoing allegations as if set
forth fully and again herein.
93.
Carmichael and the Ohio Rule 23 Class were not paid the Ohio minimum wage
for all hours worked for Defendants.
94.
Carmichael and the Ohio Rule 23 Class were not paid one-and-one-half times
their hourly wage for all hours worked for Defendants in excess of forty hours in a
workweek.
95.
As a result of Defendants' failure to pay Plaintiff George Carmichael and the
members of the Ohio Rule 23 Class wages, including overtime wages, Defendants
violated the OMFWSA, O.R.C. §§4111.01 et. seq..
96.
The foregoing conduct, as alleged, constitutes a willful violation of the law,
within the meaning of the OMFWSA, O.R.C. §4111.14(J).
97.
Due to Defendants' OMFWSA violations, Plaintiff and the members of the Ohio
Rule 23 Class are entitled to recover from Defendants unpaid compensation and
unpaid overtime compensation, in an amount to be determined at trial, plus
liquidated damages as permitted by OMFWSA, plus interest, reasonable attorneys’
fees, and costs and disbursements of this action, pursuant to OMFWSA.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff George Carmichael, on behalf of himself and the Collective
Action Plaintiffs, respectfully requests that this Court grant the following relief:
(a)
Designation of this action as a collective action on behalf of the
Collective Action Plaintiffs and prompt issuance of notice pursuant to 29
U.S.C. § 216(b) to all similarly situated Plaintiffs, apprising them of the
pendency of this action, permitting them to assert timely FLSA claims in this
action by filing individual Consents to Sue pursuant to 29 U.S.C. §216(b), and
appointing Plaintiff George Carmichael and his counsel to represent the
Collective Action Plaintiffs;
(b)
Award Plaintiff and the Collective Action Plaintiffs compensatory
damages for unpaid wages, including unpaid wages at the statutory overtime
rate, due to Plaintiff and the Collective Action Plaintiffs under the FLSA;
(c)
Award Plaintiff and the Collective Action Plaintiffs liquidated damages
as a result of Defendants' willful failure to pay wages and overtime wages
under the FLSA;
(d)
Award Plaintiff and the Collective Action Plaintiffs interest (including
pre- and post-judgment interest);
(e)
Award Plaintiff and the Collective Action Plaintiffs their costs of this
action, including reasonable attorneys’ fees; and
(f)
Such other and further relief as to this Court appears necessary and
proper.
AND WHEREFORE, Plaintiff George Carmichael, on behalf of himself and on
behalf of the Ohio Rule 23 Class, respectfully requests that this Court grant the
following relief:
(a)
Certify this action as a class action, pursuant to Rule 23 of the Federal
Rules of Civil Procedure, on behalf of the Ohio Rule 23 Class;
(b)
Appoint Plaintiff George Carmichael as Class Representative and
appoint his counsel as Class Counsel;
(c)
Award Plaintiff and the members of the Ohio Rule 23 Class
compensatory damages for unpaid wages, including unpaid wages at the
statutory overtime rate, due to Plaintiff and the Collective Action Plaintiffs
under the OMFWSA;
(d)
Award Plaintiff and the members of the Ohio Rule 23 Class liquidated
damages as a result of Defendants' willful failure to pay wages under the
OMFWSA;
(e)
Award Plaintiff and the members of the Ohio Rule 23 Class interest
(including pre- and post-judgment interest);
(f)
Award Plaintiff and the members of the Ohio Rule 23 Class their costs
of this action, including reasonable attorneys’ fees; and
(g)
Such other and further relief as to this Court appears necessary and
proper.
AND WHEREFORE, Plaintiff George Carmichael, on behalf of himself, respectfully
requests that this Court order the return of his tools and equipment in Defendants'
possession.
DEMAND FOR JURY TRIAL
Plaintiff, by and through his undersigned counsel, hereby demands a jury
trial on all causes of actions and claims for which he has a right to a jury trial.
Dated:
October 12, 2021
Respectfully Submitted,
GRANOVSKY & SUNDARESH PLLC
By:
BENJAMIN R. DELSON (Ohio Bar # 97257)
ALEXANDER GRANOVSKY (Ohio Bar # 92900)
GRANOVSKY & SUNDARESH PLLC
600 Superior Ave. East, Suite 1300
Cleveland, Ohio 44114
Tel. (216) 600-7994 / Fax (646) 417-5500
delson@g-s-law.com / ag@g-s-law.com
Attorneys for Plaintiff George Carmichael
EXHIBIT A
GEORGE CARMICHAEL, on behalf of himself and
all other persons similarly situated,
Plaintiff,
CONSENT TO BE
PARTY PLAINTIFF
v.
RAM JACK OHIO LLC and RICHARD FOLLETT,
Defendants.
GEORGE CARMICHAEL states:
1. I am a plaintiff in the above-captioned action. My address is 28 Leslie Street,
Apt. 4, Geneva OH 44041.
2. Pursuant to 29 USC §216(b), this action asserts claims under the Fair Labor
Standards Act (“FLSA”), 29 USC §201 et seq., on behalf of myself and all
other employees similarly situated. Pursuant to 29 USC §§216(b) and 256, I
consent to being a party plaintiff in this action and to the filing and
prosecution of the above referenced FLSA claims on my behalf and on behalf
of all other employees similarly situated.
����������
Dated:
____________, 2021
__________________________
GEORGE CARMICHAEL
| employment & labor |
8cH3DIcBD5gMZwczOQek | SOUTHERN DISTRICT OF NEW YORK
CHRISTOPHER SCHIRO, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
Case No.
CLASS ACTION COMPLAINT FOR
VIOLATION OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
vs.
CEMEX, S.A.B. de C.V., FERNANDO A.
GONZÁLEZ OLIVIERI and JOSÉ
ANTONIO GONZALEZ FLORES,
Defendants
Plaintiff Christopher Schiro (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against
Defendants (defined below), alleges the following based upon personal knowledge as to Plaintiff
and his own acts, and information and belief as to all other matters, based upon, inter alia, the
investigation conducted by and through Plaintiff’s attorneys, which included, among other
things, a review of the Defendants’ public documents, conference calls and announcements made
by Defendants, United States Securities and Exchange Commission (“SEC”) filings, wire and
press releases published by and regarding Cemex, S.A.B. de C.V. (“Cemex” or the “Company”),
analysts’ reports and advisories about the Company, and information readily obtainable on the
Internet. Plaintiff believes that substantial evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf of a class consisting of all
persons other than Defendants who purchased or otherwise acquired securities of Cemex
between August 14, 2014 and March 13, 2018, both dates inclusive (the “Class Period”).
Plaintiff seeks to recover compensable damages caused by Defendants’ violations of the federal
Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder.
2.
Cemex S.A.B. de C.V. is a global building materials company that produces,
distributes, and markets cement, ready-mix concrete, aggregates, and related building materials.
Cemex operates throughout the Americas, Europe, Africa, the Middle East, and Asia.
3.
Founded in 1906, the Company is headquartered in San Pedro Garza, Mexico, and
its American depositary receipt (“ADR”) trades on the New York Stock Exchange (“NYSE”)
under the ticker symbol “CX.”
4.
Throughout the Class Period, Defendants made materially false and misleading
statements regarding the Company’s business, operational and compliance policies. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (i) Cemex
executives had engaged in an unlawful bribery scheme in connection with the Company’s
business dealings in Colombia; (ii) discovery of the foregoing conduct would likely subject the
Company to heightened regulatory scrutiny and potential criminal sanctions; (iii) the Company
lacked adequate internal controls over financial reporting; and (iv) as a result, Cemex’s public
statements were materially false and misleading at all relevant times.
5.
On September 23, 2016, post-market, Cemex disclosed the Company’s dismissal
of two senior executives after an internal probe found that payments worth $20 million relating
to a land deal in Colombia had breached company protocols.
6.
On this news, Cemex’s American depositary receipt price fell $0.17, or 2.28%, to
close at $7.26 on September 26, 2016.
7.
On December 9, 2016, Cemex disclosed receipt of a subpoena from the SEC
seeking information about irregular payments made at the Company’s Colombia unit.
2
investigating the Company over payments made by the Company related to a cement plant it is
building in Colombia to determine whether any violations of federal bribery laws occurred.
9.
On this news, Cemex’s ADR price fell $0.12, or 1.64%, to close at $7.21 on
March 14, 2018.
10.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
11.
The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the
Exchange Act (15 U.S.C. §§78j(b) and §78t(a)) and Rule 10b-5 promulgated thereunder by the
SEC (17 C.F.R. §240.10b-5).
12.
This Court has jurisdiction over the subject matter of this action under 28 U.S.C.
§1331 and §27 of the Exchange Act.
13.
Venue is proper in this Judicial District pursuant to §27 of the Exchange Act (15
U.S.C. §78aa) and 28 U.S.C. §1391(b) as Cemex’s ADRs trade on the NYSE, located within this
Judicial District.
14.
In connection with the acts, conduct and other wrongs alleged in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
3
15.
Plaintiff, as set forth in the accompanying Certification, purchased Cemex
securities at artificially inflated prices during the Class Period and was damaged upon the
revelation of the alleged corrective disclosure.
16.
Defendant Cemex is headquartered in Mexico, with the Company’s principal
executive offices located at Avenida Ricardo Margain Zozaya, 325, Colonia Valle del
Campestre, San Pedro Garza Garcia, NL 66265 Mexico. Cemex’s securities trade on the NYSE
under the ticker symbol “CX.”
17.
Defendant Fernando A. González Olivieri (“Olivieri”) has served at all relevant
times as the Company’s Chief Executive Officer (“CEO”) and Director.
18.
Defendant José Antonio González Flores (“Flores”) has served at all relevant
times as the Company’s Chief Financial Officer (“CFO”) and Executive Vice President of
Finance and Administration.
19.
The Defendants referenced above in ¶¶ 17-18 are sometimes referred to- herein as
the “Individual Defendants.”
20.
The Individual Defendants possessed the power and authority to control the
contents of Cemex’s SEC filings, press releases, and other market communications. The
Individual Defendants were provided with copies of the Company’s SEC filings and press
releases alleged herein to be misleading prior to or shortly after their issuance and had the ability
and opportunity to prevent their issuance or to cause them to be corrected. Because of their
positions with the Company, and their access to material information available to them but not to
the public, the Individual Defendants knew that the adverse facts specified herein had not been
disclosed to and were being concealed from the public, and that the positive representations
4
the false statements and omissions pleaded herein.
SUBSTANTIVE ALLEGATIONS
Background
21.
Cemex S.A.B. de C.V. is a global building materials company that produces,
distributes, and markets cement, ready-mix concrete, aggregates, and related building materials.
Cemex operates throughout the Americas, Europe, Africa, the Middle East, and Asia.
Materially False and Misleading Statements Issued During the Class Period
22.
The Class Period begins on August 14, 2014, when Cemex issued a press release
entitled “Cemex Announces New CLH Cement Plant in Colombia,” announcing the construction
of a cement plant in Colombia. The press release stated in relevant part:
MONTERREY, MEXICO. AUGUST 14, 2014. – CEMEX, S.A.B. de
C.V. (“CEMEX”) (NYSE: CX) announced today that its subsidiary,
CEMEX Latam Holdings, S.A. (“CLH”) (BVC: CLH), will begin the
construction of a cement plant in Colombia. The total investment is
expected to reach approximately US$340 million and to increase CLH’s
cement production capacity in Colombia from 4.5 million to close to 5.5
million tons per year.
The first phase of this project includes the construction of a new grinding
mill that is expected to start cement production during the second quarter of
2015. The rest of the plant will be completed during the second half of
2016. The plant will operate using modern and efficient technology to
comply with high quality and environmental standards.
This facility will be strategically located in the Antioquia department. This
region has enjoyed high levels of economic growth and is expected to
further benefit from the construction of infrastructure projects under the
highway concession program in Colombia.
23.
On April 27, 2015, Cemex filed an annual report on Form 20-F with the SEC,
announcing the Company’s financial and operating results for the quarter and fiscal year ended
December 31, 2014 (the “2014 20-F”). For fiscal year 2014, Cemex reported a net loss of
5
of $849.24 million, or $0.06 per diluted share, on revenue of $15.33 billion for fiscal year 2013.
24.
In the 2014 20-F, the Company stated in relevant part:
Item 16B—Code of Ethics
We have adopted a written code of ethics that applies to all employees,
including our principal executive officer, principal financial officer and
principal accounting officer, to ensure that all of our employees abide by the
same high standards of conduct in their daily interactions.
Our code of ethics provides the following main guidelines:
***
(viii) Anti-bribery: we reject all forms of corruption; paying or receiving
bribes is illegal and highly unethical, and can lead to severe consequences
for all parties involved, including jail for individuals and harsh penalties
to our company; we are committed to conducting our business with
transparency and integrity, and try to ensure that all transactions comply
with anti-bribery laws, including requirements to maintain complete and
accurate books and records;
***
We ensure awareness and enforcement of our code of ethics through our
ethics committees, training programs, and secured internal communications
channels. We periodically evaluate and update the provisions of our code of
ethics.
You may view our code of ethics in the corporate governance section of our
website (www.cemex.com)...
(Emphasis added.)
25.
The Company’s Code of Ethics and Business Conduct (latest version available on
the Company’s website) stated in relevant part:
We reject all forms of corruption. Paying or receiving bribes is illegal and
highly unethical, and can lead to severe consequences for all parties
involved, including jail for individuals and harsh penalties for the
Company. We are committed to conducting our business with transparency
and integrity, and will therefore ensure that all transactions comply with
anti-bribery laws, including requirements to maintain complete and accurate
books and records.
26.
The 2014 20-F contained signed certifications pursuant to the Sarbanes-Oxley Act
of 2002 (“SOX”) by the Individual Defendants, stating that the information contained in the
6
cash flows of the company as of, and for, the periods presented in this report.”
27.
On April 22, 2016, Cemex filed an annual report on Form 20-F with the SEC,
announcing the Company’s financial and operating results for the quarter and fiscal year ended
December 31, 2015 (the “2015 20-F”). For fiscal year 2015, Cemex reported net income of
$75.83 million, or $0.01 per diluted share, on revenue of $13.91 billion, compared to a net loss
of $510.06 million, or $0.04 per diluted share, on revenue of $15.79 billion.
28.
In the 2015 20-F, the Company stated in relevant part:
Item 16B—Code of Ethics
We have adopted a written code of ethics that applies to all employees,
including our principal executive officer, principal financial officer and
principal accounting officer, to ensure that all of our employees abide by the
same high standards of conduct in their daily interactions.
Our code of ethics provides the following main guidelines:
***
(viii) Anti-bribery: we reject all forms of corruption; paying or receiving
bribes is illegal and highly unethical, and can lead to severe consequences
for all parties involved, including jail for individuals and harsh penalties
to our company; we are committed to conducting our business with
transparency and integrity, and try to ensure that all transactions comply
with anti-bribery laws, including requirements to maintain complete and
accurate books and records;
***
We ensure awareness and enforcement of our code of ethics through our
ethics committees, training programs, and secured internal communications
channels. We periodically evaluate and update the provisions of our code of
ethics.
You may view our code of ethics in the corporate governance section of our
website (www.cemex.com)...
(Emphasis added.)
29.
Cemex’s Code of Ethics and Conduct contained the representations described
supra at ¶25.
7
Defendants, stating that the information contained in the 2015 20-F “fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and
for, the periods presented in this report.”
31.
The statements referenced in ¶¶ 22-30 above were materially false and/or
misleading because they misrepresented and/or failed to disclose the following adverse facts
pertaining to the Company’s business, operational and financial results, which were known to
Defendants or recklessly disregarded by them. Specifically, Defendants made false and/or
misleading statements and/or failed to disclose that: (i) Cemex executives had engaged in an
unlawful bribery scheme in connection with the Company’s business dealings in Colombia; (ii)
discovery of the foregoing conduct would likely subject the Company to heightened regulatory
scrutiny and potential criminal sanctions; (iii) the Company lacked adequate internal controls
over financial reporting; and (iv) as a result, Cemex’s public statements were materially false and
misleading at all relevant times.
The Truth Begins to Emerge
32.
On September 23, 2016, post-market, Cemex issued a press release, filed on Form
6-K with the SEC, announcing the dismissal of two senior executives after an internal probe
found that payments worth $20 million relating to a land deal in Colombia had breached
company protocols. The press release stated in part:
On September 23, 2016, CEMEX, S.A.B. de C.V. (NYSE: CX)
(“CEMEX”) informed the Mexican Stock Exchange (Bolsa Mexicana de
Valores) that CEMEX’s indirect subsidiary, CEMEX Latam Holdings, S.A.
(“CEMEX Latam”), informed the Colombian Stock Exchange (Bolsa de
Valores de Colombia) and Colombian Financial Superintendency
(Superintendencia Financiera de Colombia) that with respect to the matter
previously reported by CEMEX Latam regarding the new cement plant
being built by CEMEX Colombia S.A. (“CEMEX Colombia”) in the
department of Antioquia in the municipality of Maceo, Colombia
8
(“Maceo”), internal audits and investigations performed in accordance with
the Corporate Governance policies and Code of Ethics of CEMEX Latam
and CEMEX, have raised questions about the payment procedures related to
the acquisition of the land and mining rights and benefits of the free tax
zone in which the new cement plant is being built in Maceo. These
payments did not adhere to CEMEX’s and CEMEX Latam’s established
protocols.
As officers responsible for the implementation and execution of the above
referenced payments, two members of senior management of CEMEX
Latam and CEMEX Colombia (the Vice President of Planning of CEMEX
Latam and CEMEX Colombia and the General Counsel of CEMEX Latam
Holdings and CEMEX Colombia), have been terminated effective
immediately. In addition, the Chief Executive Officer of CEMEX
Latam/Director of CEMEX Colombia has resigned, effective today. It is
expected that in the following days, Mr. Jaime Muguiro Domínguez, the
current President of CEMEX’s operations in South, Central America and
the Caribbean, and also current Chairman of the Board of Directors of
CEMEX Latam who has worked at CEMEX for approximately 20 years,
will assume the duties of Chief Executive Officer of CEMEX Latam and
Director of CEMEX Colombia.
CEMEX Colombia and CEMEX Latam have brought this matter to the
attention of the Colombian Attorney General and presented to him the
results of their audits and investigations concerning these payments, which
were made to a non-governmental third party in the amount of
approximately U.S.$20 million. CEMEX Latam and CEMEX Colombia
have pledged to cooperate with the Colombian Attorney General, as
required.
As of today, CEMEX is not able to assess the likelihood that these
investigations and the termination and departure of the above mentioned
officers will lead to any actions that could impact CEMEX. If any legal or
administrative actions are brought against CEMEX Latam and these are
ultimately resolved against CEMEX Latam, these actions are currently not
expected to have a material adverse impact on CEMEX’s results of
operations, liquidity and financial condition.
33.
On this news, Cemex’s ADR price fell $0.17, or 2.28%, to close at $7.26 on
September 26, 2016.
34.
On December 9, 2016, Cemex issued a press release, filed on Form 6-K with the
SEC, disclosing receipt of a subpoena from the SEC seeking information about irregular
payments made at the Company’s Colombia unit. The press release stated in relevant part:
On December 9, 2016, CEMEX, S.A.B. de C.V. (NYSE: CX) (“CEMEX”)
informed the Mexican Stock Exchange (Bolsa Mexicana de Valores) that it
had received a subpoena from the United States Securities and Exchange
Commission (“SEC”) seeking information to determine whether there have
9
been any violations of the U.S. Foreign Corrupt Practices Act (“FCPA”).
This subpoena arises from the matter previously reported by CEMEX
regarding the new cement plant being built by CEMEX Colombia S.A.
(“CEMEX Colombia”) in the department of Antioquia in the municipality
of Maceo, Colombia (the “Maceo Project”). This subpoena does not mean
that the SEC has concluded that CEMEX or any of its affiliates has broken
the law.
As previously disclosed, internal audits and investigations by CEMEX and
CEMEX Latam Holdings, S.A. (“CEMEX Latam”) had raised questions
about payments relating to the Maceo Project. Those payments, totaling
approximately U.S.$20.5 million, were made to a non-governmental third
party in connection with the acquisition of the land, mining rights, and
benefits of the tax free zone for the Maceo Project. These payments did not
adhere to CEMEX’s and CEMEX Latam’s established protocols. As
announced on September 23, 2016, the CEMEX Latam and CEMEX
Colombia officers responsible for the implementation and execution of the
above referenced payments were terminated and the then Chief Executive
Officer of CEMEX Latam resigned.
CEMEX Latam and CEMEX Colombia had already, in September 2016,
brought the matter to the attention of the Colombian Attorney General, so
that it could take any actions it deemed appropriate. As per the requirements
of the audit committees of CEMEX and CEMEX Latam, CEMEX
Colombia has also retained external counsel to assist CEMEX Latam and
CEMEX Colombia in their collaboration with the Colombian Attorney
General, which is still conducting its investigation. In accordance with
CEMEX Latam’s controls and customary procedures, an independent audit
team reporting to external legal counsel in Colombia was engaged.
CEMEX’s external auditors are also reviewing CEMEX’s internal audit
documentation. CEMEX maintains an anti-bribery policy applicable to all
of its employees and subsidiaries.
CEMEX has been cooperating with the SEC and the Colombian Attorney
General and intends to continue cooperating fully with the SEC and the
Colombian Attorney General. It is possible that the United States
Department of Justice or investigatory entities in other jurisdictions may
also open investigations into this matter. To the extent they do so, CEMEX
intends to cooperate fully with those inquiries, as well. At this point,
CEMEX is unable to predict the duration, scope, or outcome of the SEC
investigation or any other investigation that may arise; however, CEMEX
does not expect this matter to have a material adverse impact on its
consolidated results of operations, liquidity or financial position.
35.
Then, on March 14, 2018, Cemex disclosed that the U.S. Department of Justice is
investigating the Company over payments made by the Company related to a cement plant it is
building in Colombia to determine whether any violations of federal bribery laws occurred.
10
March 14, 2018.
37.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
38.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired Cemex securities traded on the NYSE during the Class Period (the “Class”);
and were damaged upon the revelation of the alleged corrective disclosures. Excluded from the
Class are Defendants herein, the officers and directors of the Company, at all relevant times,
members of their immediate families and their legal representatives, heirs, successors or assigns
and any entity in which Defendants have or had a controlling interest.
39.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Cemex securities were actively traded on the NYSE.
While the exact number of Class members is unknown to Plaintiff at this time and can be
ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or
thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by Cemex or its transfer agent and may be notified of
the pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
40.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
11
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
42.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the financial condition,
business, operations, and management of Cemex;
whether Defendants caused Cemex to issue false and misleading financial
statements during the Class Period;
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
whether the prices of Cemex securities during the Class Period were
artificially inflated because of Defendants’ conduct complained of herein;
and
whether the members of the Class have sustained damages and, if so, what
is the proper measure of damages.
43.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
44.
Plaintiff will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
12
Defendants made public misrepresentations or failed to disclose material
facts during the Class Period;
the omissions and misrepresentations were material;
Cemex securities are traded in efficient markets;
the Company’s shares were liquid and traded with moderate to heavy
volume during the Class Period;
the Company traded on the NYSE, and was covered by multiple analysts;
the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company’s securities; and
Plaintiff and members of the Class purchased and/or sold Cemex securities
between the time the Defendants failed to disclose or misrepresented
material facts and the time the true facts were disclosed, without
knowledge of the omitted or misrepresented facts.
45.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
46.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State
of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material
information in their Class Period statements in violation of a duty to disclose such information,
as detailed above.
COUNT I
Violation of Section 10(b) of The Exchange Act and Rule 10b-5
Against All Defendants
47.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
13
upon Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated
thereunder by the SEC.
49.
During the Class Period, Cemex and the Individual Defendants, individually and
in concert, directly or indirectly, disseminated or approved the false statements specified above,
which they knew or deliberately disregarded were misleading in that they contained
misrepresentations and failed to disclose material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
50.
Cemex and the Individual Defendants violated §10(b) of the 1934 Act and Rule
10b-5 in that they:
employed devices, schemes and artifices to defraud;
made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
engaged in acts, practices and a course of business that operated as a fraud
or deceit upon plaintiff and others similarly situated in connection with
their purchases of Cemex securities during the Class Period.
51.
Cemex and the Individual Defendants acted with scienter in that they knew that
the public documents and statements issued or disseminated in the name of Cemex were
materially false and misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated, or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
securities laws. These Defendants by virtue of their receipt of information reflecting the true
facts of Cemex, their control over, and/or receipt and/or modification of Cemex allegedly
materially misleading statements, and/or their associations with the Company which made them
privy to confidential proprietary information concerning Cemex, participated in the fraudulent
scheme alleged herein.
14
Company, had actual knowledge of the material omissions and/or the falsity of the material
statements set forth above, and intended to deceive Plaintiff and the other members of the Class,
or, in the alternative, acted with reckless disregard for the truth when they failed to ascertain and
disclose the true facts in the statements made by them or other Cemex personnel to members of
the investing public, including Plaintiff and the Class.
53.
As a result of the foregoing, the market price of Cemex securities was artificially
inflated during the Class Period. In ignorance of the falsity of Cemex’s and the Individual
Defendants’ statements, Plaintiff and the other members of the Class relied on the statements
described above and/or the integrity of the market price of Cemex securities during the Class
Period in purchasing Cemex securities at prices that were artificially inflated as a result of
Cemex’s and the Individual Defendants’ false and misleading statements.
54.
Had Plaintiff and the other members of the Class been aware that the market price
of Cemex securities had been artificially and falsely inflated by Cemex’s and the Individual
Defendants’ misleading statements and by the material adverse information which Cemex’s and
the Individual Defendants did not disclose, they would not have purchased Cemex’s securities at
the artificially inflated prices that they did, or at all.
55.
As a result of the wrongful conduct alleged herein, Plaintiff and other members of
the Class have suffered damages in an amount to be established at trial.
56.
By reason of the foregoing, Cemex and the Individual Defendants have violated
Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder and are liable to the
plaintiff and the other members of the Class for substantial damages which they suffered in
connection with their purchase of Cemex securities during the Class Period.
COUNT II
15
Violation of Section 20(a) of The Exchange Act Against The Individual Defendants
57.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
58.
During the Class Period, the Individual Defendants participated in the operation
and management of Cemex, and conducted and participated, directly and indirectly, in the
conduct of Cemex’s business affairs. Because of their senior positions, they knew the adverse
non-public information regarding the Company’s inadequate internal safeguards in data security
protocols.
59.
As officers and/or directors of a publicly owned company, the Individual
Defendants had a duty to disseminate accurate and truthful information with respect to Cemex’s
financial condition and results of operations, and to correct promptly any public statements
issued by Cemex which had become materially false or misleading.
60.
Because of their positions of control and authority as senior officers, the
Individual Defendants were able to, and did, control the contents of the various reports, press
releases and public filings which Cemex disseminated in the marketplace during the Class
Period. Throughout the Class Period, the Individual Defendants exercised their power and
authority to cause Cemex to engage in the wrongful acts complained of herein. The Individual
Defendants therefore, were “controlling persons” of Cemex within the meaning of Section 20(a)
of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged which
artificially inflated the market price of Cemex securities.
61.
By reason of the above conduct, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act for the violations committed by Cemex.
PRAYER FOR RELIEF
16
A.
Determining that the instant action may be maintained as a class action under
Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B.
Requiring Defendants to pay damages sustained by Plaintiff and the Class by
reason of the acts and transactions alleged herein;
C.
Awarding Plaintiff and the other members of the Class prejudgment and post-
judgment interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and
D.
Awarding such other and further relief as this Court may deem just and proper.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: March 16, 2018
Respectfully submitted,
POMERANTZ, LLP
/s/Jeremy A. Lieberman
Jeremy A. Lieberman
J. Alexander Hood II
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
E-mail: jalieberman@pomlaw.com
E-mail: ahood@pomlaw.com
POMERANTZ LLP
Patrick V. Dahlstrom
Ten South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
E-mail: pdahlstrom@pomlaw.com
BRONSTEIN, GEWIRTZ
& GROSSMAN, LLC
Peretz Bronstein
60 East 42nd Street, Suite 4600
17
New York, NY 10165
(212) 697-6484
Email: peretz@bgandg.com
Attorneys for Plaintiff
18
| securities |
esxXDocBD5gMZwczVR5F | Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 323-306-4234
Fax: 866-633-0228
tfriedman@toddflaw.com
abacon@toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
LOUIS FLOYD and JEFFREY
KATZ, individually and on behalf of
all others similarly situated,
Plaintiff,
vs.
Case No. 3:21-cv-5548
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1. NEGLIGENT VIOLATIONS OF
THE TELEPHONE CONSUMER
PROTECTION ACT [47 U.S.C.
§227 ET SEQ.]
2. WILLFUL VIOLATIONS OF THE
TELEPHONE CONSUMER
PROTECTION ACT [47 U.S.C.
§227 ET SEQ.]
WENIG HOLDINGS LLC DBA
INSURANCESERVICES4U.COM;
DOES 1 through 10, inclusive,
Defendant(s).
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
DEMAND FOR JURY TRIAL
Plaintiffs, LOUIS FLOYD and JEFFREY KATZ (“Plaintiff”), on behalf of
themselves and all others similarly situated, allege the following upon information
and belief based upon personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action for himself and others similarly situated
seeking damages and any other available legal or equitable remedies resulting from
the illegal actions of WENIG HOLDINGS, LLC (“Defendant”), in negligently,
knowingly, and/or willfully contacting Plaintiff via “telephone facsimile machine”
in violation of the Telephone Consumer Protection Act, 47. U.S.C. § 227 et seq.
(“TCPA”), thereby causing Plaintiff and all others similarly situated to incur the
costs of receiving unsolicited advertisement messages via “telephone facsimile
machines” and invading their privacy.
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiffs,
residents of California, seek relief on behalf of a Class, which will result in at least
one class member belonging to a different state than that of Defendant, a company
with its principal place of business and State of Incorporation in Florida state.
Plaintiff also seeks up to $1,500.00 in damages for each call in violation of the
TCPA, which, when aggregated among a proposed class in the thousands, exceeds
the $5,000,000.00 threshold for federal court jurisdiction. Therefore, both diversity
jurisdiction and the damages threshold under the Class Action Fairness Act of 2005
(“CAFA”) are present, and this Court has jurisdiction.
3.
Venue is proper in the United States District Court for the Northern
District of California pursuant to 28 U.S.C. § 1391(b)(2) because Defendant does
business within the state of California and Plaintiffs reside within this District.
PARTIES
4.
Plaintiff, LOUIS FLOYD, is a natural person residing in Santa Clara
County, California and is a “person” as defined by 47 U.S.C. § 153 (39).
5.
Plaintiff, JEFFREY KATZ, is a natural person residing in San
Francisco County, California and is a “person” as defined by 47 U.S.C. § 153 (39).
6.
Plaintiffs, LOUIS FLOYD and JEFFREY KATZ will hereinafter be
referred to collectively as “Plaintiffs.”
7.
Defendant, WENIG HOLDINGS (“Defendant” or “DEFENDANT”),
is a marketer of health insurance plans, and is a “person” as defined by 47 U.S.C.
§ 153 (39).
8.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
9.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
10.
Beginning in or around July 2019, Defendant contacted Plaintiffs on
their telephone facsimile numbers ending in -8670 and -3052 in an effort to sell or
solicit its services.
11.
On or around or around July 18, 2019 Defendant contacted Plaintiff
LOUIS FLOYD on his telephone facsimile number ending in -8670 in an effort to
sell or solicit its services.
12.
On or around July 8, 2020 Defendant contacted Plaintiff JEFFREY
KATZ on his telephone facsimile number ending in -3052 in an effort to sell or
solicit its services.
13.
Defendant’s messages constituted “telephone solicitation” as defined
by the TCPA, 47 U.S.C. § 227(a)(4) and “unsolicited advertisement” as defined by
the TCPA, 47 U.S.C. § 227(a)(5).
14.
Defendant used an “telephone facsimile machine” as defined by 47
U.S.C. § 227(a)(3) to place its calls to Plaintiff seeking to sell or solicit its business
services.
15.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
16.
Defendant’s calls were placed to telephone facsimile numbers
assigned to a telephone service for which Plaintiff incurs a charge for incoming
messages.
17.
Plaintiffs are not customers of Defendant’s services and have never
provided any personal information, including their telephone facsimile number(s),
to Defendant for any purpose whatsoever. Accordingly, Defendant never received
Plaintiffs’ “prior express consent” to receive calls using a telephone facsimile
machine pursuant to 47 U.S.C. § 227(b)(1)C).
CLASS ALLEGATIONS
18.
Plaintiffs bring this action on behalf of themselves and all others
similarly situated, as members of the proposed class (hereafter “The Class”)
defined as follows:
All persons within the United States who received any
telephone facsimile messages from Defendant to said
person’s telephone facsimile number made through the
use of any telephone facsimile machine and such person
had not previously consented to receiving such messages
and such messages did not contain any opt-out notice
within the four years prior to the filing of this Complaint
19.
Plaintiffs represent, and are members of, The Class, consisting of All
persons within the United States who received any telephone facsimile messages
from Defendant to said person’s telephone facsimile number made through the use
of any telephone facsimile machine and such person had not previously not
provided their telephone facsimile number to Defendant within the four years prior
to the filing of this Complaint.
20.
Defendant, its employees and agents are excluded from The Class.
Plaintiffs do not know the number of members in The Class, but believes the Class
members number in the thousands, if not more. Thus, this matter should be certified
as a Class Action to assist in the expeditious litigation of the matter.
21.
The Class is so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Class
members are unknown to Plaintiffs at this time and can only be ascertained through
appropriate discovery, Plaintiffs are informed and believe and thereon allege that
The Class includes thousands of members. Plaintiffs allege that The Class members
may be ascertained by the records maintained by Defendant.
22.
Plaintiffs and members of The Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiffs
and Class members via their telephone facsimile numbers thereby causing
Plaintiffs and Class members to incur certain charges or reduced telephone
facsimile time for which Plaintiffs and Class members had previously paid by
having to retrieve or administer messages left by Defendant during those illegal
calls, and invading the privacy of said Plaintiffs and Class members.
23.
Common questions of fact and law exist as to all members of The
Class which predominate over any questions affecting only individual members of
The Class. These common legal and factual questions, which do not vary between
Class members, and which may be determined without reference to the individual
circumstances of any Class members, include, but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this Complaint,
Defendant sent telephone facsimile messages (other than for
emergency purposes or made with the prior express consent of the
called party and with an opt-out notice contained in the messages) to
a Class member using any telephone facsimile machine to any
telephone number assigned to a telephone facsimile service;
b.
Whether Plaintiff and the Class members were damaged thereby, and
the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such conduct
in the future.
24.
As people who received numerous messages from Defendant using a
telephone facsimile machine, without Plaintiffs’ prior express consent, Plaintiffs
are asserting claims that are typical of The Class.
25.
Plaintiffs will fairly and adequately protect the interests of the
members of The Class. Plaintiffs have retained attorneys experienced in the
prosecution of class actions.
26.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Class members is impracticable. Even if every Class member could afford
individual litigation, the court system could not. It would be unduly burdensome
to the courts in which individual litigation of numerous issues would proceed.
Individualized litigation would also present the potential for varying, inconsistent,
or contradictory judgments and would magnify the delay and expense to all parties
and to the court system resulting from multiple trials of the same complex factual
issues. By contrast, the conduct of this action as a class action presents fewer
management difficulties, conserves the resources of the parties and of the court
system, and protects the rights of each Class member.
27.
The prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Class members not parties to such
adjudications or that would substantially impair or impede the ability of such non-
party Class members to protect their interests.
28.
Defendant has acted or refused to act in respects generally applicable
to The Class, thereby making appropriate final and injunctive relief with regard to
the members of the California Class as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
29.
Plaintiffs repeat and incorporate by reference into this cause of action
the allegations set forth above at Paragraphs 1-28.
30.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227 et seq.
31.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227 et
seq., Plaintiffs and the Class Members are entitled an award of $500.00 in
statutory damages, for each and every violation, pursuant to 47 U.S.C. §
227(b)(3)(B).
32.
Plaintiffs and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
33.
Plaintiffs repeat and incorporate by reference into this cause of action
the allegations set forth above at Paragraphs 1-28.
34.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227 et
35.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227 et seq., Plaintiffs and the Class members are entitled an award of
$1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
36.
Plaintiffs and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs request judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
• As a result of Defendant’s negligent violations of 47 U.S.C.
§227(b)(1), Plaintiffs and the Class members are entitled to and
request $500 in statutory damages, for each and every violation,
pursuant to 47 U.S.C. 227(b)(3)(B); and
• Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
• As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(b)(1), Plaintiffs and the Class members are entitled to
and request treble damages, as provided by statute, up to $1,500, for
each and every violation, pursuant to 47 U.S.C. §227(b)(3)(B) and 47
U.S.C. §227(b)(3)(C); and
• Any and all other relief that the Court deems just and proper.
JURY DEMAND
37.
Pursuant to the Seventh Amendment to the Constitution of the United
States of America, Plaintiffs reserve their right to a jury on all issues so triable.
Respectfully Submitted this 20th day of July, 2021.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: s/ Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
| privacy |
f_WJE4cBD5gMZwczt_jR | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
O.A., K.S., A.V., G.Z., D.S., C.A.,
Civil Action No. _______________
Plaintiffs,
v.
COMPLAINT FOR
DECLARATORY AND
INJUNCTIVE RELIEF
DONALD J. TRUMP
as President of the United States
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500;
MATTHEW G. WHITAKER,
as Acting Attorney General
U.S. Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530;
KIRSTJEN M. NIELSEN,
as Secretary of the Department of
Homeland Security
U.S. Department of Homeland Security
245 Murray Lane, S.W.,
Washington, D.C. 20528;
LEE FRANCIS CISSNA,
as Director of United States Citizenship and
Immigration Services
U.S. Citizenship and Immigration Services
20 Massachusetts Avenue, N.W.
Washington, D.C. 20529;
JOHN LAFFERTY, Asylum Division
Chief, U.S. Citizenship and Immigration
Services
20 Massachusetts Avenue, N.W.
Washington, D.C. 20529
Defendants.
PRELIMINARY STATEMENT
1.
�����������������������������������������unlawful attempt to deprive vulnerable
individuals access to the protection that the ���������asylum system affords.
2.
Under U.S. law, noncitizens are entitled to seek asylum irrespective of immigration
status and without regard to manner of entry into the United States. See 8 U.S.C. § 1158(a)(1).
�������������������������������������������������������������������������������� under the Refugee
Act of 1980. U.S. law also requires certain procedural safeguards during removal proceedings.
See id. § 1225(b)(1). These safeguards are critical to ensuring that individuals who face
persecution�including rape, kidnapping, torture, and even death�in their home countries are
given a fair chance to establish their eligibility for asylum.
3.
On November 9, 2018, the ��������������������������������������Department of
H���������������������������������������������������������� ������������, EOIR Docket No.
18�0501; A.G. Order No. 4327�2018, imposing new, significant limitations on who may seek
asylum in the United States. On the same day, President Trump signed a presidential proclamation
entitled �Presidential Proclamation Addressing Mass Migration Through the Southern Border of
�������������������������P���������������hat purports to suspend the entry of individuals who have
entered the United States from across the U.S.�Mexico border without receiving inspection at a
designated port of entry. Together, the Rule and the Proclamation render ineligible for asylum any
noncitizen who enters the United States without inspection from across the U.S.�Mexico border.
����� ��������� ������� ��� ���� ��������� ������� ����� shutters access to the asylum system for
thousands of men, women, and children that the Administration concedes are likely to have
meritorious asylum claims. The Rule is illegal in several respects.
4.
First, the Rule contradicts the requirements of the Immigration and Nationality Act
�������, specifically 8 U.S.C. § 1158(a)(1), which gives any noncitizen who is physically present
in or who arrives in the United States a statutory right to seek asylum, irrespective of the
������������������������������and requires the government to follow specific processes when an
individual expresses a desire to seek asylum or fear of returning to his or her home country. The
Rule is therefore contrary to law under the INA and the Administrative Procedure Act, 5 U.S.C.
§ 551 et seq. ��������
5.
Second, the Rule violates 8 U.S.C. § 1225 by mandating a denial of a credible fear
determination, even in situations where a noncitizen in expedited removal proceedings shows a
significant possibility that she could establish eligibility for asylum. For this reason, the Rule is
again contrary to law under the INA and the APA.
6.
Third, the Rule violates The William Wilberforce Trafficking Victims Protection
Act, 8 U.S.C. § 1158 (b)(3)(C), by denying unaccompanied children the opportunity to first present
the substance of their claims for asylum in a non-adversarial proceeding before an asylum officer.
7.
Fourth, by adopting, without notice and the opportunity to comment, an interim
final rule depriving certain asylum seekers of the statutory protection outlined in the INA simply
because they enter the country without inspection, the responsible government officials have acted
in excess of their statutorily prescribed authority, contrary to law, and arbitrarily and capriciously,
all in violation of the APA.
8.
Fifth, the promulgation of the Rule was invalid because the current Acting Attorney
General who putatively authorized promulgation of the Rule is ineligible to serve in that role under
28 U.S.C. § 508 and the Appointments Clause of the United States Constitution, art. II, § 2, cl. 2.
2
9.
Sixth, ����� ��������� ���� �������� ������� ��������� ���������� ������������ ����
lawful, the Rule violates the requirement under 8 U.S.C. § 1158(b)(2)(C) that any changes to the
limitations and conditions imposed on asylum seekers be made by regulation�rather than by
presidential decree. Because the Rule is predicated on an abdication of that responsibility, and
simply incorporates by reference the consequence of Presidential proclamations, the Rule is invalid
under the APA and is ultra vires.
10.
If allowed to stand, the Rule would fundamentally reshape and constrict asylum
����������������������������������������������������������������������������������������������������
�����������������������������������������������������������������������������to thousands of asylum
seekers who desperately need protection in this country.
11.
Plaintiffs respectfully request a declaration that the Rule violates the APA, and an
order enjoining the application of the Rule.
PARTIES
12.
Plaintiffs are noncitizens who are presently in the United States and wish to seek
13.
Plaintiff O.A. is a 23-year-old man from Honduras who the government contends
is subject to the Proclamation. O.A. fled Honduras with his 4-year-old daughter, K.S., because a
gang called Mara-18 (M-18), threatened to kill him and his family. They did so because M-18 had
������������������������������������������������������������������������������������������������
���������������������������������������������������� O.A. knew that the police in Honduras would
not be willing or able to help him, and he decided to flee Honduras with his daughter.
14.
Plaintiff K.S. is a 4-year-old girl from Honduras. O.A. is her father, and she entered
the United States with him when he entered the United States after fleeing Honduras. ������������
3
was at risk in Honduras because her father cooperated with police to investigate the death of his
brother, and she accompanied him when he fled Honduras to seek asylum in the United States.
15.
Plaintiff A.V. is a 27-year-old woman from Honduras who crossed the border from
Mexico into the United States other than at a port of entry on November 11, 2018. She has a
credible fear of persecution in Honduras because she is a victim of repeated violent assaults by her
partner (who is the father of her children), and because her partner is likely a member of gang and
has threatened to kill her. A.V. has nowhere to turn for help in Honduras.
16.
Plaintiff G.Z. is a 17-year-old unaccompanied minor from Honduras who the
government alleges crossed the U.S.�Mexico border other than at a port of entry on November 10,
2018. In Honduras, G.Z. was the victim of recurring violence at the hands of his father, who is a
police officer. G.Z. has no ability to seek protection from the police, because his father is one of
them. In the weeks preceding his departure from Honduras, G.Z. also rebuffed efforts by MS-13
gang members to recruit him because he believes their activities to be morally wrong. GZ feared
that if he did not leave Honduras he would be killed. He has a credible fear of persecution.
17.
Plaintiff D.S. is an asylum seeker from Honduras. She fled Honduras because of
severe domestic abuse by her partner, who is a security guard. She tried to report the violence,
which at points required hospitalization, but the government did nothing in response to her
complaint and did not pursue her partner when he failed to appear in judicial proceedings. D.S.
also tried to relocate internally within Honduras but her partner tracked her down and threatened
to kill her. D.S. made the difficult journey across Mexico with her son, C.A., over the course of
two weeks, during which time she exhausted all of her financial resources. D.S., with her son,
C.A., entered the United States other than at a port of entry on November 13, 2018, and they were
apprehended by immigration officials on the U.S. side of the border.
4
18.
Plaintiff C.A. is an asylum seeker from Honduras, whose mother is Plaintiff D.S.
Plaintiff C.A. was regularly beaten by his father in Honduras and accompanied his mother, D.S.,
on her journey to the United States. With D.S., C.A. entered the United States other than at a port
of entry on November 13, 2018, and they were apprehended by immigration officials on the U.S.
side of the border.
19.
Defendant Donald J. Trump is the President of the United States. On November 9,
2018, he issued the Proclamation. He is sued in his official capacity.
20.
Defendant Matthew G. Whitaker was appointed to the position of Acting Attorney
�������������������������������Acting ������������������ on November 7, 2018. The Attorney
General is responsible for administering the INA, oversees the Executive Office for Immigration
Rev����������������������������������������������������������������������������������������������
his official capacity.
21.
������������������������������������������������������������������������������
������������������������������������������������������������ICE������������������������������
����������������������������������������������������������������������������������������������
She is sued in her official capacity.
22.
Defendant Lee Francis Cissna is Director of USCIS, which is the agency that
employs the Asylum Officers who conduct credible fear screening interviews to determine whether
individuals may apply for asylum before an immigration judge. He is sued in his official capacity.
23.
Defendant John Lafferty, the Asylum Division Chief within USCIS, is responsible
for overseeing the credible fear screening process and asylum adjudication within USCIS. He is
sued in his official capacity.
5
NATURE OF ACTION
24.
This is an action arising under the �������������������������������������������
U.S.C. § 1101 et seq., and the Administrative Procedure Act �������, 5 U.S.C. § 551 et seq.
25.
Plaintiffs seek a declaratory judgment that the interim final rule entitled �Aliens
Subject to a Bar on Entry Under Certain Presidential Proclamations; Procedures for Protection
Claims,� 83 Fed. Reg. 55,934 (Nov. 9, 2018) is arbitrary, capricious, contrary to law, and beyond
the authority of the Acting Attorney General and the Secretary to promulgate under the APA and
otherwise. Plaintiffs further seek an injunction prohibiting Defendants from enforcing the Rule
and such additional and other relief as is just and proper.
JURISDICTION AND VENUE
26.
This Court has jurisdiction under 28 U.S.C. § 1331, as the claims in this case arise
under federal statutes, including the INA, 8 U.S.C. § 1101 et seq., and the APA, 5 U.S.C. § 701 et
seq.
�������������� ����� ������ ���� ������������� ��� ������� ������������ ������� ����� the Rule is
inconsistent with the INA and thus ultra vires to it.
27.
This Court further has jurisdiction to review this case as a challenge to changes in
the expedited removal process under 8 U.S.C. § 1252(e)(3). Although courts generally lack
jurisdiction to review challenges to the expedited removal process, judicial review under § 1225(b)
is available to determine if any regulation issued to implement such section is constitutional or
whether such regulation is otherwise in violation of law. This case falls squarely within this
���������������������������������������������������������������������������������������������������
removal. See 8 U.S.C. § 1252(e)(3). The Rule and Proclamation are each �� ��������� �������
����������� �������� ������� ����������� ��� �������� ����������� ������� ��� ���������� ���� ����������
removal procedures set forth in 8 U.S.C. § 1225(b). And Plaintiffs assert that the Rule and
Proclamation impose ������������������������������������������������������������������������
6
consistent with applicable provisions of [8 U.S.C. § ���������������������������������������������
������ Id. § 1252(e)(3)(A)(ii).
28.
The declaratory, injunctive and other relief sought by Plaintiffs are authorized by
28 U.S.C. §§ 2201 and 2202.
29.
Venue in this District is proper pursuant to 5 U.S.C. § 703 and 8 U.S.C. § 1252(e).
In addition, venue is proper pursuant to 28 U.S.C. § 1391(e) because a substantial part of the events
or omissions giving rise to the claim occurred at or in this District. Defendants are headquartered
����������������������������������������������������������������������������������������������
to the expedited removal and credible fear processes have taken place and are being made in the
District of Columbia.
FACTUAL ALLEGATIONS
Legal Framework
30.
����������������������������������������������������������������������������������
���������������������������������������������������������� United Nations Convention Relating
to the Status of Refugees and the 1967 United Nations Protocol Relating to the Status of Refugees.
INS v. Cardoza-Fonseca, 480 U.S. 421, 436�37 (1987).
31.
Among the treaty obligations undertaken by the United States was the promise that
���� ������������� ������� ������ ������ ���� ����������� ��� ����� ����������� ��� ��������� ��������
����������������������������������������������������������� Convention Relating to the Status of
Refugees art. 3, July 28, 1951, 19 U.S.T. 6259, 189 U.N.T.S. 150.1 ����������[c]ontracting States
shall not impose penalties, on account of their illegal entry or presence, on refugees who, coming
directly from a territory where their life or freedom was threatened in the sense of Article 1, enter
1 The text of the Convention is available online at http://www.unhcr.org/en-us/3b66c2aa10.
7
or are present in their territory without authorization, provided they present themselves without
������������������������������������������������������������������������������������Id. at art. 31(1).
This prohibition against restricting asylum access based on manner of entry is reiterated in the
Introductory Note to the Refugee Convention, which states: �����������������������������������
that, subject to specific exceptions, refugees should not be penalized for their illegal entry or stay.
���������������������������������������������������������������������������������������������� Id.
at Introductory Note.
32.
The INA is the embodiment of these international law obligations. Its instructions
regarding the asylum process are clear: ����������������������������������������������������������
or who arrives in the United States (whether or not at a designated port of arrival and including
an alien who is brought to the United States after having been interdicted in international or United
States waters), irrespective of such alien’s status, may apply for asylum in accordance with this
section or, where applicable, section 1225(b) of this title�� 8 U.S.C. § 1158(a)(1) (emphases
added).
33.
While asylum is ultimately a discretionary remedy within the parameters set by
statute, the duty to allow a noncitizen access to the process for seeking asylum is not discretionary,
as the U.S. government has recognized. See, e.g.����������������������������������������port of
Motion for Summary Judgment and Dismissal for Lack of Jurisdiction, cited in Munyua v. United
States, 2005 U.S. Dist. LEXIS 11499, at *16�19 (N.D. Cal. Jan. ���� ������ ��������������
acknowledges that [the immigration officers] did not have the discretion to ignore a clear
expression of fear of return or to coerce an alien into withdrawing an application for admission.���
34.
For a noncitizen to be eligible for asylum, the noncitizen must establish that he or
she is a refugee under the INA, defined as follows:
8
������������������������������������������������������������������������������������������
person having no nationality, is outside any country in which such person last habitually
resided, and who is unable or unwilling to return to, and is unable or unwilling to avail
himself or herself of the protection of, that country because of persecution or a well-
founded fear of persecution on account of race, religion, nationality, membership in a
particular social group, or political opinion.
8 U.S.C. § 1101(a)(42)(A); see id. § 1158(a)(1).
35.
To demonstrate a well-founded fear of persecution, a noncitizen need not show that
harm is certain or even more likely than not; a 1 in 10 chance of persecution is sufficient under
U.S. Supreme Court precedent. See Cardoza-Fonseca, 480 U.S. at 430.
Expedited Removal and Credible Fear
36.
In 1996, Congress passed the Illegal Immigration Reform and Immigrant
��������������� ���� ������������ ������ �������� ��� ���������� �������� �������� ���� ������������
officials to deport certain individuals deemed inadmissible under the INA.
37.
Out of a concern that expedited removal would prevent individuals from seeking
and applying for asylum������������������������������������������������������������������������
international law�IIRIRA implemented the �credible fear� screening process to ensure that
individuals subject to expedited removal proceedings would be given meaningful access to the
asylum process.
38.
Under those provisions, if a noncitizen facing expedited removal indicates any fear
of returning to his or her home country, an immigration officer must refer the asylum seeker for a
����������������������������See 8 U.S.C. § 1225(b)(1)(A)(ii); 8 C.F.R. § 235.3(b)(4). This interview
��������������������������������������������������������������������������������������������������
credible fear of persecution or ��������������������§ 208.30(d).
39.
To satisfy the credible fear standard, an asylum seeker need only show a
��������������������������������������������������������������������������������������������noncitizen
9
and in support of the noncitizen��������������������������������������������������������������������
noncitizen ����������������������������������������� 8 U.S.C. § 1225(b)(1)(B)(v). The standard used
in this initial screening is intentionally lower than the standard used in the full asylum hearing that
the applicant will later undergo if he or she passes the credible fear interview. The intentionally
low threshold for demonstrating a credible fear accounts for the reality that credible fear interviews
typically take place shortly after asylum seekers have completed their often traumatic journeys to
the United States, in border processing centers or detention facilities where asylum seekers
typically do not have access to attorneys. The standard also acknowledges that many asylum
seekers arrive in the United States without the time, resources, or expertise to develop fully, upon
arrival, the evidence necessary to prevail on their ultimate asylum application.
40.
The credible fear process includes another important limitation. Recognizing the
abbreviated nature of these interviews, if a person meets the definition of a refugee but may be
subject to a bar to asylum, officers are required to flag those potential bars for future adjudication,
but to refer the applicant for full removal proceedings. See 8 C.F.R. § 208.30(e)(5).
41.
The requirement to refer an asylum seeker subject to expedited removal
proceedings to an asylum officer for a credible fear interview is mandatory. See 8 U.S.C.
§ 1225(b)(1)(A)(ii) (immigration ���������shall refer the [noncitizen] for an interview by an asylum
�������������������������); 8 C.F.R. § ��������������[T]he inspecting officer shall not proceed
further with removal of the [noncitizen] until the [noncitizen] has been referred for an interview
by an asylum officer.������������������).
42.
If an applicant is found by an asylum officer to have a credible fear of persecution
or torture, the applicant is taken out of the expedited removal process and placed in the regular
removal process. The applicant thus obtains the ability to develop a full record in support of his
10
or her asylum claim; the right to present that claim before an immigration judge at a trial-like
hearing; and the ability to appeal an adverse decision to the Board of Immigration Appeals and a
federal court of appeals. See 8 U.S.C. § 1225(b)(1)(B)(ii).
43.
The newly promulgated Rule and the accompanying Proclamation upend this
detailed statutory scheme. Under the Rule, asylum seekers who enter without inspection from
across the U.S.�Mexico border are barred from obtaining asylum and may only apply for
�������������������������������������������������������������������������������������������������
of these forms of relief requires satisfying a different standard than credible fear interviews,
���������������������������������������������������������������������������������������������������
protected ground. �������������������������������������������������������������������������������
standard. That is so because the reasonable fear screening standard is the same standard required
��������������������-���������������������������������������������������������������������������������
on the other hand, requires only a showing of a significant possibility that the well-founded fear
will be established.
44.
Moreover, unlike asylum, withholding of removal and CAT protection do not
prohibit the government from removing the noncitizen to a third country; do not create a path to
lawful permanent resident status and citizenship; do not allow the noncitizen to travel freely within
the United States or internationally; and do not ensure family unity by permitting ���������������
family members to obtain lawful immigration status derivatively.
45.
The Government contends that Plaintiffs are subject to the new Proclamation and
Rule; Plaintiffs are suffering irreparable harm as a result. Plaintiffs suffered persecution that their
�����������������������������������������������������������������������me to the United States
to seek refuge. The Proclamation and Rule effectively prevent Plaintiffs from applying for asylum
11
and the benefits that come with it, and place Plaintiffs at high risk of being returned to the country
that perpetrated or sanctioned their oppression.
���������������������ro-�����������������������������
46.
In April 2018, the U.S. govern�������������������������������-������������������
on immigration. In announcing the policy, then-Attorney General Jefferson B. Sessions III stated
without any evidence ����� ������� ���������� ��� ���� ���������� ������� ��� ��������������� ����
�������������������������������������������������������������������������������������������������2
Mr. Sessions ����������� � ���� ������ ���� ����� ��� ���������� ���� ������ �����������������
commitment to public safety, national security, and the rule of law, I warn you: illegally entering
this country will not be rewarded, but will instead be met with the full prosecutorial powers of the
�����������������������
47.
In accordance with this directive, the U.S. government took steps to deter
immigration at the southern border, such as referring greater numbers of migrants, including
asylum seekers, for criminal prosecution, detaining migrants (including children) in inhospitable
conditions, and encouraging adjudication officers to deny asylum claims.
48.
����������������������zero-tolerance� policy resulted in the forcible separation of
child migrants from their parents, ostensibly so that the government could criminally prosecute the
parents for illegal entry or reentry.3 Before federal courts enjoined the practice of separating
families, the Department of Homeland Security had separated over 2,000 children from their
parents.
2 DOJ, Attorney General Announces Zero-Tolerance Policy for Criminal Illegal Entry (Apr. 6,
2018) <https://tinyurl.com/y96nsut6>.
3 See Miriam Jordan, How and Why “Zero-Tolerance” is Splitting Up Families, N.Y. TIMES,
May 12, 2018 <https://tinyurl.com/y73urcyj>.
12
49.
����������������������zero-tolerance� policy applied even to asylum seekers. In
�����������-��������������������������������������������criminal prosecutions of individuals seeking
such protection, including many parents who entered the United States without inspection because
it was their only means of protecting their children from the persecution faced in their home
countries.4
50.
Nor did the Administration always permit asylum seekers to seek asylum through
designated ports of entry; the Administration began to employ a policy of �����������������������
Mexico border to keep a caravan of asylum seekers from presenting themselves at the border to
seek protection. The existence of this policy was confirmed by the Secretary, who stated in a May
������������������������������������������������������������������������������������������������
�������������������������������������������������������������5 A September 27, 2018 Special
��������������������������������zero-tolerance�������������������������������������������������
����������������������������������� ������������������������������������������������������������
CBP officers standing at the international border line in the middle of the bridges to the ports of
entry; when an asylum seeker approaches the border line, officers confirm whether space is
��������������������������������������������������������������������������������������������������6
4 See Russell Berman, 85 Immigrants Sentenced Together Before One Judge, THE ATLANTIC,
June 19, 2018 <https://tinyurl.com/ydh63e8u>. The need to escape the persecution they face in
their home countries is frequently cited by asylum seekers as a primary reason for seeking safe
harbor in the United States. See generally University of Washington, The Cycle of Violence:
Migration from the Northern Triangle (2017) <https://tinyurl.com/yabyz9ax> (reporting that the
increase of violence in Guatemala, Honduras, and El Salvador between 2011 and 2016 coincided
������������������������������������������������������������������������������������������������������
5 Fox News, Secretary Nielsen Talks Immigration, Relationship with Trump 03:20 (May 15, 2018)
<https://tinyurl.com/y8buwakc>.
6 Dep��������������������������������������������������������������������- Initial Observations
Regarding Family Separation Issues Under the Zero Tolerance Policy, at 6 (Sept. 27, 2018)
13
51.
Although CBP does not maintain a wait list for those who have been turned away
due to metering, some asylum seekers have instituted an unofficial waitlist to keep track of those
awaiting entry. CBP will often refer migrants to the unofficial waitlist when metering. Due to
metering, the average wait time for asylum seekers at a port of entry can be up to several weeks.
Public Statements by Defendants
52.
Public statements by the senior Executive Branch officials and the President both
������� ���� ������ ���� ��������������� ��� �����-����������� ���nforced the basic theme of the
A������������������������������������������������������������������������
53.
On October 12, 2017, then-Attorney General Sessions, in an address to the
Executive Office for Immigration Review, stated, without any evidence�� � ��� . . . have dirty
immigration lawyers who are encouraging their otherwise unlawfully present clients to make false
claims of asylum providing them with the magic words needed to trigger the credible fear
���������7
54.
On January 16, 2018, Secretary Nielsen stated, before the U.S. Senate, ���������
must tighten [our] case processing standards, including t������������-����������������8
����������������������������������������������������������������������� ���� limited capacity to
process asylum applications are similarly unfounded. Senior CBP and ICE officials at the San
�����������������������������������������������������������������������������������������������������
����������������������������������������������������������������������������������������������USA:
‘You Don’t Have Any Rights Here’: Illegal Pushbacks, Arbitrary Detention & Ill-Treatment of
Asylum-Seekers in the United States (2018) <https://tinyurl.com/y8k4q54o>. The September 2018
OIG report �������������������������������������������������������������������������������������
���������������������
7 DOJ, Attorney General Sessions Delivers Remarks to the Executive Office of Immigration Review
(Oct. 12, 2017) <https://tinyurl.com/y9n3alru>.
8 DHS, Written testimony of DHS Secretary Kirstjen Nielsen for a Senate Committee on the
���������� �������� ������� ����������� ��� ���� ������� ������� ����������� ��� ��������� ����������
<https://tinyurl.com/yc57pd6n>.
14
55.
For his part, President Trump has made no secret of his disdain for the N��������
duly-enacted immigration laws, including the asylum laws:
a.
On June 21, 2018, ����������������������������������������������������������
the thousands, as our ridiculous immigration laws demand, we should be
changing our laws, building the Wall, hire Border Agents and Ice and not let
people come into our country based on the legal phrase they are told to say as
����������������
b. On June 24, 2018, the President tweeted����������������������������������������
to invade our Country. When somebody comes in, we must immediately, with
no Judges or Court Cases, bring them back from where they came. Our system
is a mockery to good immigration policy and Law and Order. Most children
come without parents . . . .�
c.
On June ���������������������������������������������������������������������
illegally, we must IMMEDIATELY escort them back out without going
������������������������������������
d. On July ��� ������ ���� ���������� ��������� � ������ �������� ����� ��� ��������
children, enter our Country, they must be told to leave without our Country
being forced to endure a long and costly trial. Tell the ������������������������
�������������������������������������������������������������������������
e.
On October ��������������������������������������������������������������
very bad people are mixed into the Caravan heading to our Southern Border.
Please go back, you will not be admitted into the United States unless you go
through the legal process. This is an invasion of our Country and our Military
��������������������
f.
On November 1, 2018, President Trump delivered a speech regarding asylum
policy. In that speech, the President again referred to migrants from Central
�������������������������������������������������������������������������������
�����������������������������������������������������������������9
g. In the same speech, President Trump attacked the content of the asylum laws
�����������������������������������������������������������������������������
statement given by a lawyer, and we have a three-and-a-half-year court case for
���� ��������� � ���� ���������� ������� ���� ����� ����� ��������� �as passed
������������������������������������������������������������������������������
���������������������������������������������������������������������������������
9 Remarks by President Trump on the Illegal Immigration Crisis and Border Security, The White
House (Nov. 1, 2018) <https://tinyurl.com/y9x88wfj>.
15
56.
The foregoing statements reflect a hostility amongst senior members of the
Administration to the immigration system and to asylum claims, especially those filed by
individuals from Central America. The statements also demonstrate the A�����������������������
to shutter access to asylum by all possible means.
Effects of the Zero-Tolerance Policy
57.
����������������������������������������-tolerance policy, many migrants who arrive
at ports of entry on the U.S.�Mexico border are rebuffed and left in limbo on the Mexican side of
the border.
58.
In recent years, violence in M��������������������������������������������������������
�������������������������������������������������������������������������������10 In January
2018, the U.S. State Department issued a Level Four��������������������������the highest-level
travel warning�for the state of Tamaulipas, which incorporates Reynosa, Matamoros, and
Nuevo Laredo, three major port of entry sites.11 Many of the other border states, such as
Chihuahua, Coahuila, Nuevo León, and Sonora, are listed at Level Three���������������������������
������������������������������������������������������12
59.
The violence faced by migrants and refugees like Plaintiffs while in Mexico is
disproportionately high and serious. They face grave risks of kidnapping, disappearances, sexual
assault, traffick��������������������������������������������������������������������������������
10 Human Rights First, Mexico: Still Not Safe for Refugees and Migrants (Mar. 2018)
<https://tinyurl.com/y8b6flak>.
11 ����������������������Mexico Travel Advisory ������������������������������������������������
such as murder, armed robbery, carjacking, kidnapping, extortion, and sexual assault, is common.
Gang activity, including gun battles, is widespread. . . . Local law enforcement has limited
capabilit�������������������������������������������������������
16
only due to their inherent vulnerabilities as refugees and migrants, but also due to their nationality,
race, gender, sexual orientation and gender identity. Additionally, they have limited or no financial
resources or contacts in the region.
60.
Long wait times for access to ports of entry�times which will only increase under
the Rule�leave asylum-seekers especially vulnerable. Cartels and other criminal organizations
prey on migrants in border towns and near ports of entry, with cartel members often waiting
directly outside some ports of entry.13 ��������������������������������������and disappearances
in Mexico suggest disproportionate killing of non-������������������14 Attorneys and employees
����������������������������������������������������������if not all�migrants they encounter
who had been turned away from the port of entry have ������������������������������������15
And with migrant shelters frequently at capacity, many asylum-seekers have no other choice but
to sleep on the streets or on the bridge itself while they await access to a port of entry.
61.
���������������������������������������������������������������������������������
legitimate asylum seekers to cross the border other than at authorized ports of entry. ����� recent
OIG Report confirmed this reality. The OIG reported �evidence that limiting the volume of
asylum-seekers entering at ports of entry leads some aliens who would otherwise seek legal entry
into the United States to cross the border illegally. According to one Border Patrol supervisor, the
13 Human Rights First, Crossing the Line: U.S. Border Agents Illegally Reject Asylum Seekers, at
16 (May 2017) [hereinafter Crossing the Line] <https://tinyurl.com/y8rxsfmn>.
14 Josiah Heyman & Jeremy Slack, Blockading Asylum Seekers at Ports of Entry at the US–Mexico
Border Puts Them at Increased Risk of Exploitation, Violence, and Death, Ctr. for Migration
Studies (June 25, 2018) <https://tinyurl.com/yc5tgec3>.
15 Crossing the Line, supra n.13, at 16.
17
Border Patrol sees a�������������������������������������������������������������������������16 The
��������������������������������������������������������������������������������������������������
metering leads to increased illegal border crossings strongly suggests a relationship between the
Issuance of the Rule and Proclamation
62.
On November 9, 2018, Defendants enacted the next phase of their �����-�����������
policy aimed at significantly reducing the availability of asylum.
63.
The process began when Acting Attorney General Whitaker and the Secretary
promulgated the Rule. The Rule makes three main changes to asylum law.
a.
First, the Rule provides that noncitizens who apply for asylum after
November 9, 2018 will be ineligible for asylum if they are ��������� ��� ��
presidential proclamation or other presidential order suspending or limiting the
entry of aliens along the southern border with Mexico that is issued pursuant to
subsection 212(f) of 215(a)(1) of the Act on or after November 9, 2018� and
have entered the United States contrary to the terms of the proclamation or
order. See Rule, 83 Fed. Reg. at 55,952 (to be codified at 8 C.F.R.
§§ 208.13(c)(3), 1208.13(c)(3)).
b. Second, the Rule provides that noncitizens who are ineligible for asylum
pursuant to §§ 2018.13(c)(3) and 1208.13(c)(3) will not be permitted to make a
�������� ��� ���������� ������ ��� ������������� ��� noncitizens seeking asylum
presently may do. Under the Rule, �������������� request for asylum is, from a
16 OIG Report, supra note 6, at 7.
17 Id. at n.15.
18
merits standpoint, summarily denied, because the asylum officer is directed to
������� �� ��������� ��������� ����� �������������� ����� �������� ��� ���� ��������
application ���� ��������� � ���� noncitizen instead will be placed into
��������������������������������������������������������������������������������
claim for withholding of removal under section 241(b)(3) of the Act, or for
withholding or deferral of removal under the Convention Against Torture if the
�����������������������������������������������������������������Id. (to be codified
at 8 C.F.R. § 208.30).
c.
Third, the Rule provides for what an immigration judge is to do with respect to
the review of expedited removal orders following a negative credible or
reasonable fear assessment. The Rule provides that an immigration judge is to
review de novo the determination that a noncitizen falls within the scope of a
Presidential proclamation that is described in 8 C.F.R. § 208.13(c)(3) or
§ 1208.13(c)(3). If the immigration judge determines that the noncitizen is not
���������������������������������������������������������������������������������
DHS may commence removal proceedings under Section 240 of the INA. If
the judge agrees that the noncitizen is subject to a proclamation, the judge will
����� ������� ���� ������� ���������� �������������� ����� ���� noncitizen lacks a
reasonable fear of persecution pursuant to the procedures set forth in 8 C.F.R.
§ 1208.30(g)(2).
64.
Put more succinctly, together the Rule and Proclamation prohibit anyone from
obtaining asylum if they cross outside of a port of entry and make it more difficult for those people
19
to obtain other forms of relief. At the same time, as detailed above, the Administration has made
it untenable for many, if not most, noncitizens to apply for asylum at a port of entry.
65.
In support of the Rule, the Acting Attorney General and the Secretary cited 8 U.S.C.
§ ��������������� ������ ����������� ���� ��������� �������� ��� ���� ����������� ���������� �����������
limitations and conditions, consistent with [the remainder of Section 1158], under which an alien
�������������������������������������������������������������������������������������������������
U.S.C. § 1158(d)(5)(B), which provides that the Attorney General may ���������������������������
any other conditions or limitations on the consideration of an application for asylum not
�������������������������������� ������������������������ation�������������������������������������
present in Section 1158 relate to manner of entry, and a bar to asylum based on manner of entry is
contrary to the plain language of Section 1158.
66.
The Acting Attorney General and the Secretary acknowledged that in the previous
year 1,889 migrants from the Northern Triangle (i.e., Guatemala, Honduras, and El Salvador),
representing nearly 25% of those whose asylum applications were adjudicated on the merits, had
been granted asylum. See Rule, 83 Fed. Reg. at 55,946. ���������������������������������������
of those asylum grants wou���������������������������������������������������������������������
the Rule. Id. at 55,948.
67.
Although the APA requires an agency to allow for a period of public notice and
comment (as well as a 30-day waiting period) before implementing a proposed regulation, see 5
U.S.C. §§ 553(b), (c), (d), the Rule became effective upon its publication. In explaining why they
failed to follow the ordinary rule���������������������������������������������������������sted
to bypass those procedures under 5 U.S.C. § 553(b)(B). DOJ and DHS also invoked the ���������
�������� exception to the notice and comment requirement set forth in 5 U.S.C. § 553(a)(1).
20
68.
Also on November 9, 2018, President Trump issued the Proclamation pursuant to
8 U.S.C. §§ 1182(f) and 1185(a). The ���������������������������������������������������������
United States across the international boundary between the United States and Mexico is
��������������������������������������������������������������§ 1, at which point the President
will decide whether to extend the suspension period, id. § 2(d). The suspension of entry applies
�����������������������������������������������������������������������������������������������������
alien who enters the United States at a port of entry and properly presents for inspection, or to any
��������������������������� Id. §§ 2(a), (b).
69.
In the Proclamation, President Trump openly prejudged asylum claims of intending
migrants; he specifically stated that the Proclamation was meant to bar access to asylum for Central
Americans, who, according to the President��� ������������ ���-so�� ������ ��� ������� ������ ����
����������������������������
70.
Taken together, the Rule and Proclamation eliminate asylum for a person who
enters the United States along the southern border other than at a port of entry, even if she has a
credible fear of persecution if returned to her home country and even if she ultimately crosses other
than at ����������������������������������������������������������������������have exhausted her
financial resources or expose her to a continuing threat of crime and violence at the Mexican
71.
The Administration purported to justify the Rule �������������������������������
��������������������������������������������ule, 83 Fed. Reg. at 55,944. Contrary to assertions
contained in the Rule, however, the available data show that migration across the U.S.�Mexico
21
border has, in fact, decreased since 2016.18 In 2017, the number of people apprehended by border
officials after crossing irregularly was the lowest it has been in 46 years.19
20
72.
According to CBP, when compared to 2016, there were, at the southern border,
more than 60,000 fewer apprehensions of undocumented aliens from Mexico in 2017, and more
18 Douglas Massey, Today’s US–Mexico ‘Border Crisis’ in 6 Charts, THE CONVERSATION (Jun. 27,
2018) <https://tinyurl.com/ycn4czpl>; see also Max Bearak, Even Before Trump, More Mexicans
Were Leaving the U.S. Than Arriving, WASH. POST, Jan. 27, 2017 <https://tinyurl.com/ybbrr348>.
19 U.S. Border Patrol, U.S. Customs & Border Protection, Southwest Border Sectors: Total Illegal
Alien Apprehensions By Fiscal Year (Oct. 1st through Sept. 30th) [hereinafter Total
Apprehensions] (Dec. 2017) <https://tinyurl.com/ybg3vkld>.
20 Rebecca Hersher, 3 Charts That Show What’s Actually Happening Along The Southern Border,
NPR (June 22, 2018) <https://tinyurl.com/y8o7m7d2> (referencing United States Broder Patrol
Data).
22
than 40,000 fewer apprehensions of undocumented aliens from outside Mexico.21 In 2018, the
number of people without legal status who have been apprehended attempting to enter the United
States from Mexico has been roughly the same as it has been for the last five years.22
73.
While President Trump in the Proclamation has taken the position that only a
����������� ��� ������� ����������� ���� �������� ���� ����� ������� ����� ������ ������� ���� �������
�������������������������������������thousands of refugees from Northern Triangle countries were
found to have valid claims for asylum in 2016 alone. In 2016, 2,157 people from El Salvador,
1,505 from Honduras, and 1,949 from Guatemala were found by U.S. asylum officers and
immigration judges to be eligible for asylum.23 �����������������������������������������������
and Guatemala were two leading countries of nationality of people granted asylum in the United
States in 2016�the third being China�while El Salvador, Guatemala, and Honduras were four
of the five leading nationalities of persons granted asylum by the immigration courts, the fifth,
again, being China.24
21 Total Apprehensions, supra n.19.
22Linda Qiu, Fact Check of the Day: Border Crossings Have Been Declining for Years, Despite
Claims
of
a
‘Crisis
of
Illegal
Immigration’,
N.Y.
TIMES,
June 20,
2018
<https://tinyurl.com/y7dhmlt6>; U.S. Customs & Border Protection, SW Border Migration FY
2018 (2018) <https://tinyurl.com/ycorhe4p>.
23 See Nadwa Mossad & Ryan Baugh, Refugee Asylees: 2016, Homeland Security: Office of
Immigration Statistics (Jan. 2016) <https://tinyurl.com/y7n4bxqk> (Tables 4 and 5).
23
COUNTS
COUNT ONE
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT:
RULEMAKING CONTRARY TO LAW (8 U.S.C. § 1158)
74.
Plaintiffs incorporate by reference paragraphs 1 through 73.
75.
The Immigration and Nationality Act, 8 U.S.C. § 1158(a)(1), gives any noncitizen
who is physically present in or who arrives in the United States a statutory right to seek asylum,
�������������������������������������������������� and manner of entry.
76.
By barring the plaintiffs from obtaining asylum based solely on the manner in
which they entered the United States, the Rule violates the INA, which prohibits penalizing
refugees for entering the country illegally and other than at a port of entry.
77.
�������������������������������������������������������hold unlawful and set aside
agency action, findings, and conclusions found to be . . ��������������������������������5 U.S.C.
78.
The Rule is not in accordance with 8 U.S.C. § 1158(a)(1). The Rule is therefore
contrary to law under the APA.
79.
Plaintif�������������������������������������������������������������������� and
the APA. In particular, Plaintiffs have been denied a meaningful opportunity to seek asylum,
exposing them to multiple other harms including the threat of removal to their home countries and
the persecution from which they fled. The Rule also deprives Plaintiffs of other benefits to which
asylees are entitled. The harm to Plaintiffs is irreparable.
80.
Plaintiffs do not have an adequate remedy at law to redress the violations alleged
herein, and therefore seek injunctive relief restraining Defendants from continuing to engage in
the unlawful policy and practices alleged herein.
24
COUNT TWO
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT:
RULEMAKING CONTRARY TO LAW (8 U.S.C. § 1225(b))
81.
Plaintiffs incorporate by reference paragraphs 1 through 80.
82.
The Immigration and Nationality Act, including 8 U.S.C. § 1225(b)(1) (expedited
removal) and 8 U.S.C. § 1158 (asylum), affords noncitizens an opportunity to apply for asylum,
by screening arriving noncitizens to determine whether their asylum claims are potentially viable.
83.
Expedited removal procedures apply to certain noncitizens, including noncitizens
who lack proper travel documents and either arrive at a port of entry or are apprehended within 14
days of their arrival and within 100 miles of the U.S. international border. See 69 Fed. Reg. 48,877
(Aug. 11, 2004). Under expedited removal procedures, an inspecting officer may summarily
remove certain noncitizens. However, if the noncitizen expresses a fear of returning to her country
�����������������������������������������������������������������������������������������������������������
See 8 U.S.C. § 1225(b)(1).
84.
�������������������������������������������������������������������������������������
�������������������������������������������������������������������������������������������������������
support of the �������������������������������������������������������������������������������������
�������������������������������������������������������������������� Id. § 1225(b)(1)(B)(v).
85.
Under this Congressional design, a noncitizen in expedited removal proceedings�
including a noncitizen who enters without inspection�should not fail a credible fear interview
unless there is no significant possibility that that individual would ultimately prevail in her asylum
claim. See 8 C.F.R. § 208.30(e)(5) (citing to 8 C.F.R. § 208.13(c)(3)). A credible fear interview
is not an on-the-merits adjudication of the claim. To the contrary, the credible fear standard of
25
review is intended to be sufficiently low to ensure all bona fide asylum seekers receive a full
hearing on their claims.
86.
The Rule mandates a negative credible fear finding for anyone who enters without
inspection, even in cases where there is a significant possibility that the noncitizen is eligible for
asylum. This requirement violates the plain meaning of Section 1225.
87.
Immigration judges are mandated to follow the same rules as those that are
applicable to asylum officers in denying a credible fear finding for asylum seekers who are subject
to the Rule. 8 C.F.R. § 1208.30(e). This also violates the plain text of Section 1225.
88.
The Rule forbids a positive credible fear determination even if an asylum officer or
���������������������������������������������������������������������������������������������������
determine that the individual has a right to seek asylum under the statute notwithstanding the
regulations, and that the individual otherwise has a significant possibility of winning such a claim.
See id. § 208.30(e)(5); id. § 1208.30(e)(5).
89.
Under the Administrative Procedure ������������������������������������������������
agency action, findings, and conclusions found to be . . �����������������������������������������
90.
������������Rule is ��������������������������������������������������������������
expedited removal provisions and thus is ������������������������8 U.S.C. § 1252(e)(3)(A)(ii). The
Rule is therefore contrary to law under the APA.
91.
Plaintiffs do not have an adequate remedy at law to redress the violations alleged
herein, and therefore seek injunctive relief restraining Defendants from continuing to engage in
the unlawful policy and practices alleged herein.
26
COUNT THREE
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT:
RULEMAKING CONTRARY TO THE TRAFFICKING VICTIMS PROTECTION
REAUTHORIZATION ACT OF 2008
92.
Plaintiffs incorporate by reference paragraphs 1 through 91.
93.
The William Wilberforce Trafficking V������������������������������� provides
specific asylum protections to children. See 8 U.S.C. § 1158 (b)(3)(C).
94.
Under the TVPRA, unaccompanied children who enter without inspection are
generally not subject to expedited removal provisions. See id. § 1232(a)(5)(D)(i). Instead,
unaccompanied children are placed into regular removal proceedings before an immigration judge
without having to pass a credible fear interview. Id.
95.
However, the immigration judge is not the first person to whom an unaccompanied
minor presents his or her application for asylum. Instead, the TVPRA prov�����������������������
officer . . . shall have initial jurisdiction over any asylum application filed by an unaccompanied
���������������Id.
96.
Under the TVPRA, if the asylum officer denies the application for asylum, the
unaccompanied minor then has an opportunity to proceed before the immigration judge.
97.
This sequencing implements an important objective of the statute. By allowing an
unaccompanied child the opportunity to present an asylum claim to an asylum officer in the first
instance, the TVPRA ensures that when a child recounts for the first time the traumatic and
sensitive facts of the persecution underlying a claim for humanitarian protection, he or she may do
so in a non-adversarial setting.
98.
The Rule is contrary to the system established by the TVPRA. Under the Rule,
unaccompanied children subject to the Proclamation are ineligible for asylum, and will be subject
27
to a mandatory negative credible fear finding. Because asylum officers do not have authority to
order withholding of removal or protection under the Convention Against Torture, the asylum
officer will, under the Rule, have no obvious basis to hear or assess the merits of the
���������������������������������������������
99.
As a result, the first time an unaccompanied minor like GZ will be permitted to
present and obtain any review of the traumatic and sensitive details of a claim for asylum is in the
adversarial proceeding that occurs before an immigration judge. The Rule thus upends the non-
adversarial process mandated by Congress in 8 U.S.C. § 1158 (b)(3)(C).
100.
�������� ������������ �������� ������ ���� ����� ���� ��������� ��� ���� TVPRA, they
violate APA Section ���������� �������� ����� ���� ����� ��� ����������� ����� ����� ���� ����
Section 706(2)(C) becaus������������������������������������������������
101.
Plaintiff GZ is irreparably harmed by losing his statutory right to participate in a
non-adversarial process before an asylum officer. Plaintiff GZ therefore asks that this Court grant
him declaratory and injunctive relief.
COUNT FOUR
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT:
RULEMAKING THAT IS ARBITRARY, CAPRICIOUS, AN ABUSE OF DISCRETION
AND OTHERWISE CONTRARY TO LAW
102.
Plaintiffs incorporate by reference paragraphs 1 through 101.
103.
The promulgation of the Rule constitutes agency action by the Acting Attorney
General and the Secretary that is arbitrary, capricious, an abuse of discretion, and otherwise not in
accordance with law for a number of reasons. Among other things, the Rule is irrational and
arbitrary. It is therefore unlawful under 5 U.S.C. § 706(2)(A).
28
COUNT FIVE
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT:
CONTRARY TO 28 U.S.C. § 508 AND THE APPOINTMENTS CLAUSE
104.
Plaintiffs incorporate by reference paragraphs 1 through 103.
105.
President Trump fired former Attorney General Jefferson B. Sessions III on or
about November 7, 2018. Mr. Sessions therefore was no longer the Attorney General at the time
the Rule issued and could not have promulgated the Rule.
106.
�������������������������������������������������������������������������������
invalid because it violates the requirements of 28 U.S.C. § 508. Section ���������������������������
of a vacancy in the office of Attorney General, or his absence or his disability, the Deputy Attorney
��������������������������������������������������� 28 U.S.C. § 508. If the Deputy Attorney General
������������������������������������������������������������������������������ney General and the
Attorney General may also designate the Solicitor General or the Assistant Attorneys General to
assume the duties. Id. § 508(b).
107.
Because Defendant Whitaker was not the Deputy Attorney General, Associate
Attorney General, Solicitor General, or an Assistant Attorney General at the time of his
appointment to the position of Acting Attorney General, his appointment is invalid under 28 U.S.C.
108.
�������������������������������������������������������������������������������
also invalid because it violates the Appointments Clause of the United States Constitution, art. II,
§ 2, cl. 2.
109.
���� ������������� ������� ��������� ����� ���� ���������� ������� ���e Advice and
����������������������������������������������������������������������������������� U.S. Const.
art. II, § 2, cl. 2.
29
110.
The Attorney General, as the chief law enforcement officer of the United States,
the head of the Department of Justice, and a Cabinet level official who reports only to the President,
is a principal officer under the Appointments Clause. See Morrison v. Olson, 487 U.S. 654, 670�
77 (1988). An Acting Attorney General must therefore be appointed by the President and
confirmed by the Senate.
111.
President Trump did not obtain the advice and consent of the Senate before
appointing Defendant Whitaker to the position of Acting Attorney General. ���������������������
appointment is thus in direct contravention of the Appointments Clause.
112.
Because Defendant Whitaker lacked authority to promulgate the Rule due to his
illegal appointment, the Rule is unlawful under the APA, 5 U.S.C. § 706(2)(C).
COUNT SIX
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT:
CONTRARY TO REQUIREMENT THAT ASYLUM LIMITS BE MADE BY
REGULATION
113.
Plaintiffs incorporate by reference paragraphs 1 through 112.
114.
��������������������������������������������������������������������������������
the Rule constitutes agency action in excess of the statutory authority conferred upon him.
115.
In 8 U.S.C. § ������������������������������������������������������������������
by Regulation establish additional limitations and conditions, consistent with this section, under
�����������������������������������������������
116.
The Rule violates the statutory requirement that additional limitations and
conditions be established by regulation, because it automatically incorporates, without
independent rulemaking process, the content of unspecified Presidential proclamations, so long as
��������������������������������������������������������������������������������������������������
30
������������������������������������������������������������������������������������ INA on or
after November 9, 2018.
117.
The Rule is contrary to the statutory requirement that conditions and limitations on
the availability of asylum be established by regulation. Instead, the Rule constitutes an abdication
of that responsibility by allowing the President, by proclamation and without a rulemaking process,
to add or change the conditions and limitations for asylum.
118.
The Rule therefore exceeds ����������������������������s statutory authority under
8 U.S.C. § 1158(b)(2)(C) and is invalid under the APA.
COUNT SEVEN
VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACTION:
NOTICE AND PUBLIC COMMENT PROVISIONS
119.
Plaintiffs incorporate by reference paragraphs 1 through 118.
120.
The Rule is illegal because the Administration promulgated the Rule without
providing the notice and opportunity for public comment set forth in 5 U.S.C. §§ 553(a)�(d).
COUNT EIGHT
VIOLATION OF THE IMMIGRATION AND NATIONALITY ACT:
ULTRA VIRES RULEMAKING
121.
Plaintiffs incorporate by reference paragraphs 1 through 120.
122.
The Rule is illegal and so is ultra vires for the reasons provided in Counts One
through Six. See, e.g., Trudeau v. FTC, 456 F.3d 178 (D.C. Cir. 2006); Aid Ass’n for Lutherans
v. U.S. Postal Serv., 321 F.3d 1166, 1172, 1175 (D.C. Cir. 2003).
31
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that the Court enter judgment in its favor
and against Defendants, and to grant the following relief:
a.
A declaratory judgment (1) that the Rule is arbitrary, capricious, and contrary to
law within the meaning of 5 U.S.C. § 706; (2) that ������������������������������������ ����
position of Acting Attorney General is unlawful, and the promulgation of the Rule therefore
constitutes agency action in excess of the statutory authority conferred upon the office of the
Attorney General; (3) ������������������������������������������������������������������������
was lawful, that the promulgation of the Rule violates the requirement that additional limitations
on the availability of asylum be established by regulation; (4) that the Rule was promulgated in
violation of 5 U.S.C. § 553; and (5) the Rule is ultra vires because it is illegal.
b.
Such preliminary injunctive and ancillary relief as may be necessary to avert the
likelihood of irreparable harm to Plaintiffs during the pendency of this action, including, but not
limited to, temporary and preliminary injunctions;
c.
A permanent injunction forbidding Defendants from implementing or enforcing the
d.
An order awarding Plaintiffs� ������ ��� ������ ���� ����������� ����������� ����� ����
expenses pursuant to any applicable law; and
31
| criminal & enforcement |
Ok3BA4kBRpLueGJZBMSo | BARSHAY SANDERS, PLLC
100 Garden City Plaza, Suite 500
Garden City, New York 11530
Tel: (516) 203-7600
Fax: (516) 706-5055
Email: ConsumerRights@BarshaySanders.com
Attorneys for Plaintiff
Our File No.: 118912
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
Stacy Berkowitz, individually and on behalf of all others
similarly situated,
Plaintiff,
Docket No:
CLASS ACTION COMPLAINT
vs.
JURY TRIAL DEMANDED
Aargon Collection Agency, Inc.,
Defendant.
Stacy Berkowitz, individually and on behalf of all others similarly situated (hereinafter
referred to as “Plaintiff”), by and through the undersigned counsel, complains, states and alleges
against Aargon Collection Agency, Inc. (hereinafter referred to as “Defendant”), as follows:
INTRODUCTION
1.
This action seeks to recover for violations of the Fair Debt Collection Practices
Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”).
JURISDICTION AND VENUE
2.
This Court has federal subject matter jurisdiction pursuant to 28 U.S.C. § 1331
and 15 U.S.C. § 1692k(d).
3.
Venue is proper under 28 U.S.C. § 1391(b) because a substantial part of the
events or omissions giving rise to the claim occurred in this Judicial District.
4.
At all relevant times, Defendant conducted business within the State of New
PARTIES
5.
Plaintiff Stacy Berkowitz is an individual who is a citizen of the State of New
York residing in Suffolk County, New York.
6.
Plaintiff is a natural person allegedly obligated to pay a debt.
7.
Plaintiff is a “consumer” as defined by 15 U.S.C. § 1692a(3).
8.
On information and belief, Defendant Aargon Collection Agency, Inc., is a
Nevada Corporation with a principal place of business in Clark County, Nevada.
9.
Defendant regularly collects or attempts to collect debts asserted to be owed to
others.
10.
Defendant is regularly engaged, for profit, in the collection of debts allegedly
owed by consumers.
11.
The principal purpose of Defendant's business is the collection of such debts.
12.
Defendant uses the mails in its debt collection business.
13.
Defendant is a “debt collector” as defined by 15 U.S.C. § 1692a(6).
THE FDCPA AS IT RELATES TO THE CLAIMS HEREIN
14.
Congress enacted the FDCPA upon finding that debt collection abuse by third
party debt collectors was a widespread and serious national problem. See S. Rep. No. 95-382, at
2 (1977) reprinted in U.S.C.C.A.N. 1695, 1696; 15 U.S.C § 1692(a).
15.
The purpose of the FDCPA is to protect consumers from deceptive or harassing
actions taken by debt collectors, with the aim of limiting the suffering and anguish often inflicted
by independent debt collectors. Kropelnicki v. Siegel, 290 F.3d 118, 127 (2d Cir. 2002); Russell
v. Equifax A.R.S., 74 F.3d 30, 34 (2d Cir. 1996).
16.
To further these ends, “the FDCPA enlists the efforts of sophisticated consumers
... as 'private attorneys general' to aid their less sophisticated counterparts, who are unlikely
themselves to bring suit under the Act, but who are assumed by the Act to benefit from the
deterrent effect of civil actions brought by others.” Jacobson v. Healthcare Fin. Servs., Inc., 516
F.3d 85, 91 (2d Cir. 2008).
17.
As such, the circumstances of the particular debtor in question have no bearing
as to the question of whether there has been a violation of the FDCPA. See Easterling v.
Collecto, Inc., 692 F.3d 229, 234 (2d Cir. 2012). Indeed, it is not necessary for a plaintiff to
show that he or she was confused by the communication received. Jacobson, 516 F.3d at 91.
Likewise, the plaintiff consumer's actions or inaction in response to a communication from a
debt collector are irrelevant. Thomas v. Am. Serv. Fin. Corp., 966 F. Supp. 2d 82, 90 (E.D.N.Y.
2013).
18.
Instead, “the test is how the least sophisticated consumer—one not having the
astuteness of a 'Philadelphia lawyer' or even the sophistication of the average, everyday, common
consumer—understands the notice he or she receives.” Russell, 74 F.3d at 34.
19.
If a debt collector's communication is “reasonably susceptible to an inaccurate
reading” by the least sophisticated consumer, it violates the FDCPA. DeSantis v. Computer
Credit, Inc., 269 F.3d 159, 161 (2d Cir. 2001). Similarly, a communication violates the FDCPA
if it is “open to more than one reasonable interpretation, at least one of which is inaccurate,” or if
the communication “would make the least sophisticated consumer uncertain as to her rights.”
Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993); Jacobson, 516 F.3d at 90.
20.
The FDCPA is a strict liability statute, and a debt collector's intent may only be
considered as an affirmative defense. 15 U.S.C. § 1692k(c); Ellis v. Solomon & Solomon, P.C.,
591 F.3d 130, 135 (2d Cir. 2010). Likewise, “the degree of a defendant's culpability may only
be considered in computing damages.” Bentley v. Great Lakes Collection Bureau, 6 F.3d 60, 63
(2d Cir. 1993). A single violation of the FDCPA to establish civil liability against the debt
collector. Id.
ALLEGATIONS SPECIFIC TO PLAINTIFF
21.
Defendant alleges Plaintiff owes a debt (“the alleged Debt”).
22.
The alleged Debt is an alleged obligation of Plaintiff to pay money arising out of
a transaction in which the money, property, insurance, or services which are the subject of the
transaction are primarily for personal, family, or household purposes.
23.
The alleged Debt does not arise from any business enterprise of Plaintiff.
24.
The alleged Debt is a “debt” as defined by 15 U.S.C. § 1692a(5).
25.
At an exact time known only to Defendant, the alleged Debt was assigned or
otherwise transferred to Defendant for collection.
26.
At the time the alleged Debt was assigned or otherwise transferred to Defendant
for collection, the alleged Debt was in default.
27.
In its efforts to collect the alleged Debt, Defendant contacted Plaintiff by
telephone on December 28, 2019, at approximately 7:10 p.m.
28.
Defendant left a voicemail message (“the Message”) for Plaintiff.
29.
The Message announced the call was from “Aargon Agency.”
30.
The Message conveyed information regarding the alleged Debt.
31.
The Message is a “communication” as defined by 15 U.S.C. § 1692a(2).
32.
The deprivation of Plaintiff's rights will be redressed by a favorable decision
FIRST COUNT
Violation of 15 U.S.C. § 1692g(a)(1)
33.
Plaintiff repeats and realleges the foregoing paragraphs as if fully restated herein.
34.
15 U.S.C. § 1692c(b) provides that without the prior consent of the consumer
given directly to the debt collector, a debt collector may not communicate, in connection with the
collection of any debt, with any person other than the consumer, his attorney, a consumer
reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the
attorney of the debt collector.
35.
The Message announced the call was from “Aargon Agency.”
36.
The Message announced the call was from a debt collector.
37.
The Message announced that the Defendant was calling in an attempt to collect a
38.
Plaintiff played the Message on speakerphone.
39.
Plaintiff’s boyfriend was in the same room.
40.
Prior to listening to the Message, Plaintiff had no way of knowing that Defendant
had left the Message.
41.
Prior to listening to the Message, Plaintiff had no way of knowing that there was a
message from a debt collector.
42.
The Message gave no warning or other notice that Plaintiff should listen to the
Message in private.
43.
The Message gave no warning or other notice that the Message was private or
personal in nature.
44.
The Message had no pause or other break that would have allowed Plaintiff to
discontinue listening to the message if a third-party was present.
45.
Plaintiff’s boyfriend heard the Message.
46.
Plaintiff’s boyfriend was not aware of the Debt.
47.
Plaintiff never gave Defendant consent to communicate with any third party in
connection with the collection of the Debt.
48.
Plaintiff did not give Defendant express permission to leave messages on the
telephone that the Defendant called.
49.
Defendant’s conduct invaded the privacy protections afforded to Plaintiff through
the FDCPA
50.
Defendant’s actions as described herein violate 15 U.S.C. § 1692c(b).
51.
Plaintiff was caused significant embarrassment and humiliation as a result of the
Defendant’s conduct.
52.
For all of the foregoing reasons, Defendant violated 15 U.S.C. §§ 1692c(b) and is
liable to Plaintiff therefor.
SECOND COUNT
Violation of 15 U.S.C. § 1692g
53.
Plaintiff repeats and realleges the foregoing paragraphs as if fully restated herein.
54.
The Message was the initial communication Plaintiff received from Defendant
concerning the alleged Debt.
55.
15 U.S.C. § 1692g provides that within five days after the initial communication
with a consumer in connection with the collection of any debt, a debt collector shall, unless the
information is contained in the initial communication or the consumer has paid the debt, send the
consumer a written notice containing certain enumerated information, notices and disclaimers.
15 U.S.C. § 1692g(a)(1)-(5).
56.
Defendant was required to send Plaintiff the aforementioned written notice within
five days of the telephone call to Plaintiff.
57.
Defendant failed to send the required written notice to Plaintiff within five days of
the telephone call to Plaintiff.
58.
Defendant’s failure to send the required written notice to Plaintiff within five days
of the telephone call to Plaintiff is a violation of 15 U.S.C. § 1692g.
59.
For the foregoing reasons, Defendant violated 15 U.S.C. § 1692g and is liable to
Plaintiff therefor.
CLASS ALLEGATIONS
60.
Plaintiff brings this action individually and as a class action on behalf of all
persons similarly situated in the State of New York.
61.
Plaintiff seeks to certify two classes of:
i. All consumers to whom Defendant left a collection voicemail
message without prior consent and; substantially and materially
similar to the message left with the Plaintiff, which message was left
on or after a date one year prior to the filing of this action to the
present.
ii. All consumers to whom Defendant failed to send a written notice
as required by Section 1692g of the FDCPA, on or after a date one
year prior to the filing of this action to the present
62.
This action seeks a finding that Defendant's conduct violates the FDCPA, and
asks that the Court award damages as authorized by 15 U.S.C. § 1692k.
63.
The Class consists of more than thirty-five persons.
64.
Plaintiff's claims are typical of the claims of the Class. Common questions of law
or fact raised by this action affect all members of the Class and predominate over any individual
issues. Common relief is therefore sought on behalf of all members of the Class. A class action
is superior to other available methods for the fair and efficient adjudication of this controversy.
65.
The prosecution of separate actions by individual members of the Class would
create a risk of inconsistent or varying adjudications with respect to the individual members of the
Class, and a risk that any adjudications with respect to individual members of the Class would, as
a practical matter, either be dispositive of the interests of other members of the Class not party to
the adjudication, or substantially impair or impede their ability to protect their interests.
Defendant has acted in a manner applicable to the Class as a whole such that declaratory relief is
warranted.
66.
Plaintiff will fairly and adequately protect and represent the interests of the Class.
The management of the class is not extraordinarily difficult, and the factual and legal issues
raised by this action will not require extended contact with the members of the Class, because
Defendant's conduct was perpetrated on all members of the Class and will be established by
common proof. Moreover, Plaintiff has retained counsel experienced in actions brought under
consumer protection laws.
JURY DEMAND
67.
Plaintiff hereby demands a trial of this action by jury.
PRAYER FOR RELIEF
WHEREFORE Plaintiff respectfully requests judgment be entered:
a. Certifying this action as a class action; and
b. Appointing Plaintiff as Class Representative and Plaintiff's attorneys as
Class Counsel;
c. Finding Defendant's actions violate the FDCPA; and
d. Granting damages against Defendant pursuant to 15 U.S.C. § 1692k; and
e. Granting Plaintiff's attorneys' fees pursuant to 15 U.S.C. § 1692k; and
f. Granting Plaintiff's costs; all together with
g. Such other relief that the Court determines is just and proper.
DATED: February 13, 2020
BARSHAY SANDERS, PLLC
By: _/s/ Craig B. Sanders
Craig B. Sanders, Esquire
100 Garden City Plaza, Suite 500
Garden City, New York 11530
Tel: (516) 203-7600
Fax: (516) 706-5055
csanders@barshaysanders.com
Attorneys for Plaintiff
Our File No.: 118912
| consumer fraud |
DEbpAokBRpLueGJZVT6l | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF FLORIDA
TALLAHASSEE DIVISION
BENJAMIN ALEXANDER,
GEORGE COLLIER by his next
friend, Timothy Collier, RAIMUNDO
LEAL, JEFFERSON LANGLAISE,
CELIA LOPEZ by her next friend,
Javier Lopez, and GERALDINE
DAVENPORT by her next friend,
Barbara Roti, on behalf of themselves
and all others similarly situated,
Plaintiffs,
vs.
Case No.
JUSTIN SENIOR, in his official
capacity as Secretary, Florida Agency
for Health Care Administration, and
JEFFREY BRAGG, in his official
capacity as Secretary, Florida
Department of Elder Affairs,
Defendants.
________________________________/
CLASS ACTION COMPLAINT
FOR DECLARATORY AND INJUCTIVE RELIEF
PRELIMINARY STATEMENT
1.
This is a statewide class action lawsuit brought by low-income older
adults and adults with disabilities on a waitlist for long term care services. They
1
bring this suit because they seek, but cannot obtain, long-term care services in
their homes or in other community-based settings. Defendants have the ability,
under federal Medicaid law, to provide these services. Instead, they ration
services to a restricted number of people, and, as a result, fail to address the care
needs of thousands of waitlisted older adults and adults with disabilities.
Defendants’ administration of the Medicaid long-term care system violates the
civil rights of the Named Plaintiffs and proposed class by requiring them to
choose between receiving needed care and remaining in their homes.
2.
Specifically, Defendants’ administrative, planning, and funding
decisions heavily favor nursing facility payment and nursing facility entry,
while allowing the waitlist for Medicaid home and community based long-term
care services to grow to be the longest in the nation. Meanwhile, Florida ranks
near the bottom in the nation in terms of Medicaid funding of home and
community based services as compared to nursing facility expenditures.
Defendants utterly fail to meet the demonstrated need for home and community
based long-term care services.
3.
Florida’s Statewide Medicaid Managed Care Long-Term Care Program
includes both nursing facility care and home and community based care services
in a managed care system. Plaintiffs have sought care and treatment through
2
the part of the program that would allow them to remain in their most integrated
setting, termed herein as the “Long-Term Care Waiver.” Yet, because of the
discriminatory way Defendants manage the public health care system, Named
Plaintiffs and others like them face the real prospect of unnecessary
institutionalization.
4.
Defendants’ failure to provide needed home and community based
services to the Named Plaintiffs and proposed class violates the Americans with
Disabilities Act (ADA), 42 U.S.C. § 12132.
JURISDICTION
5.
This is an action for declaratory and injunctive relief under the ADA,
42 U.S.C. § 12132.
6.
This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. §§ 1331 & 1342. Plaintiffs’ claims for declaratory and
injunctive relief are authorized under 28 U.S.C. §§ 2201-02.
VENUE
7.
Venue lies in the Northern District pursuant to 28 U.S.C. § 1391(b), and
in the Tallahassee Division, because Defendants officially reside there. N.D.
Fla. Loc. R. 3.1.
3
NAMED PLAINTIFFS
8.
BENJAMIN ALEXANDER is 55-years-old. He lives with his elderly
mother in Duval County, Florida. He is a person with a disability under the
ADA. He is eligible for the Long-Term Care Waiver. He wishes to remain
living in the community with appropriate home and community based services.
Mr. Alexander sought services through the Long-Term Care Waiver and was
placed on the waiting list in March 2018.
9.
GEORGE COLLIER is 91-years-old. Pursuant to Fed. R. Civ. P
17(c)(2), he sues through his next friend, Timothy Collier. He lives in an
assisted living home in St. Lucie County, Florida. He is a person with a
disability under the ADA. He is eligible for the Long-Term Care Waiver. He
wishes to remain living in the community with appropriate home and
community based services. Mr. Collier sought services through the Long-Term
Care Waiver and was placed on the waitlist in 2015.
10. RAIMUNDO LEAL is 76-years-old. He lives in his own apartment in
Hillsborough County, Florida. He is a person with a disability under the ADA.
He is eligible for the Long-Term Care Waiver. He wishes to remain living in
the community with appropriate home and community based services. Mr. Leal
sought services through the Long-Term Care Waiver and was placed on the
4
waitlist in 2016.
11. JEFFERSON LANGLAISE is 50-years-old. He lives in an assisted
living home in Miami-Dade County, Florida. He is a person with a disability
under the ADA. He is eligible for the Long-Term Care Waiver. He wishes to
remain living in the community with appropriate home and community based
services. Mr. Langlaise sought services through the Long-Term Care Waiver
in 2017 and was placed on the waitlist in 2018.
12. CELIA LOPEZ is 82-years-old. Pursuant to Fed. R. Civ. P 17(c)(2),
she sues through her next friend, Javier Lopez. She lives in Miami-Dade
County, Florida with her granddaughter, her granddaughter’s husband and three
great-grandchildren. She is a person with a disability under the ADA. She is
eligible for the Long-Term Care Waiver. She wishes to remain living in the
community with appropriate home and community based services. Ms. Lopez
sought services through the Long-Term Care Waiver and was placed on the
waitlist in November 2014.
13. GERARLDINE DAVENPORT is 90-years-old. Pursuant to Fed. R.
Civ. P 17(c)(2), she sues through her next friend, Barbara Roti. She lives in an
assisted living home in St. Lucie County, Florida. She is a person with a
disability under the ADA. She is eligible for the Long-Term Care Waiver. She
5
wishes to remain living in the community with appropriate home and
community based services. Ms. Davenport sought services through the Long-
Term Care Waiver and was placed on the waitlist in 2013.
DEFENDANTS
14. Defendant JUSTIN SENIOR is Secretary of Florida’s Agency for
Health Care Administration (AHCA) and is sued in his official capacity. (This
Defendant will be referenced by the agency, AHCA.) AHCA is the “single state
agency” that operates and administers Florida’s Medicaid program, including
Florida’s Long-Term Care Waiver, and is charged with developing legislative
budgetary requests for the Medicaid program. See 42 U.S.C. § 1396a(a)(5),
§ 20.42(3), Fla. Stat. (2018), § 216.023, Fla. Stat. (2018). Secretary Senior is
responsible for the oversight, supervision, and control of AHCA and its
divisions, and is ultimately responsible for ensuring that AHCA’s services for
people with disabilities are provided in conformance with federal law.
15. Defendant JEFFREY BRAGG is Secretary of Florida’s Department of
Elder Affairs (DOEA), and is sued in his official capacity. (This Defendant will
be referenced by the agency, DOEA.) DOEA is the primary state agency
responsible for administering human services programs for the elderly and
developing policy recommendations for long-term care. § 430.03, Fla. Stat.
6
(2018). It recommends legislative budget requests for programs and services
for the state’s elderly population. Id. Among other duties, DOEA prepares,
submits to the Governor and the Legislature, and monitors implementation of a
master plan for policies and programs in Florida that relate to aging. Id.
§ 430.04. DOEA funds a community care service system, the declared primary
purpose of which is “the prevention of unnecessary institutionalization of
functionally impaired elderly persons through the provision of community-
based core services.” Id. § 430.204. DOEA is also the agency responsible for
maintaining the statewide waitlist for the Long-Term Care Waiver, including
assessing each applicant’s priority status on that waitlist and making offers of
enrollment to eligible individuals. Id. § 409.979.
16. At all times relevant to this Complaint, Defendants were public entities
under the ADA. 42 U.S.C. § 12132.
CLASS ACTION ALLEGATIONS
17. Pursuant to Fed. R. Civ. P. 23(a) and (b)(2), the Named Plaintiffs bring
this action on behalf of themselves and all other persons similarly situated.
18. The proposed class consists of:
Adult residents of Florida who are at risk of unnecessary
institutionalization without home and community based long-
term care services because they: (1) are residing, and wish to
7
remain, at home or in a community residential setting; (2) qualify
or would qualify if allowed to enroll in the Long-Term Care
Waiver; and (3) have been placed on the Long-Term Care
Waiver waitlist.
19. Numerosity: The proposed class is so numerous that joinder of all its
members is impracticable. According to the Florida Department of Elder
Affairs, as of August 2018, there were more than 50,000 people on a waitlist
for home and community based services through the Long-Term Care Waiver.
20. Commonality: The questions of law or fact that are common to the
Named Plaintiffs and proposed class members include:
a. Whether Defendants’ failure to provide needed home and community
based services to the Named Plaintiffs and proposed class members violates the
ADA.
b. Whether the Named Plaintiffs and proposed class members can access
appropriate long-term care services outside of entry to a nursing facility.
c. Whether Defendants’ Medicaid funded long-term care system favors
institutional services to the detriment of the Named Plaintiffs and proposed
class members seeking home and community based services.
21. Typicality: The claims of the Named Plaintiffs are typical of the claims
of the class as a whole in that the Named Plaintiffs and proposed class members
8
are all qualified individuals with disabilities who wish to remain in the
community, but who are without Medicaid long-term care services and are at
risk of unnecessary institutionalization.
22. Adequate representation: The Named Plaintiffs will fairly represent and
adequately protect the interests of the proposed class as a whole. The Named
Plaintiffs do not have any interests antagonistic to those of other proposed class
members. By filing this action, the Named Plaintiffs have displayed an interest
in vindicating their rights, as well as the claims of others who are similarly
situated. The relief sought by the Named Plaintiffs will inure to the benefit of
members of the proposed class generally. The Named Plaintiffs are represented
by counsel who are skilled and knowledgeable about civil rights litigation,
disability discrimination, Medicaid law, practice and procedure in the federal
courts, and the prosecution and management of class action litigation.
23. Defendants have acted or refused to act on grounds generally applicable
to the proposed class, thereby making final injunctive relief appropriate with
respect to the proposed class as a whole under Fed. R. Civ. P. 23(b)(2).
Although the specific disabilities of the proposed class members can vary, they
share a common need for Medicaid funded home and community based
services. A class action is superior to individual lawsuits for resolving this
9
controversy.
FACTUAL ALLEGATIONS
Statewide Medicaid Managed Care Long-Term Care Program
24. Medicaid is a joint federal and state program that covers medical
services to low-income persons pursuant to Title XIX of the Social Security
Act, 42 U.S.C. §§ 1396-1396v.
25. States are not required to participate in Medicaid, but if they do, they
must comply with the requirements of Title XIX and its implementing
regulations promulgated by the U.S. Department of Health & Human Services.
States which participate must submit to the federal government a state Medicaid
plan that fulfills the requirements of Title XIX. 42 U.S.C. § 1396a(a).
26. One of the primary purposes of Medicaid is “to furnish … rehabilitation
and other services to help such families and individuals attain or retain
capability for independence or self-care ….” 42 U.S.C. § 1396-1. Each
participating state’s Medicaid plan must contain reasonable standards to
determine the extent of services needed to obtain these objectives. 42 U.S.C.
§ 1396a(a)(17).
27. Coverage of certain services is mandatory under Title XIX, including
10
nursing facility services. 42 U.S.C. § 1396a(a)(10)(A)(i) (incorporating 42
U.S.C. § 1396d(a)(1)-(5), (17), (21)).
28. Federal Medicaid law allows states to include certain home and
community based services in their state Medicaid program plans, including
personal care services. Such services are provided to all qualifying persons,
without enrollment limits. 42 U.S.C. § 1396d(a)(xvii)(24). Florida has opted
not to provide these services to older adults or adults with disabilities.
29. In addition, Federal Medicaid law allows states to offer home and
community based waiver programs (Waiver Programs). These Waiver
Programs are designed to enable people who are elderly or have disabilities,
and otherwise need the level of care provided in a nursing facility or other
institution, to receive long-term care services in the community. 42 U.S.C.
§ 1396n(c). The federal Medicaid program allows states to obtain waivers of
certain program requirements, including the requirement that otherwise
prohibits enrollment caps. 42 U.S.C. § 1396n(c)(3).
30. The purpose of waivers, like Florida’s Long-Term Care Waiver, is to
provide “an array of home and community-based services that an individual
needs to avoid institutionalization.” 42 C.F.R. § 441.300.
31. When providing long-term care services, State Medicaid programs
11
must comply with the ADA. The ADA prohibits unnecessary
institutionalization or segregation of persons with disabilities. 42 U.S.C.
§ 12132. A state’s obligations under the ADA are distinct from its obligations
under the Medicaid Act.
32. Florida’s Medicaid program provides only a few options for adults who
are disabled or elderly and need long-term care services: nursing facility
placement, or home and community based services under the Long-Term Care
Waiver. In addition, six counties operate limited facility based long-term care
day services under the Program of All-Inclusive Care for the Elderly.
33. Nursing facilities are institutional settings under the ADA.
34. On average, the cost of nursing facility placement is several times the
cost of care provided in the home and community through the Long-Term Care
Waiver.
35. The Long-Term Care Waiver provides home and community based
services in various residential settings, including assisted living homes, adult
family care homes, and in an individual’s own home or family member’s home.
36. The Long-Term Care Waiver covers a wide range of services critical to
maintaining people with long-term care needs in their homes and in the
community. These services include assisted living care, adult day health care,
12
assistive care services, attendant nursing care, behavioral management, care
coordination, home accessibility adaptation, home delivery of meals,
homemaker services, hospice, nursing, medical equipment and supplies,
medication administration and management, personal care services, personal
emergency response system, respite, skilled therapies and non-emergency
transportation.
37. In December 2017, the federal Centers for Medicare & Medicaid
Services (CMS) approved Defendant ACHA’s application for the current Long-
Term Care Waiver program, authorizing it to continue for another five years.
38. In the waiver application, Defendant AHCA requested to limit the
number of people getting services to 62,000 at any point in time, with no
increase in capacity over the five years of the approval period.
39. States can obtain CMS approval to raise a waiver program’s enrollment
cap to respond to increased demand. Some states do not cap enrollment in their
long-term care waiver program at all.
40. As of October 2018, there were 59,329 persons receiving home and
community based services through the Long-Term Care Waiver.
41. The Long-Term Care Waiver has absorbed seven other waiver
programs that had been targeted to meet the needs of discrete populations. The
13
most recent consolidation in 2018 decommissioned three waiver programs
dedicated to meeting the needs of people with HIV, traumatic brain or spinal
cord injuries, and Cystic Fibrosis — a total of 7,500 slots. Of this number, a
little over 1,700 people previously served were transitioned onto the Long-Term
Care Waiver.
42. The transition of people from the decommissioned waivers to the Long-
Term Care Waiver has increased the number of people served on the Long-
Term Care Waiver but has reduced the capacity of the system as a whole.
People newly seeking services that had been covered by the decommissioned
waivers now must join the lengthy waitlist for the Long-Term Care Waiver.
43. As of October 2018, there were 53,193 persons on Defendants’ waitlist
for the Long-Term Care Waiver.
44. The Long-Term Care Waiver is considered an Aged and Disabled
waiver by CMS. According to Kaiser Family Foundation data, 31 states had no
waiting list at all for their Aged, Physically Disabled or Aged and Disabled
waivers (per 2016 data).
45. The federal Medicaid Act does not allow waitlists for nursing facility
services.
46. Nursing facility occupancy rates in Florida are among the highest in the
14
country.
Defendants’ Waitlist Ranking Underestimates the Risk
of Unnecessary Nursing Facility Placement
47. When Named Plaintiffs and proposed class members seek to enroll in
the Long-Term Care Waiver, they go through Defendants’ assessment process
to purportedly determine their level of risk of nursing facility placement.
48. Defendant DOEA contracts with the regional Aging and Disability
Resource Centers (ADRCs) to field requests and complete an assessment over
the telephone.
49. Once assessed, individuals are placed on the waitlist for Long-Term
Care Waiver services, called the Assessed Prioritized Consumer List.
Completion of the assessment results in each individual being placed by
numerical rank into one of five “priority levels” (levels 1-5): the higher the
level, the higher the assessed risk. Fla. Admin. Code R. 59G-4.193(3).
50. There are additional levels of risk (levels 6-8) that DOEA ranks based
on specific statutory characteristics. In October 2018, there were only 45 people
on the Long-Term Care Waiver waitlist in levels 6-8.
51. In addition, individuals in three statutory categories are authorized to
apply directly for the Long-Term Care Waiver, without any additional
15
assessment of risk: individuals residing in a nursing facility for at least 60 days
who have requested to transition to their communities; children aged 18, 19 or
20 with medically complex care needs; and persons classified by Adult
Protective Services as “high risk” and placed by the State in an assisted living
facility. § 409.979 (3)(f), Fla. Stat. (2018).
52. Other than these three special statutory categories, Defendants’
assessment of risk governs when a person may move off of the waitlist.
53. Levels 0-5 are based exclusively on the results of an assessment
conducted over the telephone. This assessment process asks applicants a series
of questions from the 701S assessment tool. Responses to certain questions are
then run through an algorithm, which determines the individual’s “score” and
priority level. Fla. Admin. Code R. 59G-4.193(3).
54. Certain important risk factors are not considered when assigning a
priority level. These include: whether the survey was completed by someone
else (i.e., a proxy), memory loss, cognitive decline or dementia, the presence of
Parkinson’s Disease, full paralysis, previous nursing facility stay, the age of the
caregiver, financial strain on the caregiver, and history of falls. While some of
these factors are captured in the assessment, the algorithm does not consider
them in assigning a risk score.
16
55. The assessment process relies heavily on voluntary caregiver
involvement but does not properly take into account a caregiver’s availability,
ability, and willingness to provide support.
56. The vast majority of people on the waitlist are over 60-years-old, and
more than half of them are over 74-years-old. A quarter of the waitlist is
comprised of people 85 or older.
57. Many people with dementia are on the wait list and are in need of
services. 42% of people at Level 3 have dementia or a cognitive impairment;
at Level 4 that number rises to 51%, and at Level 5 it is 57%. But the assessment
process does not adequately factor in dementia or cognitive impairment. The
assessment asks about medical validation of cognitive decline, but those
questions have no impact on the individual’s score or priority ranking on the
waitlist.
58. One in four caregivers of individuals at Level 3 priority have been
found by Defendant DOEA to be “in crisis,” and at Level 4 that number rises to
more than half. Nonetheless, people assessed at these levels wait years on
average to get needed long-term care.
59. Defendants’ criteria and methods of administration perpetuate the
institutionalization and segregation of
people
with disabilities by
17
underestimating their risk of institutionalization and failing to administer the
long-term care system based on accurate assessments of need for long-term care
services in the community.
Defendants Do Not Move People Off of the Long-Term Care
Waiver Waitlist at a Reasonable Pace
60. Average wait times are long. People with a Level 1 assessment wait on
average 42 months. Other average wait times are 43 months for Level 2, 40
months for Level 3, and 30 months for Level 4.
61. Only people at the highest level of assessed risk, Level 5, move off of
the waitlist within 3 months. To achieve a Level 5 score, the person must
demonstrate a high level of need for long-term care, have highly inadequate
unpaid support, and have a caregiver in crisis.
62. Between July 1, 2016, and March 8, 2018, over 1,400 people on the
waitlist had to move to nursing facilities. In this same period, over 8,600 people
died while on the waitlist.
63. The Long-Term Care Waiver waitlist continues to grow. In March
2017, the waitlist had 42,195 people on it. As of October 2018, there were over
53,000 people on the waitlist – an increase of over 20%.
64. As the waitlist increases, the number of people at risk of unnecessary
18
institutionalization grows as well.
65. Florida has no comprehensive, effectively working plan (called an
“Olmstead Plan”) for providing long-term care to proposed class members so
they can remain in the most integrated setting in the community, rather than
being forced into segregated, institutional settings by virtue of their care needs.
Defendants Overly Rely on Nursing Facility Settings
66. The ADA requires that states administer their “services, programs, and
activities in the most integrated setting appropriate to the needs of qualified
individuals with disabilities.” 28 C.F.R. § 35.130(d). This requirement applies
to state Medicaid programs.
67. Despite their obligations to provide individuals with disabilities
services in the most integrated setting appropriate to their needs, Defendants
have allocated the vast majority of Florida’s Medicaid long-term care resources
to nursing facility services.
68. Florida ranks near the bottom in the nation in terms of Medicaid
expenditures for home and community based services for older adults and adults
with disabilities. Only 22.5% of Medicaid expenditures for long-term care for
this population were for home and community based care in 2016. This was
less than half the national average of 45.2%.
19
69. In 2016, Defendant AHCA’s Medicaid program spent four times as
much on nursing facility care as it did on home and community based long-term
care for this population.
70. In addition, Florida has become further entrenched in its commitment
to institutions by lifting the moratorium for new certificates of need to allow for
the building of new nursing facility beds. Defendant AHCA has approved
thousands of new nursing facility beds since the moratorium was lifted in 2015.
71. Defendant AHCA has an incentive program within the long-term care
system that provides fiscal rewards to managed care entities who transition
people out of nursing facilities and into the Long-Term Care Waiver. There is
no similar incentive program to bring people into the Long-Term Care Waiver
from the waitlist. The result is an incentive to move into a nursing facility: a
person seeking services at home or in the community can bypass the long
waitlist only by first submitting to at least 60 consecutive days of
institutionalization in a nursing facility.
72. Transitioning out of a nursing facility placement is difficult for low-
income people. Once Medicaid-eligible individuals are admitted to nursing
facilities, they must turn over most of their income, including Social Security
benefits, to the state and nursing facility, except for a small monthly personal
20
needs allowance.
73. As a result, nursing facility residents are often unable to continue
paying rent or mortgages and accordingly may lose the home they had before
entering the nursing facility.
74. Defendants administer their Medicaid long-term care system in a
discriminatory manner that perpetuates the institutionalization and segregation
of persons with disabilities, over relies on nursing facility services and
underfunding community based care, and fails to provide sufficient alternative
Medicaid funded long-term care services in the community.
NAMED PLAINTIFFS’ ALLEGATIONS
Benjamin Alexander
75. Mr. Alexander is a Medicaid beneficiary who requested Long-Term
Care Waiver services in early 2018, but was placed on the waitlist.
76. Mr. Alexander became disabled as a result of back surgery he had three
years ago that left him paralyzed. At first quadriplegic, Mr. Alexander was able
to regain most movement in his upper body. However, his left hand does not
open completely. He is paralyzed from the waist down, has uncontrolled
muscle spasms, abdominal pain, severe constipation, and is incontinent.
77. Mr. Alexander has been treated in a hospital approximately ten times
21
in the past year due to his ongoing muscle spasms, abdominal pain, and
constipation.
78. Mr. Alexander lives with his 92-year-old mother in her home and relies
on her and a former neighbor to help him. He cannot bathe, maintain hygiene,
or perform incontinence care without assistance. He cannot keep his home
clean and safe without help. Neither Mr. Alexander nor his mother are licensed
to drive and they must rely on others to help with shopping. They also rely on
the Meal on Wheels program, which comes once per day.
79. Mr. Alexander’s mother is elderly with her own physical health
problems including unsteadiness. She has great difficulty meeting her son’s
physical care needs. When his legs seize up on him, she cannot assist him in
getting dressed or attend to his incontinence. When he needs to move to his
wheelchair, she struggles to lift him and help him transfer. She is not confident
she has the ability to provide the care he needs.
80. The home Mr. Alexander lives in is not accessible to him. There is no
shower that he can maneuver into and his mother cannot lift him into the tub,
so she gives him a sponge bath in his chair or on his bed. Mr. Alexander rotates
himself every two hours with great difficulty because he does not have a bed or
mattress that will adjust and assist with the prevention of skin breakdown.
22
81. Defendants recently assessed Mr. Alexander and ranked him at Level 3
on the waitlist.
82. Defendants’ ranking failed to take into account his elderly mother’s
difficulty in lifting and maneuvering him to provide personal care. When his
mother is unable to provide care, he must rely on the kindness of a former
neighbor who travels to his home to provide the care for him. His ranking also
did not weigh the financial strain on his caregiver, his numerous emergency
room visits in the last year, or the total number of activities of daily living where
he needs assistance.
83. Mr. Alexander wants to remain living with his mother, but he is at risk
of unnecessary nursing facility entry. He cannot independently care for himself
and his 92-year-old mother cannot do so either, which leaves Mr. Alexander
further dependent upon the uncertainty of his former neighbor’s willingness to
assist with his care needs. Without his mother and his former neighbor’s help,
he would have to enter a nursing facility.
George Collier
86. Mr. Collier requested Long-Term Care Waiver services in 2015, but
was placed on the waitlist. He currently lives in an assisted living home.
87. Mr. Collier has numerous health conditions including dementia,
23
diabetes, and blindness. He cannot take medications by himself, and his
diabetes has been uncontrolled at times. He was found unresponsive on the
floor in the last year. He cannot use the telephone, shop and prepare meals,
manage money or his medications, or go out into the community without
assistance. He uses a walker to ambulate.
88. Mr. Collier is happy in his assisted living home, where he sings karaoke
and enjoys dancing. He likes to go to the grocery store to buy his food, but
needs total assistance. His daughter-in-law says that putting him in a nursing
facility, “would be like putting him in a coffin.”
89. Mr. Collier’s assisted living home helps him with medication
management and meal preparation including preparing his plate and cutting his
food due to Mr. Collier’s blindness. He also needs but is not receiving stand-
by assistance with showering due to his unsteadiness, and assistance with
dressing.
90. He is frequently dizzy and has had numerous falls in the last year, six
of them requiring ambulance services. Most recently, Mr. Collier went to the
emergency room for dementia and undiagnosed weakness.
91. Mr. Collier has unmet care needs because he does not have the money
to cover the cost of needed services. These unmet needs place him at increased
24
risk of falls and wounds or infections. For example, his unsteadiness in the
shower leaves him at risk of more falls and hospitalizations. He needs close
monitoring of his blood glucoses to prevent further dizziness and falls.
92. Defendants assessed and ranked Mr. Collier at Level 3 on the waitlist.
93. The Defendants’ ranking does not take into consideration the financial
strain on Mr. Collier’s son. Though he continues to strive to pay the difference
for Mr. Collier’s assisted living facility, he also continues to pay additional
health care costs for Mr. Collier such as dental care when Mr. Collier broke a
tooth due to one of his falls. In addition, his ranking did not take into account
his dementia or his history of falls.
94.
Mr. Collier is at risk of unnecessary nursing facility entry. Mr. Collier
wants to remain in his home, so his son has been paying the difference between
Mr. Collier’s limited income and the cost of care and rent. His son cannot
sustain the $1,900 cost per month. Without the services provided at his assisted
living home, Mr. Collier would have to enter a nursing facility.
Raimundo Leal
95.
Raimundo Leal requested Long-Term Care Waiver Services in 2011
but was placed on the waitlist.
96.
Mr. Leal resides in a subsidized apartment and relies on occasional
25
assistance from neighbors or self-paid care for homemaking and other chores.
If his apartment is not maintained, he risks being in violation of his lease and
evicted.
97.
Mr. Leal is engaged with his family and community. His brother
comes to visit him each week, and his son and grandchildren provide
companionship and help him to go to the grocery store.
98.
Mr. Leal has insulin-dependent diabetes, chronic obstructive
pulmonary disease, and is subject to falls. He also has rheumatoid arthritis. His
memory is sometimes poor.
99.
Mr. Leal cannot bathe and dress himself without assistance, and
sometimes he cannot ambulate without help. He has difficulty managing his
medications.
100. Mr. Leal has had several hospitalizations due to falls and has recently
progressed from just using oxygen to now having a tracheostomy.
101. Mr. Leal first requested Long-Term Care Waiver services in July
2011, where Defendants ranked him at Level 3. He was placed on the wait list.
102. Since his initial request, Mr. Leal has been assessed numerous times.
In June 2017, Mr. Leal’s health deteriorated and he requested a reassessment.
Defendants ranked him at Level 4. The assessment noted that he is a frequent
26
fall risk. He needs daily help, but he rarely has assistance. Different friends
from his community will pitch in or help when they can. He remained on the
waitlist.
103. In October of 2017, Mr. Leal needed more help at home and was
reassessed again. Defendants ranked him at Level 3, although he still was a fall
risk and needed assistance. He remained on the waitlist. Mr. Leal was last
reassessed in May of 2018 and is now ranked Level 2.
104. Mr. Leal falls frequently, often due to respiratory distress and
resulting in multiple hospitalizations. He usually does not recall the events
leading up to his falls and, without regular assistance in his home, has been
lucky to have been found by neighbors or family. Mr. Leal was recently
hospitalized again in August 2018, and required a tracheostomy to address
oxygen deficiency. He was later admitted to a subacute care hospital for
continued care and has remained there with a discharge order for a skilled
nursing facility since September 2018.
105. Mr. Leal, however, does not want to be admitted to a skilled nursing
facility and wishes to be discharged home with Long-Term Care Waiver
Services. Discharge home without services or a caregiver in the home is against
medical advice.
27
106. Mr. Leal is at risk of unnecessary nursing facility entry. He would be
able to continue to live independently near his brother, children, and
grandchildren with the assistance of the Long-Term Care Waiver services.
Without those supports and services, Mr. Leal would have to enter a nursing
facility.
Jefferson Langlaise
107. Jefferson Langlaise requested Long-Term Care Waiver services in
2017, but was placed on the waitlist.
108. Mr. Langlaise has a seizure disorder with generalized seizures that
occur several times a week. He also has co-occurring mental health conditions,
dizziness, high blood pressure and high cholesterol. He is unable to work due
to his disabilities and needs assistance with walking, mobility, bathing,
medication management, shopping, meal preparation and chores.
109. Mr. Langlaise lives in an assisted living home, but his income is not
enough to pay the cost. His mother, his primary support, is paying the
remainder of his rent and expenses. She is nearing retirement age, has another
adult child with a disability at home, and cannot continue to sustain the cost of
paying the difference.
110. Defendants assessed and ranked Mr. Langlaise at a Level 2 on the
28
waitlist.
111. Defendants’ ranking did not take into account the financial strain his
mother is under to sustain the care he receives from the assisted living home.
112. Mr. Langlaise is at risk of unnecessary nursing facility entry because
his Social Security income is not enough to cover the cost of his assisted living
home. His mother is privately paying for the remainder of his rent, medications,
incidental expenses, and transportation. His mother is unsure how she will
continue to support Mr. Langlaise. She has limited years left to work herself
plus cares for her older son with disabilities living with her. Without the care
that she pays for, Mr. Lainglaise would need to enter a nursing facility.
Celia Lopez
86. Ms. Lopez requested Long-Term Care Waiver services in November
2014 but was placed on the waitlist
87. Ms. Lopez lives with her granddaughter and her granddaughter’s
family.
88. Ms. Lopez cannot perform necessary incontinence care, bathe herself,
dress herself or eat without assistance. She needs help with mobility and is at
risk for serious injury from falls. She needs assistance to access the community
around her, and would enjoy doing so.
29
89. Ms. Lopez’s family is committed to helping her live at home with them.
However, she needs help all day, every day, particularly because of her
advanced dementia. She cannot speak words anymore.
90. Ms. Lopez is helped each day and each night by caregivers paid for by
her grandchildren. However, this arrangement is not sustainable financially.
Moreover, because of the cost, Ms. Lopez does not have sufficient services to
access the world outside of her granddaughter’s home.
91.
Defendants recently assessed Ms. Lopez and ranked her a Level 1 on
the waitlist.
92.
The Defendants’ ranking does not reflect Ms. Lopez’s dementia and
need for supervision to prevent wandering. Nor does the ranking take into
consideration the financial strain the cost of her care puts on her grandchildren.
They cannot sustain the continued cost and, without the care they pay for, Ms.
Lopez would have to enter a nursing facility.
Geraldine Davenport
93.
Ms. Davenport requested Long-Term Care Waiver services in March
2013 but was put on the waitlist.
94.
At that time, Ms. Davenport was living with her daughter who sought
services for her mother because her mother had dementia and did not have much
30
money
95.
While waiting for services and living with her daughter, Ms.
Davenport was without a caretaker while her daughter was at work. Her
confusion led to episodes of risky behavior, including taking all her medications
at once, putting paper plates in the toaster oven, forgetting if she ate food, and
eating multiple lunches.
96.
In late December 2017, Ms. Davenport experienced severe back
pain—she had fractured her eleventh vertebrae. Although she had a large bruise
on her back, she did not remember falling. She was hospitalized and then
released to a rehabilitation facility. She could not return home because her
daughter worked during the day and there was no caretaker or services to
provide the support Ms. Davenport required. After rehabilitation, Ms.
Davenport moved to an assisted living home in January 2018.
97.
Ms. Davenport meets the qualifications for the Long-Term Care
Waiver. She needs assistance with bathing, transferring, as well as walking and
mobility. She cannot manage her own money, prepare meals, shop, or do
chores. She cannot use the telephone, manage her medications, and use
transportation without assistance.
98.
Ms. Davenport experiences bouts of depression and requires the
31
relaxed and quiet environment that she now has at her assisted living home. She
has visited nursing facilities in the past and found the setting to be depressing.
99.
In January 2018, the Defendants ranked Ms. Davenport at Level 2 on
the waitlist.
100. Her risk assessment score did not take into consideration her dementia
or memory loss, the fact that she was in a rehabilitation facility, or her history
of falls.
101. Ms. Davenport wants to remain in the community. She is at risk of
unnecessary nursing facility entry because she cannot afford the cost of the
assisted living home where she lives. Without the services provided by the
assisted living home, Ms. Davenport would have to enter a nursing facility.
CLAIM FOR RELIEF
AMERICANS WITH DISABILITIES ACT
102. Paragraphs 1 through 101 are incorporated by reference.
103. Title II of the Americans with Disabilities Act provides that, “no
qualified individual with a disability shall, by reason of disability, be excluded
from participation in or be denied the benefits of the services, programs, or
activities of a public entity, or be subjected to discrimination by any such
32
entity.” 42 U.S.C. § 12132.
104. Each Named Plaintiff and proposed class member is a “qualified
individual with a disability” within the meaning of the ADA in that they: (1)
have a physical impairment that substantially limits one or more major life
activities; and (2) meet the essential eligibility requirements for long-term care
under Florida’s Medicaid program.
105. Defendants are public agency directors responsible for operation of a
public entity, pursuant to 42 U.S.C. §§ 12131(1)(A) & (B).
106. Title II of the ADA requires that public entities “administer services,
programs, and activities in the most integrated setting appropriate to the needs
of qualified individuals with disabilities.” See 28 C.F.R. § 35.130(d).
107. Defendants violate the integration mandate of the ADA by failing to
provide needed home and community based services to Named Plaintiffs and
proposed
class
members,
placing
them
at
risk
of
unnecessary
institutionalization or segregation.
108. The ADA further prohibits a state from utilizing, “criteria or other
methods of administration [t]hat have the effect of subjecting qualified
individuals with disabilities to discrimination on the basis of disability.” See
28 C.F.R. § 35.130(b)(3)(i). This includes methods of administration that,
33
“have the purpose or effect of defeating or substantially impairing
accomplishment of objectives of the public entity’s program with respect to
individuals with disabilities.” Id. § 35.130(b)(3)(ii).
109. Defendants’ criteria and methods of administering the Long-Term
Care Waiver subject Named Plaintiffs and proposed class members to
discrimination by: (1) using a system of assessment and prioritization that
underestimates risk of institutionalization and places individuals at risk of
unnecessary institutionalization; and (2) funding Medicaid Long-Term Care
services with a bias toward institutional care.
110. Defendants’ unlawful discrimination against Named Plaintiffs and
proposed class members violates Title II of the ADA.
REQUEST FOR RELIEF
WHEREFORE, Named Plaintiffs and proposed class members
respectfully request that this Court:
a.
Certify this action as a class action and appoint individual Named
Plaintiffs as class representatives;
34
b.
Declare that Defendants’ failure to provide Named Plaintiffs and
proposed class members with needed home and community based services
violates Title II of the ADA;
c.
Enter a permanent injunction requiring Defendants to comply
with the ADA, to include at a minimum:
i. the provision of Medicaid-funded home and
community based services required by Named Plaintiffs
and the proposed class members to avoid or prevent
unnecessary institutionalization and to avoid segregation;
ii. notification to Named Plaintiffs and proposed class
members of the availability of home and community-
based alternatives to nursing facility or other institutional
care and how to access those alternatives; and
iii. development of a valid and reliable assessment tool
for risk of nursing facility.
d. Require Defendants to publicly report on a quarterly basis on the
progress of compliance;
35
e. Retain jurisdiction over this case until Defendants have come into
compliance with the ADA as applied to Named Plaintiffs and proposed class
members;
f. Award Plaintiffs their reasonable attorneys’ fees, litigation
expenses, and costs; and
g. Grant such other relief as this Court deems just and proper.
Dated: December 12, 2018
Respectfully submitted,
/s/ Amanda Heystek
AMANDA HEYSTEK, Fla. Bar No. 285020
amandah@disabilityrightsflorida.org
Disability Rights Florida
1000 N. Ashley Dr. Ste. 640
Tampa, FL 33602
(850) 488-9071
JODI SIEGEL, Fla. Bar No. 511617
jodi.siegel@southernlegal.org
Southern Legal Counsel, Inc.
1229 NW 12th Avenue
Gainesville, FL 32601
(352) 271-8890
NANCY E. WRIGHT, Fla. Bar No. 309419
newright.law@gmail.com
Law Office of Nancy E. Wright
3231 NW 47th Place
Gainesville, FL 32605
36
(352) 871-8255
REGAN BAILEY, pro hac vice pending
rbailey@justiceinaging.org
CAROL A. WONG, pro hac vice pending
cwong@justiceinaging.org
JUSTICE IN AGING
1444 Eye Street, NW Suite 1100
Washington, D.C. 20005
(202) 683-1990
ERIC CARLSON, pro hac vice pending
ecarlson@justiceinaging.org
JUSTICE IN AGING
3660 Wilshire Blvd., Suite 718
Los Angeles, CA 90010
(213) 674-2813
JOHN J. SULLIVAN, pro hac vice pending
jsullivan@cozen.com
DAVID H. REICHENBERG, pro hac vice
pending
dreichenberg@cozen.com
COZEN O’CONNOR
45 Broadway Suite 1600
New York, NY 10006
(212) 453-3729
ASHLEY GOMEZ-RODON, Fla. Bar No.
1010237
agomez-rodon@cozen.com
COZEN O’CONNOR
200 South Biscayne Boulevard, Suite 3000
Miami, FL 33131
(786) 871-3996
ATTORNEYS FOR PLAINTIFFS
37
| civil rights, immigration, family |
xwaOFYcBD5gMZwcz8DQW |
Case No.:
COMPLAINT
Collective Action and Class Action
Complaint
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
CARLOS VILLIMAR SOLIS and ROLANDO
CHACON, individually and on behalf of others
similarly situated,
Plaintiffs,
-against-
COSTAMAR EXPRESS CARGO &
SHIPPING, INC. and BYRON ARCOS,
Defendants.
Plaintiffs CARLOS VILLIMAR SOLIS (“Solis”) and ROLANDO CHACON
(“Chacon”), individually and on behalf of others similarly situated by and through their
attorneys, FISHER TAUBENFELD LLP, allege against Defendants COSTAMAR EXPRESS
CARGO & SHIPPING, INC. (the “Corporate Defendant”) and BYRON ARCOS (the
“Individual Defendant”) (collectively, the “Defendants”) as follows:
JURISDICTION AND VENUE
1.
This Court has subject matter jurisdiction pursuant to 29 U.S.C. § 216(b)
(Fair Labor Standards Act), 28 U.S.C. § 1337 (interstate commerce), and 28 U.S.C. § 1331
(original federal question jurisdiction). Supplemental jurisdiction over the New York State law
claims is conferred by 28 U.S.C. § 1367(a), as such claims are so related in this action within
such original jurisdiction that they form part of the same case or controversy under Article III of
the United States Constitution.
2.
Venue is proper in this District because Defendants conduct business in
this district, the Corporate Defendant resides in this District, and a substantial part of the events
or omissions giving rise to the claim occurred in this District.
THE PARTIES
3.
The Corporate Defendant is a domestic business corporation organized
and existing under the laws of the State of New York and maintains its principal place of
business at 4310 National Blvd, Corona, NY 11366.
4.
The Corporate Defendant operate a shipping company, which is
headquartered in Queens County, New York.
5.
Upon information and belief, at all times relevant hereto, the Corporate
Defendant has been a business or enterprise engaged in interstate commerce employing more
than two (2) employees and earning gross annual sales over $500,000.
6.
Plaintiff worked with tools and materials that traveled through interstate
commerce, particularly dollies and tap.
7.
At all relevant times hereto, Defendants have been and continue to be
“employers” engaged in interstate “commerce” and/or in the production of “goods” for
“commerce,” within the meaning of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 203.
8.
At all relevant times hereto, Plaintiffs were engaged in interstate
“commerce” within the meaning of the FLSA.
9.
At all relevant times hereto, Defendants have employed “employee[s],”
including Plaintiffs.
10.
At all relevant times hereto, Defendants have been Plaintiffs’ employers
within the meaning of the New York Labor Law (“NYLL”) §§ 2 and 651.
11.
Each Plaintiff is an adult individual who has been employed by
Defendants within the last six (6) years.
12.
Upon information and belief, Defendant Acros resides in the State of New
York and is an owner, manager, and/or employee of the Corporate Defendant.
13.
Upon information and belief, Defendant Acros is the sole owner of the
Corporate Defendant and operates the Corporate Defendant. Defendant Acros makes and/or
made hiring and firing, scheduling, and payroll decisions and maintains pay records on behalf of
the Corporate Defendant.
14.
Defendant Acros is a natural person engaged in business in the State of
New York, who is sued individually in his capacity as an owner, manager, and/or agent of the
Corporate Defendant.
15.
Defendant Acros exercises operational control over the Corporate
Defendant’s operations.
16.
At all relevant times, all Defendants have been Plaintiffs’ employer within
the meaning of the FLSA and NYLL. Defendant Acros possessed and executed the power to
hire and fire Plaintiffs, controlled their terms and conditions of employment, determined the rate
and method of any compensation in exchange for their services, and maintained records of their
employment.
17.
Defendant Acros, among other actions, hired and fired Plaintiffs, set their
rates of pay, determined their schedule, and maintained employment records.
18.
Defendant Acros is Plaintiffs’ employer under the FLSA and NYLL and is
individually liable to Plaintiffs.
NATURE OF THE ACTION
19.
Plaintiffs bring this action on behalf of (a) themselves and other similarly
situated employees who have worked for the Defendants on or after the date that is three (3)
years before the filing of this Complaint pursuant to the FLSA; and (b) themselves and other
similarly situated employees on or after the date that is six (6) years before the filing of this
Complaint pursuant to the NYLL and the New York Commissioner of Labor’s Wage Orders
codified at 12 N.Y.C.R.R. 142 et seq., based upon the following acts and/or omissions:
i. Defendants’ failure to pay minimum wage compensation required by New
York State law and regulations to Plaintiffs;
ii. Defendants’ failure to pay overtime compensation required by federal and
New York State law and regulations to Plaintiffs when they worked in
excess of forty (40) hours per week; and
iii. Defendants’ failure to provide Plaintiffs with a wage notice or proper
paystubs as required by NYLL § 195.
FACT ALLEGATIONS
20.
At all times relevant hereto, Defendants have committed the following
acts and/or omissions intentionally and willfully, with knowledge that they have been violating
federal and state laws and that Plaintiffs have been and continue to be economically injured.
21.
Defendants have willfully disregarded and purposefully evaded
recordkeeping requirements of the FLSA and NYLL and supporting regulations.
Plaintiff Solis’ Schedule and Pay
22.
Defendants hired Plaintiff Solis on March 10, 2018, as a driver, a position
he held until Defendants terminated him on April 25, 2019.
23.
Throughout most of Plaintiff Solis’ employment, he usually worked six
days a week. His usual schedule was Monday through Wednesday from 10:00 a.m. until 11:00
p.m., Thursday from 10:00 a.m. to 4:00 a.m., and Friday and Saturday from 10:00 a.m. to 10:00
24.
On several occasions, Plaintiff Solis was scheduled to work on Saturday
from 6:00 a.m. to as late as 10:00 p.m.
25.
For this work, Defendants paid Plaintiff Solis a set weekly rate of six
hundred dollars ($600.00) for his scheduled hours, which did not meet the New York State
minimum wage.
26.
Plaintiff Solis received a raise in February 2019 to six hundred and fifty
dollars a week ($650.00).
27.
Defendants also did not pay Plaintiff Solis any extra pay for the extensive
overtime hours he worked each week.
28.
As such, Defendants violated both the federal Fair Labor Standard Act and
the New York Labor Law by failing to properly pay Plaintiff Solis for each of his hours at the
proper rate.
Plaintiff Chacon’s Schedule and Pay
29.
Defendants hired Plaintiff Chacon on May 12, 2018, as a driver, a position
he held until Defendants terminated him on June 15, 2019.
30.
Throughout most of Plaintiff Chacon’s employment, he usually worked
six days a week. His usual schedule was Monday through Wednesday from 10:00 a.m. until
9:00 p.m. or 10:00 p.m., Thursday from 10:00 a.m. to 2:00 a.m. or 4:00 a.m. or later, Friday from
10:00 a.m. to 8:00 p.m. or 9:00 p.m., and Saturday from 10:00 a.m. to 7:00 p.m. or 8:00 p.m.
31.
On several occasions, Plaintiff Chacon was scheduled to work on Saturday
from 6:00 a.m. to as late as 9:00 p.m.
32.
Plaintiff Chacon also worked on Sunday on limited occasions.
33.
For this work, Defendants initially paid Plaintiff Chacon a set weekly rate
of six hundred dollars ($600.00) for his scheduled hours, which did not meet the New York State
minimum wage.
34.
Plaintiff Chacon received a raise in February 2019 to six hundred and fifty
dollars a week ($650.00).
35.
Defendants also did not pay Plaintiff Chacon any extra pay for the
extensive overtime hours he worked each week.
36.
As such, Defendants violated both the federal Fair Labor Standard Act and
the New York Labor Law by failing to properly pay Plaintiff Chacon for each of his hours at the
proper rate.
Defendants’ Violations of NYLL § 195
37.
Defendants have failed to provide Plaintiffs with a wage notice in
compliance with NYLL § 195.
38.
Defendants did not at any time provide Plaintiffs with a notice specifying
their rate of pay, the basis of pay, allowances, if any, claimed against the minimum wage (e.g.,
tips, meals, lodging) or the identification of their regular pay day.
39.
Defendants also failed to provide Plaintiffs with wage statements stating,
among other things, the correct number of regular or overtime hours they worked or their hourly
rate for regular or overtime hours.
COLLECTIVE ACTION ALLEGATIONS UNDER THE FLSA
40.
Defendants’ failure to comply with the FLSA extended beyond the
Plaintiffs to all other similarly situated employees insofar as Defendants had a policy to pay their
employees a set weekly pay rate that did not provide for the minimum wage and also did not
include any overtime premium for the hours they worked in excess of 40.
41.
Plaintiffs seek certification of this action as a collective action on behalf of
themselves, individually, and all other similarly situated current and former non-exempt
employees of Defendants pursuant to 29 U.S.C. § 216(b).
42.
The consent to sue forms for Plaintiffs are attached hereto as Exhibit 1.
43.
Upon information and belief, there are at least 50 current and former
employees who have been denied proper minimum and overtime wage compensation while
working for Defendants.
44.
At all relevant times, Plaintiffs and others who are and/or have been
similarly situated, were paid by Defendants in similar ways, and have been subject to
Defendants’ common practices, policies, programs, procedures, protocols and plans of willfully
failing and refusing to pay them the statutorily required overtime compensation for hours worked
in excess of forty (40) per workweek. The claims of Plaintiffs stated herein are similar to those
of the other employees.
45.
In bringing this action, Plaintiffs are representative of and are acting on
behalf of the interests of other current and former non-exempt employees who have worked for
Defendants within the last three (3) years.
CLASS ACTION ALLEGATIONS UNDER FED.R.CIV.P.23(b)(3) FOR
VIOLATIONS OF THE NYLL
46.
Plaintiffs bring this action on behalf of themselves and all other non-
exempt persons who were or are employed by the Defendants but who did not receive
compensation required by the NYLL in respect to their work for the Defendants.
47.
Upon information and belief, this class of persons consists of no fewer
than 100 employees, and the class is thus so numerous that joinder of all members is
impracticable under the standards of Fed.R.Civ.P.23(a)(1).
48.
There are questions of law and fact common to the class, which
predominate over any questions affecting only individual members, specifically: whether the
employment of Plaintiffs by the Defendants is subject to the jurisdiction and the wage and
overtime requirements of the NYLL.
49.
The claims of Plaintiffs are typical of the claims of the above-described
class in that all of the members of the class have been similarly affected by the acts and practices
of the Defendants.
50.
Plaintiffs will fairly and adequately protect the interests of the members of
the class, in that their interests are not adverse to the interests of the other members of the class.
51.
A class action is superior to the other available methods for the fair and
efficient adjudication of the controversy under the standards of Fed.R.Civ.P.23(b)(3).
52.
Plaintiffs bring the second, fourth, and fifth claims for relief herein on
behalf of themselves and all other persons similarly situated as a class action pursuant to
Fed.R.Civ.P.23, in respect to all claims that Plaintiffs and all persons similarly situated have
against the Defendants as a result of the Defendants’ violations under the NYLL.
FIRST CLAIM FOR RELIEF
(FLSA Overtime Wage Violations by Plaintiffs)
53.
Plaintiffs repeat and reallege all paragraphs above as though fully set forth
54.
Throughout the statute of limitations period covered by these claims,
Plaintiffs and others similarly situated regularly worked in excess of forty (40) hours per
workweek.
55.
At all relevant times hereto, Defendants have had and operated under a
decision, policy and plan, and under common policies, programs, practices, procedures,
protocols, routines and rules of knowingly and willfully failing and refusing to pay Plaintiffs and
others similarly situated at one and a half times their regular rate of pay for all hours of work in
excess of forty (40) hours per workweek, and willfully failing to keep required records, in
violation of the FLSA.
56.
Plaintiffs seek damages in the amount of their respective unpaid
compensation, liquidated (double) damages as provided by the FLSA, attorneys’ fees and costs,
and such other legal and equitable relief as this Court deems just and proper.
SECOND CLAIM FOR RELIEF
(NYLL Overtime Wage Violations)
57.
Plaintiffs repeat and reallege all paragraphs above as though fully set forth
58.
New York law prohibits an employer from permitting an employee to
work without paying overtime wages for all hours worked in excess of forty (40) in any
workweek.
59.
Throughout the statute of limitations period covered by these claims,
Defendants knowingly, willfully, regularly and repeatedly have failed to pay Plaintiffs and others
similarly situated at the required overtime rates, one and a half times their regular rate of pay, for
hours worked in excess of forty (40) per workweek.
60.
As a direct and proximate result of Defendants’ willful and unlawful
conduct, as set forth herein, Plaintiffs and others similarly situated have sustained damages and
seeks recovery for unpaid wages in an amount to be determined at trial, attorneys’ fees, costs,
liquidated damages and prejudgment interest as provided by NYLL § 663 and supporting
regulations, and such other legal and equitable relief as this Court deems just and proper.
THIRD CLAIM FOR RELIEF
(FLSA Minimum Wage Violations)
61.
Plaintiffs repeat and reallege all paragraphs above as though fully set forth
62.
Defendants have knowingly and willfully engaged in a policy, pattern or
practice of violating the FLSA, as detailed in this Complaint.
63.
Throughout the statute of limitations period covered by these claims,
Defendants failed to pay Plaintiffs and others similarly situated the federal minimum wage for
each hour worked, in violation of 29 U.S.C. §§ 206(a) and 255(a).
64.
Plaintiffs seek damages in the amount of their respective unpaid
compensation, liquidated (double) damages as provided by the FLSA, attorneys’ fees and costs,
and such other legal and equitable relief as this Court deems just and proper.
FOURTH CLAIM FOR RELIEF
(NYLL Minimum Wage Violations)
65.
Plaintiffs repeat and reallege all paragraphs above as though fully set forth
66.
Defendants knowingly and willfully paid the Plaintiffs and others
similarly situated less than the minimum wage in violation of NYLL § 652 and the supporting
regulations of the New York State Department of Labor.
67.
As a direct and proximate result of Defendants’ willful and unlawful
conduct, as set forth herein, Plaintiff and others similarly situated have sustained damages and
seek recovery for unpaid wages in an amount to be determined at trial, attorneys’ fees, costs,
liquidated damages and prejudgment interest as provided by NYLL § 663 and supporting
regulations, and such other legal and equitable relief as this Court deems just and proper.
FIFTH CLAIM FOR RELIEF
(NYLL Failure to Notify)
68.
Plaintiffs repeat and reallege all paragraphs above as though fully set forth
69.
Pursuant to §195(1) of the NYLL, within ten business days of Plaintiffs
and other similarly situated employee’s hiring, Defendants were obligated to provide them with a
notice describing, inter alia, their hourly regular and overtime rates of pay.
70.
Pursuant to §195(3) of the NYLL, Defendants were required to provide to
Plaintiffs and others similarly situated a wage statement containing, inter alia, a correct record of
each overtime hour worked and the employee’s overtime rate of pay.
71.
Defendants failed to provide Plaintiffs and others similarly situated with a
notice or wage statements in accordance with §195 of the NYLL.
72.
As a direct and proximate result of Defendants’ willful and unlawful
conduct, as set forth herein, Plaintiffs and others similarly situated have sustained damages and
seek damages in accordance with §198 of the NYLL for each week Defendants failed to provide
such notice and wage statement, along with attorneys’ fees, costs and prejudgment interest as
provided by NYLL § 198 and supporting regulations, and such other legal and equitable relief as
this Court deems just and proper.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that this Court enter judgment for:
A. Compensatory Damages in an amount to be determined at trial;
B. Prejudgment Interest;
C. Liquidated Damages pursuant to the FLSA and NYLL;
D. Plaintiffs’ costs and reasonable attorneys’ fees; and
E. Any relief the Court deems just and proper.
Dated: June 2, 2021
New York, New York
Respectfully submitted,
_______________________________
Michael Taubenfeld
FISHER TAUBENFELD LLP
225 Broadway, Suite 1700
New York, New York 10007
Phone: (212) 571-0700
Facsimile: (212) 505-2001
ATTORNEYS FOR PLAINTIFFS
EXHIBIT 1
AUTORIZACIÓN PARA DEMANDAR BAJO LA LEY FEDERAL DE NORMAS
RAZONABLES DE TRABAJO
Soy un individuo que fue empleado de Costamar Express Cargo & Shipping, Inc. o de entidades
relacionadas. Autorizo ser demandante en una acción para recolectar sueldos impagos. Acepto
cumplir con los términos del Contrato de Prestación de Servicios Profesionales que firmé para este
5/26/2021
____________________________________
NOMBRE
____________________________________
FIRMA
________________________
FECHA
CONSENT TO SUE UNDER FEDERAL FAIR LABOR STANDARDS ACT
I am an individual who was formerly employed by Costamar Express Cargo & Shipping, Inc.
and/or related entities. I consent to be a plaintiff in an action to collect unpaid wages. I agree that
I am bound by the terms of the Professional Services Agreement signed by me in this case.
______________________
SIGNATURE
____
DATE
I hereby declare that I am fluent in both the Spanish and English languages and that English
translation of the above Consent to Sue form is a true translation of the Spanish Consent to Sue
form signed by Carlos Villamar.
________________________
MATTHEW VASQUEZ
AUTORIZACIÓN PARA DEMANDAR BAJO LA LEY FEDERAL DE NORMAS
RAZONABLES DE TRABAJO
Soy un individuo que fue empleado de Costamar Express Cargo & Shipping, Inc. o de entidades
relacionadas. Autorizo ser demandante en una acción para recolectar sueldos impagos. Acepto
cumplir con los términos del Contrato de Prestación de Servicios Profesionales que firmé para este
5/25/2021
____________________________________
NOMBRE
____________________________________
FIRMA
________________________
FECHA
CONSENT TO SUE UNDER FEDERAL FAIR LABOR STANDARDS ACT
I am an individual who was formerly employed by Costamar Express Cargo & Shipping, Inc.
and/or related entities. I consent to be a plaintiff in an action to collect unpaid wages. I agree that
I am bound by the terms of the Professional Services Agreement signed by me in this case.
______________________
SIGNATURE
____
DATE
I hereby declare that I am fluent in both the Spanish and English languages and that English
translation of the above Consent to Sue form is a true translation of the Spanish Consent to Sue
form signed by Rolando Chacon.
________________________
MATTHEW VASQUEZ
| employment & labor |
5vnsE4cBD5gMZwczYRBz | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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MARY WEST, on behalf of herself and all others
similarly situated,
CLASS ACTION COMPLAINT
AND
Plaintiffs,
v.
DEMAND FOR JURY TRIAL
1:20-cv-3591
LORITO BOOKS, INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff MARY WEST, on behalf of herself and others similarly situated, asserts
the following claims against Defendant LORITO BOOKS, INC. as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using her computer. Plaintiff uses the
terms “blind” or “visually-impaired” to refer to all people with visual impairments
who meet the legal definition of blindness in that they have a visual acuity with
correction of less than or equal to 20 x 200. Some blind people who meet this
definition have limited vision. Others have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2015 report, approximately
400,000 visually impaired persons live in the State of New York.
4.
Plaintiff brings this civil rights action against Defendant for its failure to design,
construct, maintain, and operate its website to be fully accessible to and
independently usable by Plaintiff and other blind or visually-impaired people.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
Americans with Disabilities Act (“ADA”).
5.
Because Defendant’s website, www.loritobooks.com (the “Website”), is not
equally accessible to blind and visually impaired consumers, it violates the ADA.
Plaintiff seeks a permanent injunction to cause a change in Defendant’s corporate
policies, practices, and procedures so that Defendant’s website will become and
remain accessible to blind and visually-impaired consumers.
JURISDICTION AND VENUE
6.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
7.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, and a substantial portion of the conduct complained of
herein occurred in this District because Plaintiff attempted to utilize, on a number
of occasions, the subject Website within this Judicial District.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers. A substantial part of the
acts and omissions giving rise to Plaintiff’s claims occurred in this District: on
several separate occasions, Plaintiff has been denied the full use and enjoyment of
the facilities, goods and services offered to the general public, on Defendant’s
Website in New York County. These access barriers that Plaintiff encountered have
caused a denial of Plaintiff’s full and equal access multiple times in the past, and
now deter Plaintiff on a regular basis from accessing the Defendant’s Website in
the future.
10.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
THE PARTIES
11.
Plaintiff MARY WEST, at all relevant times, is and was a resident of Kings County,
New York.
12.
Plaintiff is a blind, visually-impaired handicapped person and a member of a
protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and
the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq., and
NYCHRL.
13.
Defendant is and was at all relevant times a Colorado Corporation doing business
in New York.
14.
Defendant’s Website, and its goods, and services offered thereupon, is a public
accommodation within the definition of Title III of the ADA, 42 U.S.C. § 12181(7).
NATURE OF ACTION
15.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-
impaired persons alike.
16.
In today’s tech-savvy world, blind and visually impaired people have the ability to
access websites using keyboards in conjunction with screen access software that
vocalizes the visual information found on a computer screen or displays the content
on a refreshable Braille display. This technology is known as screen-reading
software. Screen-reading software is currently the only method a blind or visually-
impaired person may use to independently access the internet. Unless websites are
designed to be read by screen-reading software, blind and visually-impaired
persons are unable to fully access websites, and the information, products, goods
and contained thereon.
17.
Blind and visually-impaired users of Windows operating system-enabled
computers and devices have several screen reading software programs available to
them. Some of these programs are available for purchase and other programs are
available without the user having to purchase the program separately. Job Access
With Speech, otherwise known as “JAWS” is currently the most popular, separately
purchased and downloaded screen-reading software program available for a
Windows computer. Another popular screen-reading software program available
for a Windows computer is NonVisual Desktop Access “NVDA”.
18.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same
content available to sighted users.
19.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the
Web Content Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-
established guidelines for making websites accessible to blind and visually-
impaired people. These guidelines are universally followed by most large business
entities and government agencies to ensure their websites are accessible.
20.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired
persons include, but are not limited to, the following:
a.
A text equivalent for every non-text element is not provided;
b.
Title frames with text are not provided for identification and
navigation;
c.
Equivalent text is not provided when using scripts;
d.
Forms with the same information and functionality as for sighted
persons are not provided;
e.
Information about the meaning and structure of content is not
conveyed by more than the visual presentation of content;
f.
Text cannot be resized without assistive technology up to 200%
without losing content or functionality;
g.
If the content enforces a time limit, the user is not able to extend,
adjust or disable it;
h.
Web pages do not have titles that describe the topic or purpose;
i.
The purpose of each link cannot be determined from the link text
alone or from the link text and its programmatically determined link
context;
j.
One or more keyboard operable user interface lacks a mode of
operation where the keyboard focus indicator is discernible;
k.
The default human language of each web page cannot be
programmatically determined;
l.
When a component receives focus, it may initiate a change in
context;
m.
Changing the setting of a user interface component may
automatically cause a change of context where the user has not been advised
before using the component;
n.
Labels or instructions are not provided when content requires user
input, which include captcha prompts that require the user to verify that he
or she is not a robot;
o.
In content which is implemented by using markup languages,
elements do not have complete start and end tags, elements are not nested
according to their specifications, elements may contain duplicate attributes,
and/or any IDs are not unique;
p.
Inaccessible Portable Document Format (PDFs); and,
q.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be
programmatically set; and/or notification of changes to these items is not
available to user agents, including assistive technology.
STATEMENT OF FACTS
21.
Defendant is a children’s Spanish book and audiobook company that owns and
operates www.loritobooks.com (its “Website”), offering features which should
allow all consumers to access the goods and services and which Defendant ensures
the delivery of such goods throughout the United States, including New York State.
22.
Defendant’s Website offers products and services for online sale and general
delivery to the public. The Website offers features which ought to allow users to
browse for items, access navigation bar descriptions, inquire about pricing, and
avail consumers of the ability to peruse the numerous items offered for sale.
23.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff is, however, a proficient
NVDA screen-reader user and uses it to access the Internet. Plaintiff has visited the
Website on separate occasions using a screen-reader.
24.
On multiple occasions, the last occurring in March of 2020, Plaintiff visited
Defendant’s website, www.loritobooks.com, to make a purchase. Despite her
efforts, however, Plaintiff was denied a shopping experience similar to that of a
sighted individual due to the website’s lack of a variety of features and
accommodations, which effectively barred Plaintiff from being able to determine
what specific products were offered for sale.
25.
Many features on the Website lacks alt. text, which is the invisible code
embedded beneath a graphical image. As a result, Plaintiff was unable to
differentiate what products were on the screen due to the failure of the Website to
adequately describe its content. Such issues were predominant in the section where
Plaintiff was attempting, but was unsuccessful, in making a purchase.
26.
Many features on the Website also fail to Add a label element or title attribute for
each field. This is a problem for the visually impaired because the screen reader
fails to communicate the purpose of the page element. It also leads to the user not
being able to understand what he or she is expected to insert into the subject field.
As a result, Plaintiff and similarly situated visually impaired users of Defendant’s
Website are unable to enjoy the privileges and benefits of the Website equally to
sighted users.
27.
Many pages on the Website also contain the same title elements. This is a problem
for the visually impaired because the screen reader fails to distinguish one page
from another. In order to fix this problem, Defendant must change the title elements
for each page.
28.
The Website also contained a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, Plaintiff was redirected to an error page. However, the screen-reader failed
to communicate that the link was broken. As a result, Plaintiff could not get back
to her original search.
29.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
30.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff,
along with other blind or visually-impaired users, access to Defendant’s website,
and to therefore specifically deny the goods and services that are offered to the
general public. Due to Defendant’s failure and refusal to remove access barriers to
its website, Plaintiff and visually-impaired persons have been and are still being
denied equal access to Defendant’s Website, and the numerous goods and services
and benefits offered to the public through the Website.
31.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from equal access to the Website.
32.
If the Website were equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
33.
Through her attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
34.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
35.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
36.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
37.
Because Defendant’s Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website
to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring Defendant to retain a qualified consultant
acceptable to Plaintiff (“Agreed Upon Consultant”) to assist Defendant to comply
with WCAG 2.1 guidelines for Defendant’s Website. Plaintiff seeks that this
permanent injunction requires Defendant to cooperate with the Agreed Upon
Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
on accessibility compliance under the WCAG 2.1 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.1 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.1
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
Websites, with contact information for users to report accessibility-related
problems.
38.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
39.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining their Website and has generated significant revenue
from the Website. These amounts are far greater than the associated cost of making
their Website equally accessible to visually impaired customers.
40.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
CLASS ACTION ALLEGATIONS
41.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
42.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
43.
Common questions of law and fact exist amongst the Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
44.
Plaintiff’s claims are typical of the Class. The Class, similarly to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
45.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
46.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
47.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
48.
Plaintiff, on behalf of herself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
49.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
50.
Defendant’s Website is a public accommodations within the definition of Title III
of the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
51.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
52.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
53.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
54.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
55.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
56.
Plaintiff, on behalf of herself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
57.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
58.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
59.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
60.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
61.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
62.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
63.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
64.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
65.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes her right to injunctive relief to remedy the discrimination.
66.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
67.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
68.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
69.
Plaintiff, on behalf of herself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
70.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operates and
controls, fails to comply with applicable laws including, but not limited to, Title III
of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., and N.Y.C.
Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
71.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and her attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law and City Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Hackensack, New Jersey
May 8, 2020
STEIN SAKS, PLLC
By: /s/ David P. Force
David P. Force, Esq.
dforce@steinsakslegal.com
285 Passaic Street
Hackensack, NJ 07601
Tel: (201) 282-6500
Fax: (201) 282-6501
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
qN-7EIcBD5gMZwczsWMu | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
ELMER BUSH, individually and on behalf
of all others similarly situated,
Plaintiff,
v.
CIVIL ACTION NO.: 4:15-cv-1026
JURY TRIAL DEMANDED
ARCH COAL, INC., JOHN W. EAVES,
PAUL A. LANG, JAMES R. BOYD,
DAVID C. FREUDENTHAL, PATRICIA
FRY GODLEY, PAUL T. HANRAHAN,
DOUGLAS H. HUNT, BRIAN J.
JENNINGS, J. THOMAS JONES, STEVEN
F. LEER, GEORGE C. MORRIS, III, A.
MICHAEL PERRY, ROBERT G. PORTER,
JAMES A. SABALA, THEODORE S.
SANDS, WESLEY M. TAYLOR, PETER I.
WOLD, ALLEN R. KELLY, JOHN
ZIEGLER, JR., MERCER FIDUCIARY
TRUST COMPANY, ARCH COAL, INC.
EMPLOYEE THRIFT PLAN
RETIREMENT COMMITTEE, FINANCE
COMMITTEE OF BOARD OF
DIRECTORS OF ARCH COAL, INC.,
AND DOES 1-10,
Defendants.
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CLASS ACTION COMPLAINT
Plaintiff Elmer Bush (“Plaintiff”), on behalf of the Arch Coal, Inc. Employee Thrift Plan
(the “Plan”), himself, and a class of similarly situated participants and beneficiaries of the Plan
(the “Participants”), alleges as follows:
INTRODUCTION
1.
Arch Coal, Inc. (“Arch Coal” or the “Company”), is a domestic coal company that
derives substantially all of its revenue from mining and selling coal to power plants, steel mills,
and industrial facilities. See Arch Coal Annual Report for Year-End 2014, at 5 (filed Feb. 27,
2015 (“2014 Form 10-K”). As of December 31, 2014, Arch Coal operated, or contracted out the
operation of, 16 active mines located in each of the major coal-producing regions of the United
States. See id.
2.
Arch Coal provides its employees the opportunity to save for retirement through
the Plan, which is a defined contribution plan. See Arch Coal, Inc. Employee Thrift Plan Annual
Report for Year-End 2014, at 4 (filed June 29, 2015) (“2014 Form 11-K”).
3.
In essence, defined contribution retirement plans confer tax benefits on
participating employees to incentivize saving for retirement. An employee participating in a
defined contribution plan may have the option of purchasing the common stock of his or her
employer for part of his or her retirement investment portfolio. In this case, Participants, through
the Plan, had the option of purchasing the common stock of Arch Coal (“Arch Coal Stock” or
“Company Stock”).
4.
Plaintiff is a former employee of Arch Coal and was a Participant in the Plan
during the Class Period (July 27, 2012 to the present), during which time the Plan and Plaintiff’s
individual account in the Plan, held interests in Arch Coal Stock.
5.
This is a class action brought pursuant to §§ 409 and 502 of the Employee
Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1109 and 1132, against the
Plan’s fiduciaries, which include Arch Coal, the Finance Committee of the Board of the
Directors (the “Finance Committee”), the Arch Coal, Inc. Employee Thrift Plan Retirement
Committee (“Retirement Committee”), and certain individual officers and management-level
employees of the Company.
6.
The Plan is a legal entity that can sue and be sued. ERISA § 502(d)(1), 29 U.S.C.
§ 1132(d)(1). However, in a breach of fiduciary duty action such as this, the Plan is not a party.
Rather, pursuant to ERISA § 409, and the law interpreting it, the relief requested in this action is
for the benefit of the Plan and its Participants.
7.
Plaintiff alleges that Defendants, as “fiduciaries” of the Plan, as that term is
defined under ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), breached duties owed to the Plan, to
Plaintiff, and to the other Participants by, inter alia, retaining Arch Coal Stock as an investment
option in the Plan when a reasonable fiduciary using the “care, skill, prudence, and diligence…
that a prudent man acting in a like capacity and familiar with such matters would use” would
have done otherwise. See ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1).
8.
Specifically, Plaintiff alleges in Count I that Defendants, each having certain
responsibilities regarding the management and investment of the Plan’s assets, breached their
fiduciary duties to the Plan, to Plaintiff, and to the proposed Class by: (a) continuing to offer
Arch Coal Stock as an investment option for the Plan when it was imprudent to do so; and (b)
maintaining the Plan’s pre-existing significant investment in Arch Coal Stock when it was no
longer a prudent investment for the Plan. These actions/inactions run directly counter (i) to the
express purpose of ERISA pension plans, which are designed to help provide funds for
participants’ retirement (see ERISA § 2, 29 U.S.C. § 1001 (“CONGRESSIONAL FINDINGS
AND DECLARATION OF POLICY”)), and (ii) the purpose of the Plan (i.e., to help Participants
save for retirement).
9.
Plaintiff’s Count II alleges that certain Defendants failed to avoid or ameliorate
inherent conflicts of interests which crippled their ability to function as independent,
“single-minded” fiduciaries with only the Plan’s and its Participants’ best interests in mind.
10.
Plaintiff’s Count III alleges that certain Defendants breached their fiduciary duties
by failing to adequately monitor other persons to whom management/administration of the Plan’s
assets was delegated, despite the fact that such Defendants knew or should have known that such
other fiduciaries were imprudently allowing the Plan to continue offering Arch Coal Stock as an
investment option and investing the Plan’s assets in Arch Coal Stock when it was no longer
prudent to do so.
11.
Plaintiff’s Count IV alleges that Mercer Fiduciary Trust Company (“Mercer”), the
Plan’s trustee,1 breached its fiduciary duties by blindly following the directions of the Plan’s
named and de facto fiduciaries, in violation of ERISA, when it was clearly imprudent to do so.
Mercer continued to allow the Plan to hold and acquire Arch Coal Stock when it was clear, based
upon publicly available information, that Arch Coal Stock was an objectively imprudent
retirement investment option.
12.
The thrust of Plaintiff’s allegations is that Defendants allowed the imprudent
investment of the Plan’s assets in Arch Coal Stock throughout the Class Period despite the fact
that they knew or should have known that such investment was imprudent as a retirement vehicle
because of the sea-change in the basic risk profile and business prospects of the Company caused
by inter alia: (a) the collapse of coal prices which drastically and for the foreseeable future
compromised Arch Coal’s financial health; (b) the Company’s deteriorating Altman Z-score (“Z-
score”) – a financial formula commonly used by financial professionals to predict whether a
company is likely to go into bankruptcy – which indicated that Arch Coal was and is in danger of
1 Mercer HR Services serves as the Plan’s recordkeeper. See 2014 11-K at 8.
bankruptcy; (c) an excessive increase in the Company’s debt to equity ratio; and (d) other indicia
of the Company’s financial distress, including mine closures and employee layoffs, as discussed
further below.
13.
Defendants knew or should have known that continued significant investment of
the Plan’s Participants’ retirement savings in Company Stock would inevitably result in
substantial losses to the Plan and, consequently, to the Plan’s Participants. Indeed, as a
consequence of the foregoing, the Plan and its Participants have suffered tens of millions of
dollars of losses as the market price of Arch Coal has fallen from approximately $6.55 on July
27, 2012, the first day of the Class Period, to $0.42 (both adjusted closes) on June 29, 2015, the
most recent trading day preceding the date of this filing – a decline of almost 100%.
14.
Defendants recognized or should have recognized the severity of the problems at
the Company during the Class Period as a result of the above factors, yet took no steps to protect
the Plan and its Participants.
15.
ERISA requires fiduciaries to employ appropriate methods to investigate the
merits of all plan investments as well as to engage in a reasoned decision-making process,
consistent with that of a prudent person acting in a like capacity. The duty of prudence also
requires fiduciaries to monitor the prudence of their investment decisions to ensure that they
remain in the best interest of the plan’s participants.
16.
The Department of Labor (“DOL”) has issued regulations interpreting the duty of
prudence. In order to comply with the duty of prudence, a fiduciary must give “appropriate
consideration to those facts and circumstances that, given the scope of such fiduciary’s
investment duties, the fiduciary knows or should know are relevant to the particular investment
or investment course of action involved, including the role that the investment or investment
course of action plays in that portion of the plan’s investment portfolio with respect to which the
fiduciary has investment duties.” 29 C.F.R. § 2550.404a-1(b)(1). “Appropriate consideration,”
according to DOL regulations, includes but is not necessarily limited to “(i)[a] determination by
the fiduciary that the particular investment or investment course of action is reasonably
designed…to further the purposes of the plan, taking into consideration the risk of loss and the
opportunity for gain (or other return) associated with the investment or investment course of
action.” 29 C.F.R. § 2550.404a-1(b)(2).
17.
A fiduciary who simply ignores changed circumstances that have increased the
risk of loss to the trust’s beneficiaries is acting imprudently in violation of ERISA.
18.
Trust law, from which ERISA is derived, clarifies that a “trustee has a duty to the
beneficiaries to invest and manage the funds of the trust as a prudent investor would, in light of
the purposes, terms, distribution requirements, and other circumstances of the trust.”2 See
Restatement (Third) of Trusts § 90.
19.
When a trustee makes investment decisions, the trustee’s conduct is judged using
a “prudent investor” standard. Restatement (Third) § 90, at 292. The trustee must “invest and
manage the funds of the trust as a prudent investor would, in light of the purposes, terms,
distribution requirements, and other circumstances of the trust.” Id. “[A] trustee’s duties apply
not only in making investments but also in monitoring and reviewing investments, which is to be
2 The Restatement (Second) of Trusts, which was effective when ERISA was enacted, states
that: “Except as otherwise provided by the terms of the trust, if the trustee holds property which
when acquired by him was a proper investment, but which thereafter becomes an investment
which would not be a proper investment for the trustee to make, it becomes the duty of the
trustee to the beneficiary to dispose of the property within a reasonable time.” Id. at § 231
(1959). The Uniform Prudent Investor Act (1994), which has been adopted by almost all states,
recognizes that “the duty of prudent investing applies both to investing and managing trust
assets. . . .” Nat’l Conference of Comm’rs on Uniform State Laws, Uniform Prudent Investor
Act § 2(c) (1994). The official comment explains that “‘[m]anaging’ embraces monitoring, that
is, the trustee’s continuing responsibility for oversight of the suitability of investments already
made as well as the trustee’s decisions respecting new investments.” Id. § 2 comment.
done in a manner that is reasonable and appropriate to the particular investments, courses of
action, and strategies involved.” Id. comment b, at 295. Indeed, “[t]he Uniform Prudent
Investor Act confirms that ‘[m]anaging embraces monitoring’ and that a trustee has ‘continuing
responsibility for oversight of the suitability of the investments already made.” Tibble, et al. v.
Edison International et al., 135 S. Ct. 1823, 1828 (2015) (citing The Uniform Prudent Investor
Act § 2, Comment, 7B U.L.A. 21 (1995)).
20.
In other words, “[p]rudence focuses on the process for making fiduciary
decisions. Therefore, it is wise to document decisions and the basis for those decisions.”3 Thus
a trustee must “make[] an investigation as to the safety of [an] investment and the probable
income to be derived therefrom” and then make a reasonable investment decision based on that
investigation. Restatement (Second) § 227 comment b, at 530.
21.
As similarly summarized in the Third Restatement: “Changes in a company’s
circumstances, adaptation to trust- and capital-market developments, fine-tuning, and the like
may, of course, justify the selling and buying of properties as an aspect of a prudent plan of asset
allocation and diversification …. This is consistent with the trustee’s ongoing duty to monitor
investments and to make portfolio adjustments if and as appropriate, with attention to all relevant
considerations, including tax consequences and other costs associated with such transactions.”
Restatement (Third) § 90 comment e(1) (emphasis added).
22.
Prudent investment management demands, inter alia, that Defendants not merely
rely upon the fact that the price of Arch Coal Stock remains above $0 in determining whether
investing in Company Stock was and is appropriate for the Plan. ERISA requires Defendants to
scrutinize the risk of the Plan’s investment in Arch Coal Stock – based upon, inter alia, the
3 http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html
public information upon which the stock price is based and the risk inherent in the stock – to
protect the Plan’s Participants’ retirement savings.
23.
Even if it may have been a reasonable investment for some investors, ERISA
requires fiduciaries to avoid taking excessive risk with retirement assets. After all, ERISA’s
fiduciary duties “have been described as ‘the highest known to the law.’” See, e.g., Braden v.
Wal-Mart Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2009) (quoting Donovan v. Bierwirth, 680
F.2d 263, 272 n.8 (2d Cir. 1982)).
24.
As discussed below, several years before the start of the Class Period, certain
obstacles to the U.S. coal industry’s continued growth were quite apparent. Among these
obstacles were the increasing oversupply of coal, stiff competition from natural gas producers,
and the transition of power generation plants to “cleaner” energy sources such as “renewable”
and gas-fired thermal plants instead of coal, all of which crashed coal prices to levels not seen in
years.4
25.
In April 2012, three months before the start of the Class Period, Moody’s
forecasted “permanent shifts” in the energy sector, as “depressed natural gas prices continue to
put pressure on the coal generation sector.” See Moody’s foresees permanent shifts in energy
sector over next decade, SNL Power Week (Canada), Apr. 9, 2012.
26.
Thus, by the start of the Class Period, it was painfully obvious that Arch Coal was
wholly-dependent upon a dying industry.
4 See US Coal: the West Coast challenge, Platts Energy Economist, Mar. 3, 2011 at 1; see also
Nick Cunningham, Latest Casualty in Energy’s Hardest Hit Industry¸ May 13, 2015. Recently,
Norway “made a big move toward dropping investments in coal companies by its massive $900
billion sovereign wealth fund because of their impact on climate change.” See Karl Ritter,
Norway’s $900 billion oil fund to slash coal investments, U.S. News & World Report, May 28,
2015, available at http://www.usnews.com/news/business/articles/201/05/28/norway-oil-fund-to-
slash-coal-investments.
27.
The Plan’s Participants had every right under ERISA to expect the Plan’s
fiduciaries to act in their interest and protect them from unduly risky investments, whether in the
form of Company Stock or any other asset.
28.
In failing to investigate, analyze, and review whether it was prudent to continue
investment in Arch Coal Stock in the Plan, Defendants acted with procedural imprudence. Had
Defendants conducted a prudent evaluation of whether Arch Coal Stock was an appropriate
investment for the Plan during the Class Period, and taken appropriate Plan-protective action
based upon what they would have discovered – such as ceasing the offering of Arch Coal Stock,
divesting the Plan of Arch Coal Stock, or any of the other actions as described below – the Plan’s
Participants would not have suffered such devastating losses to their retirement savings.
29.
Pursuant to both the ERISA statute itself and the DOL rules and regulations
implementing the statute, the Company’s problems discussed herein – including the sky-
rocketing debt-to-equity ratio, inherent risk of loss, and indeed the risk of bankruptcy – all
should have made the Plan’s fiduciaries aware of the imprudence of Arch Coal Stock. See 29
C.F.R. § 2550.404a-1(b)(1) and (2).
30.
Given the totality of circumstances prevailing during the Class Period, no prudent
fiduciary would have made the same decision to retain the clearly imprudent Arch Coal Stock as
a Plan investment option.
31.
This action is brought on behalf of the Plan pursuant to ERISA §§ 409 and
502(a)(2), 29 U.S.C. §§ 1109 and 1132(a)(2), and seeks recovery of the losses to the Plan for
which Defendants are personally liable. Because Plaintiff’s claims apply to the Plan as a whole,
inclusive of all its Participants with accounts invested in Company Stock during the Class
Period, and because ERISA specifically authorizes participants such as Plaintiff to sue for Plan-
wide relief for breaches of fiduciary duty such as those alleged herein, Plaintiff also brings this
action under FED. R. CIV. P. 23(b) on behalf of all Participants and beneficiaries of the Plan
whose Plan accounts were invested in Arch Coal Stock during the Class Period.
JURISDICTION AND VENUE
32.
Subject Matter Jurisdiction. This Court has subject matter jurisdiction over this
action pursuant to 28 U.S.C. § 1331 and ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1).
33.
Personal Jurisdiction. This Court has personal jurisdiction over all Defendants
because they are all residents of the United States and ERISA provides for nation-wide service of
process pursuant to ERISA § 502(e)(2), 29 U.S.C. § 1132(e)(2).
34.
Venue. Venue is proper in this district pursuant to ERISA § 502(e)(2), 29 U.S.C.
§ 1132(e)(2) because the Plan is administered in this district, some or all of the fiduciary
breaches for which relief is sought occurred in this district, and one or more Defendants reside or
may be found in this district.
PARTIES
Plaintiff
35.
Plaintiff Elmer Bush is a former Arch Coal employee. He is a “participant” in the
Plan, within the meaning of ERISA § 3(7), 29 U.S.C. § 1102(7), and held shares of Arch Coal
Stock in his retirement investment portfolio during the Class Period. During the Class Period,
the value of shares in Arch Coal Stock within his Plan account diminished considerably as a
result of Defendants’ breaches of fiduciary duty a described herein.
Defendants
Company Defendant
36.
Defendant Arch Coal is a Delaware Corporation with its principal place of
business at One CityPlace, Suite 300, Saint Louis, Missouri. As noted above, Arch Coal is a
domestic coal company, which as of December 31, 2014, operated, or contracted out the
operation of, 16 active mines located in each of the major coal-producing regions of the United
States. See 2014 Form 10-K at 5.
37.
According to the 2014 Form 11-K, Arch Coal established the Plan “for the benefit
of the eligible employees of the Company, its subsidiaries and controlled affiliates.” See 2014
Form 11-K at 4.
38.
Arch Coal is identified as the Plan Sponsor on the Plan’s Forms 5500 filed with
the Department of the Treasury, Internal Revenue Service, and Department of Labor (“DOL”)
for the plan years ending 2011, 2012, and 2013.
39.
At all relevant times, Arch Coal acted through its officers and employees,
including the Board of Directors, who performed Plan-related fiduciary functions in the course
and scope of their employment. Accordingly, the actions of the individual Defendants named
herein, and other employee fiduciaries are imputed to Arch Coal under the doctrine of
respondeat superior, and Arch Coal is liable for these actions. Thus, Defendant Arch Coal was a
fiduciary of the Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A),
because it exercised discretionary authority or control over Plan management and/or authority or
control over management or disposition of Plan assets.
Director Defendants
40.
At all relevant times, Arch Coal acted through its Board of Directors.
41.
Defendant John W. Eaves (“Eaves”) served as Chairman, President, Chief
Executive Officer, and Director of Arch Coal during the Class Period. Defendant Eaves
previously served as President and Chief Operating Officer of the Company from 2006 until he
was appointed as Chairman and Chief Executive Officer in April 2012, the positions he currently
holds. Defendant Eaves was a fiduciary of the Plan, within the meaning of ERISA Section
3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority to appoint and
monitor Plan fiduciaries who had discretionary authority or control over Plan management
and/or authority or control over management or disposition of Plan assets.
42.
Defendant Paul A. Lang (“Lang”) served as Executive Vice President, Chief
Operating Officer, and Director of Arch Coal during the Class Period. Defendant Lang
previously served as Executive Vice President-Operations from August 2011 to April 2012 when
he was appointed Executive Vice President and Chief Operating Officer, the positions he
currently holds. Defendant Lang was a fiduciary of the Plan, within the meaning of ERISA
Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority to
appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
43.
Defendant James R. Boyd (“Boyd”) served as a Director, including as Lead
Director, of Arch Coal during the Class Period. Defendant Boyd served as Director from 1990
until 2014, and served as Chairman of the Board from 1998 to 2006. Defendant Boyd was a
fiduciary of the Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A),
because he exercised discretionary authority to appoint and monitor Plan fiduciaries who had
discretionary authority or control over Plan management and/or authority or control over
management or disposition of Plan assets.
44.
Defendant David C. Freudenthal (“Freudenthal”) served as a Director of Arch
Coal during the Class Period. Defendant Freudenthal joined the Board of Directors in 2011 and
is a current member of the Board. Defendant Freudenthal was a fiduciary of the Plan, within the
meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised
discretionary authority to appoint and monitor Plan fiduciaries who had discretionary authority
or control over Plan management and/or authority or control over management or disposition of
Plan assets.
45.
Defendant Patricia Fry Godley (“Godley”) served as a Director of Arch Coal
during the Class Period. Defendant Godley joined the Board of Directors in 2004 and is a
current member of the Board. Defendant Godley was a fiduciary of the Plan, within the meaning
of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because she exercised discretionary
authority to appoint and monitor Plan fiduciaries who had discretionary authority or control over
Plan management and/or authority or control over management or disposition of Plan assets.
46.
Defendant Paul T. Hanrahan (“Hanrahan”) served as a Director of Arch Coal
during the Class Period. Defendant Hanrahan joined the Board of Directors in 2012 and is a
current member of the Board. Defendant Hanrahan was a fiduciary of the Plan, within the
meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised
discretionary authority to appoint and monitor Plan fiduciaries who had discretionary authority
or control over Plan management and/or authority or control over management or disposition of
Plan assets.
47.
Defendant Douglas H. Hunt (“Hunt”) served as a Director of Arch Coal during
the Class Period. Defendant Hunt joined the Board of Directors in 1995 and is a current member
of the Board. Defendant Hunt was a fiduciary of the Plan, within the meaning of ERISA Section
3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority to appoint and
monitor Plan fiduciaries who had discretionary authority or control over Plan management
and/or authority or control over management or disposition of Plan assets.
48.
Defendant Brian J. Jennings (“Jennings”) served as a Director of Arch Coal
during the Class Period. Defendant Jennings joined the Board of Directors in 2006 and served
on the Board until 2013. Defendant Jennings was a fiduciary of the Plan, within the meaning of
ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority
to appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
49.
Defendant J. Thomas Jones (“Jones”) served as a Director of Arch Coal during
the Class Period. Defendant Jones joined the Board of Directors in 2010 and is a current
member of the Board. Defendant Jones was a fiduciary of the Plan, within the meaning of
ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority
to appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
50.
Defendant Steven F. Leer (“Leer”) served as a Chairman of the Board of
Directors and Director of Arch Coal during the Class Period. Defendant Leer served as
Chairman of the Board of Directors from 2006 until April 24, 2014 when he retired after the
annual meeting of Arch Coal stockholders. Defendant Leer previously served as Chief
Executive Officer of Arch Coal from 1992 until April 2012, and as president of Arch Coal from
1992 to 2006. Defendant Leer was a fiduciary of the Plan, within the meaning of ERISA Section
3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority to appoint and
monitor Plan fiduciaries who had discretionary authority or control over Plan management
and/or authority or control over management or disposition of Plan assets.
51.
Defendant George C. Morris, III (“Morris”) served as a Director of Arch Coal
during the Class Period. Defendant Morris joined the Board of Directors in 2012 and is a current
member of the Board. Defendant Morris was a fiduciary of the Plan, within the meaning of
ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority
to appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
52.
Defendant A. Michael Perry (“Perry”) served as a Director of Arch Coal during
the Class Period. Defendant Perry joined the Board of Directors in 1998 and retired from the
Board immediately after the annual meeting of Arch Coal stockholders on April 25, 2013.
Defendant Perry was a fiduciary of the Plan, within the meaning of ERISA Section 3(21)(A), 29
U.S.C. § 1002(21)(A), because he exercised discretionary authority to appoint and monitor Plan
fiduciaries who had discretionary authority or control over Plan management and/or authority or
control over management or disposition of Plan assets.
53.
Defendant Robert G. Porter (“Porter”) served as a Director of Arch Coal during
the Class Period. Defendant Porter joined the Board of Directors in 2001 and served on the
Board until 2013. Defendant Porter was a fiduciary of the Plan, within the meaning of ERISA
Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority to
appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
54.
Defendant James A. Sabala (“Sabala”) served as a Director of Arch Coal during
the Class Period. Defendant Sabala joined the Board of Directors in 2015 and is a current
member of the Board. Defendant Sabala was a fiduciary of the Plan, within the meaning of
ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority
to appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
55.
Defendant Theodore S. Sands (“Sands”) served as a Director of Arch Coal during
the Class Period. Defendant Sands joined the Board of Directors in 1999 and is a current
member of the Board. Defendant Sands was a fiduciary of the Plan, within the meaning of
ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority
to appoint and monitor Plan fiduciaries who had discretionary authority or control over Plan
management and/or authority or control over management or disposition of Plan assets.
56.
Defendant Wesley M. Taylor (“Taylor”) served as a Director of Arch Coal during
the Class Period. Defendant Taylor was appointed Chairman of the Board of Directors in April
2014 and currently serves in that position. Defendant Taylor served as Lead Director from
February 2013 to April 2014. Defendant Taylor was a fiduciary of the Plan, within the meaning
of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary
authority to appoint and monitor Plan fiduciaries who had discretionary authority or control over
Plan management and/or authority or control over management or disposition of Plan assets.
57.
Defendant Peter I. Wold (“Wold”) served as a Director of Arch Coal during the
Class Period. Defendant Wold joined the Board of Directors in 2010 and is a current member of
the Board. Defendant Wold was a fiduciary of the Plan, within the meaning of ERISA Section
3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority to appoint and
monitor Plan fiduciaries who had discretionary authority or control over Plan management
and/or authority or control over management or disposition of Plan assets.
58.
Defendants Eaves, Lang, Boyd, Freudenthal, Godley, Hanrahan, Hunt, Jennings,
Jones, Leer, Morris, Perry, Porter, Sabala, Sands, Taylor, and Wold are collectively referred to
herein as the “Director Defendants.”
Finance Committee Defendants
59.
Defendant Finance Committee had responsibility, for inter alia, reviewing and
evaluating the Company’s status and performance in the employee benefit area. Its review was
to include, at a minimum, “actuarial valuations, investment policies, individual investment
manager’s performance, and internal retirement committee performance.”
See Finance
Committee Charter, attached hereto as Exhibit A. Upon information and belief, members of the
Finance Committee served at the pleasure of the full Board of Directors.
60.
Defendant Sands was a member of the Finance Committee during the Class
Period. See http://investor.archcoal.com. Accordingly, Defendant Sands was a fiduciary of the
Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he
exercised discretionary authority to appoint and monitor Plan fiduciaries who had discretionary
authority or control over Plan management and/or authority or control over management or
disposition of Plan assets.
61.
Defendant Eaves was a member of the Finance Committee during the Class
Period. See http://investor.archcoal.com. Accordingly, Defendant Eaves was a fiduciary of the
Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he
exercised discretionary authority to appoint and monitor Plan fiduciaries who had discretionary
authority or control over Plan management and/or authority or control over management or
disposition of Plan assets.
62.
Defendant Jones was a member of the Finance Committee during the Class
Period. See http://investor.archcoal.com. Accordingly, Defendant Jones was a fiduciary of the
Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he
exercised discretionary authority to appoint and monitor Plan fiduciaries who had discretionary
authority or control over Plan management and/or authority or control over management or
disposition of Plan assets.
63.
Defendant Morris was a member of the Finance Committee during the Class
Period. See http://investor.archcoal.com. Accordingly, Defendant Morris was a fiduciary of the
Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he
exercised discretionary authority to appoint and monitor Plan fiduciaries who had discretionary
authority or control over Plan management and/or authority or control over management or
disposition of Plan assets.
64.
Defendant Lang was a member of the Finance Committee during the Class
Period. See http://investor.archcoal.com. Accordingly, Defendant Lang was a fiduciary of the
Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he
exercised discretionary authority to appoint and monitor Plan fiduciaries who had discretionary
authority or control over Plan management and/or authority or control over management or
disposition of Plan assets.
65.
Defendant Sabala was a member of the Finance Committee during the Class
Period. See http://investor.archcoal.com. Accordingly, Defendant Sabala was a fiduciary of the
Plan, within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he
exercised discretionary authority to appoint and monitor Plan fiduciaries who had discretionary
authority or control over Plan management and/or authority or control over management or
disposition of Plan assets.
66.
Defendants Sands, Eaves, Jones, Morris, Lang, and Sabala are collectively
referred to herein as the “Finance Committee Defendants.”
Plan Administrator Defendants
67.
As noted in the 2014 Form 11-K, the Company has “appointed the Vice
President-Human Resources as the Plan Administrator.” 2014 Form 11-K at 8. See also 2013
Form 5500, Notes to Financial Statements at 9 (same).
68.
Defendant Allen R. Kelly (“Kelly”) served as Vice President-Human Resources
and Vice President-Enterprise Risk Management during the Class Period. Defendant Kelly
served as Vice President-Enterprise Risk Management from 2008 to March 2014, at which time
he was appointed as Vice President-Human Resources. Defendant Kelly signed the 2014 Form
11-K, 2013 Form 11-K,5 and 2013 Form 5500 as Plan Administrator. See 2014 Form 11-K at
21; 2013 Form 5500 at 1. Defendant Kelly was a fiduciary of the Plan, within the meaning of
ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority
or control over Plan management and/or authority or control over management or disposition of
Plan assets.
69.
Defendant John Ziegler, Jr. (“Ziegler”) served as Chief Commercial Officer and
Vice President-Human Resources during the Class Period. Defendant Ziegler served as Vice
President-Human Resources from April 2012 to March 2014 at which time he was appointed
Chief Commercial Officer. Defendant Ziegler signed both the 2012 Form 11-K and 2012 Form
5500 as Plan Administrator. See Arch Coal, Inc. Employee Thrift Plan 401(k) Plan Annual
Report for Year-End 2012, at 19 (filed June 26, 2013) (“2012 Form 11-K”); 2012 Form 5500, at
1. Defendant Ziegler was a fiduciary of the Plan, within the meaning of ERISA Section
3(21)(A), 29 U.S.C. § 1002(21)(A), because he exercised discretionary authority or control over
Plan management and/or authority or control over management or disposition of Plan assets
70.
Defendants Kelly and Ziegler, as well as any other individual who served as Vice
President-Human Resources and/or Plan Administrator during the Class Period are collectively
referred to herein as the “Plan Administrator Defendants.”
5 Arch Coal, Inc. Employee Thrift Plan Annual Report for Year-End 2013 (filed June 26, 2014)
(“2013 Form 11-K”).
Retirement Committee Defendants
71.
As explained in the 2014 Form 11-K, the Company has “established a Retirement
Committee to oversee the activities of the Plan.” 2014 Form 11-K at 8. See also 2013 Form
5500, Notes to Financial Statements at 9 (same).
72.
Upon information and belief, the Retirement Committee had the responsibility for
selecting and monitoring the Plan’s investment options. See also 2014 Form 11-K at 1, Report
of Independent Registered Public Accounting Firm letter addressed to The Retirement
Committee, Arch Coal, Inc. Employee Thrift Plan. Upon information and believe the Retirement
Committee and its members6 were fiduciaries of the Plan, within the meaning of ERISA Section
3(21)(A), 29 U.S.C. § 1002(21)(A), because they exercised discretionary authority or control
over Plan management and/or authority or control over management or disposition of Plan
73.
Defendants Retirement Committee and all individual members of the Retirement
Committee during the Class Period are collectively referred to herein as the “Retirement
Committee Defendants.
Trustee Defendant
6 The entire composition of the Retirement Committee is not presently known to Plaintiff.
During his investigation, Plaintiff requested pursuant to, ERISA § 104(b)(4), 29 C.F.R. §
2520.104b-1 that the Plan Administrator provide meeting minutes of the Retirement Committee
in order to help identify all of the names of the members of the Retirement Committee. Plaintiff
believes that after a reasonable opportunity for discovery to obtain any committee charters, trust
agreements, and other relevant information, the aforementioned documents will provide
additional evidentiary support for the allegations set forth herein, including with respect to the
composition of the Retirement Committee during the Class Period. Indeed, while Plaintiff has
identified the Defendant fiduciaries in the instant submission in accordance with the information
he has obtained thus far, Plaintiff reserves the right to further amend during and after discovery,
as determining the identity and full breadth of responsibilities of ERISA fiduciaries is an
inherently fact-intensive effort.
74.
Defendant Mercer Fiduciary Trust Company (“Mercer”) served as the Plan’s
Trustee, holding the Plan’s assets in a trust. See 2014 11-K at 8. Mercer maintains an office at
701 Market Street, Suite 1100, St. Louis, MO 63101.
75.
Mercer was a fiduciary of the Plan because it exercised discretionary authority or
control over the Plan’s management and/or authority or control over management or disposition
of the Plan’s assets. Pursuant to ERISA Section 403(a)(1), 29 U.S.C. § 1103(a)(1), as directed
trustee, Mercer had a duyt to follow only “proper directions” that are “not contrary to ERISA.”
Additional “John Doe Defendants”
76.
To the extent that there are additional Company officers, directors, and employees
who were fiduciaries of the Plan during the Class Period, including members of the Retirement
Committee, the identities of whom are currently unknown to Plaintiff, Plaintiff reserves the right,
once their identities are ascertained, to seek leave to join them to the instant action. Thus,
without limitation, unknown “John Doe” Defendants 1-10 include other individuals, including,
but not limited to, Company officers, directors, and employees, who were fiduciaries of the Plan
within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A) during the Class
THE PLAN
Purpose of the Plan
77.
The Arch Coal Employee Thrift Plan June 2015 Expense and Investment Notice
(the “June 2015 Plan Notice”), attached as Exhibit B, distributed/available to Plan Participants
makes clear that the Plan’s purpose is to help participants save for retirement.
78.
Specifically, the June 2015 Plan Notice notes “Saving for retirement is important
for your financial future, whether you are retiring soon or years from now. The ARCH COAL
EMPLOYEE TRIFT PLAN (your ‘Plan’) is designed to assist you in meeting your retirement
goals.” See June 2015 Plan Notice at 2. The June 2015 Plan Notice further notes that the Plan
“is an important part of a secure financial future.” Id.
Overview of the Plan
79.
The 2014 Form 11-K notes that the Plan “was established by Arch Coal, Inc. (the
Company) for the benefit of eligible employees of the Company, its subsidiaries and controlled
affiliates.” 2014 Form 11-K at 4.
80.
“The Plan is a defined contribution plan that covers substantially all salaried
employees, nonunion hourly employees, and certain union employees where specified by
applicable collective bargaining agreements of the Company, its subsidiaries, and any controlled
affiliates that elect to participate in the Plan.” Id.
Administration of the Plan
81.
As noted in the 2014 Form 11-K, the Company has “appointed the Vice
President-Human Resources as the Plan Administrator.” 2014 Form 11-K at 8. See also 2013
Form 5500, Notes to Financial Statements at 9 (same).
82.
The 2014 Form 11-K also notes the “Company established a Retirement
Committee to oversee the activities of the Plan.” 2014 Form 11-K at 8. See also 2013 Form
5500, Notes to Financial Statements at 9 (same). Upon information and belief, the Retirement
Committee is responsible for the day-to-day operation of the Plan. See also 2014 Form 11-K at
1, Report of Independent Registered Public Accounting Firm letter addressed to The Retirement
Committee, Arch Coal, Inc. Employee Thrift Plan.
Eligibility in the Plan
83.
The Plan includes an automatic enrollment provision for all eligible employees.
See 2014 Form 11-K at 4.
84.
The automatic enrollment provides for default salary deferral contributions of 6%
of eligible compensation, which will be invested in a target retirement fund. Id.
Contributions to the Plan
85.
The Plan provides for both participant contributions and matching contributions
from the Company. See 2014 Form 11-K at 4.
86.
Participants may elect to defer between 1% and 50% of their compensation. Id. at
87.
With respect to Company matching contributions, the Company is required to
make matching contributions to all participants equal to 100% of the participant salary deferral
contributions up to the first 6% of eligible compensation. Id. This is true for all Plan
participants with the exception of participants who are hourly eligible employees of Mountain
Laurel,7 who instead receive a fixed 8% of employer contributions. Id.
88.
The Plan also provides for the possibility of Company discretionary contributions,
including such contributions in the discussion of participants’ accounts. See 2014 Form 11-K at
5. Specifically, the 2014 Form 11-K notes that each participant’s accounts is credited with the
participant’s salary deferral and rollover contributions, the Company’s matching contributions,
and Company discretionary contributions, if applicable, and an allocation on Plan earnings. Id.
Vesting of Contributions in the Plan
89.
Participants are fully vested in their salary deferral and rollover contributions plus
actual earnings. See 2014 Form 11-K at 5.
7 Mountain Laurel is one of the mines owned and operated by Arch Coal, located in in the
Central Appalachia Region in Sharples, West Virginia.
90.
All eligible employees of the Company as of December 31, 1997, became fully
vested in the Plan. Id. Eligible employees hired subsequent to December 31, 1997 vest in
Company contributions and earnings upon the completion of three fully years of service. Id.
91.
The hourly employees at Mountain Laurel are fully vested after the completion of
two full years of service. Id.
92.
Former participants in the International Coal Group, Inc. 401(k) Savings and
Retirement Plan (which merged with the Plan as of January 1, 2012) are 20% vested after the
completion of one year of service, 40% vested after the completion of two years of service, and
100% vested after the completion of three years of service. Id.
Investment Options in the Plan
93.
Upon enrollment in the Plan, a participant may direct contributions in a number of
investment options offered by the Plan. See 2014 Form 11-K at 6.
94.
The June 2015 Plan Notice states “Arch Coal Company Stock is an available
investment option under your Plan.” June 2015 Plan Notice at 5.
95.
The 2014 Form 11-K lists the Plan’s investment options for December 31, 2013
and December 31, 2014. See 2014 Form 11-K at 9. The investment options fall into five
categories – Mutual Funds, Stable Value Fund, Company Stock, Collective Trust Funds, and
Brokerage Securities. See id. As of December 31, 2012 and December 31, 2013 there were
twelve mutual fund options and twelve collective trust fund options in the Plan in addition to the
Stable Value Fund, Brokerage Securities, and Company Stock. 2013 Form 11-K at 8. As of
December 31, 2014, there were nine mutual fund options and eleven collective trust fund options
in the Plan in addition to the Stable Value Fund, Brokerage Securities, and Company Stock.
2014 Form 11-K at 9.
Arch Coal Stock in the Plan
96.
The Plan notes that Company Stock is valued at the closing price reported on the
active market on which the individual securities are traded. See 2014 Form 11-K at 13. See also
June 2015 Plan Notice at 5 (“The value of Arch Coal Company Stock is calculated based on
market transactions during the day based on procedures established for your Plan.”).
97.
The value of the Arch Coal in the Plan has diminished significantly leading up to
the start of the Class Period and has continued its significant decline during the Class Period.
The June 2015 Plan Notice informs that the Arch Coal Stock one year, five year, ten year, and
since inception performance as of year-end 2014 is negative across the board:
Stock Performance
1 year
5 year
10 year
Since inception
-59.90%
-38.61%
-19.47%
-2.57%
Arch Coal Company
Stock (ACI)
See June 2015 Plan Notice at 12.
98.
Specifically, as of December 31, 2012, the Plan had $23,324,416 in Company
Stock. See 2013 Form 11-K at 2. As of December 31, 2013, the Plan had $17,580,458 in
Company Stock, a 24.6% decline, losing more than $5.7 million dollars. Based on the Arch Coal
Stock price of $4.44 as of December 31, 2013, the number of Arch Coal shares in the Plan as of
year-end 2013 was approximately 3,959,562.61.
99.
As reported in the 2014 Form 11-K, as of December 31, 2013, the Plan had
$17,580,458 in Company Stock. See 2014 Form 11-K at 2. As of December 31, 2014, the Plan
had $8,169,449 in Company Stock, a $9.4 million loss, or a loss of more than 50% in just one
year. Id.
100.
Based on the Arch Coal Stock price of $1.78 as of December 31, 2014, the
number of Arch Coal shares in the Plan as of year-end 2014 was approximately 4,589,578.09.
Assuming the Plan has not purchased additional shares of Arch Coal Stock since year-end
December 31, 2014, the value of Arch Coal Stock as of the filing of the instant complaint would
be roughly $1,927,622.80 based on Arch Coal Stock price of $0.42 as of June 29, 2015. Thus,
the value of the Arch Coal Stock in the Plan is worth just a fraction of its value from the start of
the Class Period.
Plan Fiduciaries Are Bound by ERISA’s Strict Standards
101.
Despite the Plan’s substantial investment in Arch Coal Stock, Defendants failed to
protect the Plan and its Participants from the decline in value of the Arch Coal Stock resulting
from the Company’s deteriorating financial condition.
102.
Fiduciaries of retirement plans such as the Plan here are bound by core ERISA
fiduciary duties, including the duties to act loyally, prudently, and for the exclusive purpose of
providing retirement benefits to plan participants. This is true regardless of the structure of a
103.
Accordingly, if the fiduciaries of the Plan knew, or if an adequate investigation
would have revealed, that Company Stock was no longer a prudent investment for the Plan, then
the fiduciaries had the obligation to disregard any purported Plan directions to maintain
investments in Company Stock and protect the Plan by investing the Plan’s assets in other,
suitable, prudent investments.
CLASS ACTION ALLEGATIONS
104.
Plaintiff brings this action derivatively on the Plan’s behalf pursuant to ERISA
§§ 409 and 502, 29 U.S.C. §§ 1109 and 1132, and as a class action pursuant to Rules 23(a),
(b)(1), and/or (b)(2) of the Federal Rules of Civil Procedure on behalf of the Plan, Plaintiff, and
the following class of similarly situated persons (the “Class”):
All persons, except Defendants and their immediate family
members, who were participants in or beneficiaries of the Plan at
any time between July 27, 2012 and the present (the “Class
Period”)8 and whose Plan accounts included investments in Arch
Coal Stock.
105.
The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to Plaintiff at this time,
and can only be ascertained through appropriate discovery, Plaintiff believes there are thousands
of employees of the Plan who participated in, or were beneficiaries of, the Plan during the Class
Period and whose Plan accounts included investment in Arch Coal Stock.
106.
For example, in 2012, there were 5,520 participants in the Plan. See 2012 Plan
Form 5500 filed with the Department of Treasury Internal Revenue Service and the Department
of Labor. In 2013, the number of participants in the Plan was 7,863. See 2013 Plan Form 5500
filed with the Department of Treasury Internal Revenue Service and the Department of Labor.
107.
At least one common question of law or fact exists as to Plaintiff and all members
of the Class. Indeed, multiple questions of law and fact common to the Class exist, including,
but not limited to:
(a)
whether Defendants each owed a fiduciary duty to the Plan, Plaintiff, and
members of the Class;
(b)
whether Defendants breached their fiduciary duties to the Plan, Plaintiff,
and members of the Class by failing to act prudently and solely in the
interests of the Plan and the Plan’s participants and beneficiaries;
(c)
whether Defendants violated ERISA; and
8 Plaintiff reserves the right to modify the Class Period definition in the event that further
investigation/discovery reveals a more appropriate and/or broader time period during which Arch
Coal Stock was an imprudent investment option for the Plan.
(d)
whether the Plan, Plaintiff, and members of the Class have sustained
damages and, if so, what is the proper measure of damages.
108.
Plaintiff’s claims are typical of the claims of the members of the Class because
the Plan, Plaintiff, and the other members of the Class each sustained damages arising out of
Defendants’ uniform wrongful conduct in violation of ERISA as complained of herein.
109.
Plaintiff will fairly and adequately protect the interests of the Plan and members
of the Class because they have no interests antagonistic to or in conflict with those of the Plan or
the Class. In addition, Plaintiff has retained counsel competent and experienced in class action
litigation, complex litigation, and ERISA litigation.
110.
Class action status in this ERISA action is warranted under Rule 23(b)(1)(B)
because prosecution of separate actions by the members of the Class would create a risk of
adjudications with respect to individual members of the Class which would, as a practical matter,
be dispositive of the interests of the other members not parties to the actions, or substantially
impair or impede their ability to protect their interests.
111.
Class action status is also warranted under Rule 23(b)(1)(A) and (b)(2) because:
(i) prosecution of separate actions by the members of the Class would create a risk of
establishing incompatible standards of conduct for Defendants; and (ii) Defendants have acted or
refused to act on grounds generally applicable to the Class, thereby making appropriate final
injunctive, declaratory, or other appropriate equitable relief with respect to the Class as a whole.
DEFENDANTS’ FIDUCIARY STATUS
112.
ERISA requires every plan to provide for one or more named fiduciaries who will
have “authority to control and manage the operation and administration of the plan.” ERISA §
402(a)(1), 29 U.S.C. § 1102(a)(1).
113.
ERISA treats as fiduciaries persons explicitly named as fiduciaries under §
402(a)(1), 29 U.S.C. § 1102(a)(1), and any other persons who in fact perform fiduciary functions
(e.g., de facto or functional fiduciaries). Thus, a person acts as an ERISA fiduciary to the extent
“(i) he exercises any discretionary authority or discretionary control respecting management of
such plan or exercises any authority or control respecting management or disposition of its
assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of such plan, or has any authority or responsibility to do
so, or (iii) he has any discretionary authority or discretionary responsibility in the administration
of such plan.” ERISA § 3(21)(A)(i), 29 U.S.C. § 1002(21)(A)(i).
114.
During the Class Period, upon information and belief, each of the Defendants was
a fiduciary – i.e., either a named fiduciary or a de facto fiduciary – with respect to the Plan and
owed fiduciary duties to the Plan and its Participants under ERISA. As fiduciaries, Defendants
were required by ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), to manage and administer the Plan,
and the Plan’s investments, solely in the interest of the Plan’s Participants and with the care,
skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims.
115.
Plaintiff does not allege that each Defendant was a fiduciary with respect to all
aspects of the Plan’s management, administration, and assets. Rather, as set forth below,
Defendants were fiduciaries to the extent of the specific fiduciary discretion and authority for
Plan management and authority assigned to or exercised by each of them and/or the specific
exercise of authority or control over Plan assets by each of them, and, as further set forth below,
the claims against each Defendant are based on such specific discretion and authority and/or
exercise of authority or control.
116.
Instead of delegating all fiduciary responsibility for the Plan to external service
providers, upon information and belief, the Company chose to assign the appointment and
removal of fiduciaries, such as the members of the Retirement Committee, to itself.
117.
ERISA permits fiduciary functions to be delegated to insiders without an
automatic violation of the rules against prohibited transactions occurring, ERISA § 408(c)(3), 29
U.S.C. § 1108(c)(3), but insider fiduciaries, like external fiduciaries, must act solely in the
interest of participants and beneficiaries, not in the interest of the Plan’s sponsor(s).
118.
During the Class Period, all of Defendants acted as fiduciaries of the Plan
pursuant to ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), and the law interpreting that section.
The Company and Director Defendants’ Fiduciary Status
119.
Instead of delegating fiduciary responsibility for the Plan to external service
providers, Arch Coal chose to internalize certain vital fiduciary functions.
120.
As the 2014 Form 11-K notes, Arch Coal established the Plan for the benefit of
the eligible employees of the Company, its subsidiaries and controlled affiliates. See 2014 Form
11-K at 4. Further, Arch Coal is identified as the Plan Sponsor on the Plan’s 2011, 2012, and
2013 Forms 5500.
121.
At all times, Arch Coal acted through its directors, officers, and employees,
including the Director Defendants, who performed Plan-related fiduciary functions in the course
and scope of their employment. Arch Coal had, at all applicable times, effective control over the
activities of its officers and employees, including their Plan-related activities. Through its Board
of Directors or otherwise, Arch Coal had the authority and discretion to hire and terminate said
directors, officers, and employees. Additionally, by failing to properly discharge their fiduciary
duties under ERISA, the directors, officers, and employee fiduciaries breached duties they owed
to the Plan’s Participants.
122.
Accordingly, the actions of the Director Defendants and other employee
fiduciaries are imputed to Arch Coal under the doctrine of respondeat superior, and Arch Coal is
liable for these actions.
The Finance Defendant’s Fiduciary Status
123.
As noted supra, Defendant Finance Committee had responsibility, for inter alia,
reviewing and evaluating the Company’s status and performance in the employee benefit area.
Its review was to include, at a minimum, “actuarial valuations, investment policies, individual
investment manager’s performance, and internal retirement committee performance.” See
Exhibit A.
124.
Accordingly, the Finance Defendants were fiduciaries of the Plan within the
meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A) because they exercised
discretionary authority to appoint and monitor Plan fiduciaries who had discretionary authority
or control over Plan management and/or authority or control over management or disposition of
Plan assets.
The Plan Administrator Defendants’ Fiduciary Status
125.
As explained in the 2014 Form 11-K, the Company has “appointed the Vice
President-Human Resources as the Plan Administrator.” 2014 Form 11-K at 8. See also 2013
Form 5500, Notes to Financial Statements at 9 (same).
126.
Defendants Kelly and Ziegler both served as Vice President-Human Resources
during portions of the Class Period, and signed the Forms 11-K and 5500 on behalf of the Plan as
Plan Administrator. See 2014 Form 11-K at 21, 2013 Form 11-K at 20, and 2013 Form 5500 at 1
signed by Defendant Kelly; 2012 Form 11-K at 19 and 2012 Form 5500 at 1 signed by
Defendant Ziegler.
127.
The Plan Administrator Defendants were fiduciaries of the Plan within the
meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A) because they exercised
discretionary authority or control over Plan management and/or authority or control over
management or disposition of Plan assets.
The Retirement Committee’s Fiduciary Status
128.
Upon information and belief, the Company officers/employees who comprised the
Retirement Committee were appointed by the Board and/or the Finance Committee and were
delegated the day-to-day responsibility for the administration of the Plan and the Plan’s assets.
See, e.g., 2014 Form 11-K at 8 (noting the Company has “established a Retirement Committee to
oversee the activities of the Plan”); 2013 Form 5500, Notes to Financial Statements at 9 (same).
129.
Upon information and belief, the Retirement Committee had the responsibility for
selecting and monitoring the Plan’s investment options. See also 2014 Form 11-K at 1, Report
of Independent Registered Public Accounting Firm letter addressed to The Retirement
Committee, Arch Coal, Inc. Employee Thrift Plan.
130.
Thus, the Retirement Committee and its members were fiduciaries of the Plan
within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A) because they exercised
discretionary authority or control over Plan management and/or authority or control over
management or disposition of Plan assets.
The Trustee’s Fiduciary Status
131.
A directed trustee cannot blindly follow directions of other fiduciaries; it is an
ERISA fiduciary and has a duty to “supervise” and “investigate” the directions it receives from a
plan’s named fiduciary when it has “some reason to know” that the directions may conflict with
ERISA or a plan’s terms. Pursuant to ERISA Section 403(a)(1), 29 U.S.C. § 1103(a)(1), a
directed trustee may only follow “proper directions” that are “not contrary to ERISA.”
132.
Because during the Class Period Mercer knew or should have known that Arch
Coal was in dire straits, was an unreasonably risky retirement investment, and had a very high
probability of bankruptcy, it had a fiduciary duty to protect the Plan and its Participants from the
continued imprudent investment in Arch Coal Stock.
Additional Fiduciary Aspects of Defendants’ Actions/Inactions
133.
As the Plan’s fiduciaries, Defendants knew or should have known certain basic
facts about the characteristics and behavior of the Plan’s Participants, well-recognized in the
401(k) literature and the trade press9 concerning investment in company stock, including that:
(a)
Employees tend to interpret a match in company stock as an endorsement
of the company and its stock;
(b)
Out of loyalty, employees tend to invest in company stock;
(c)
Employees tend to over-extrapolate from recent returns, expecting high
returns to continue or increase going forward;
9 See, e.g., David K. Randall, Danger in Your 401(k), Forbes.com (August 30, 2010), available
at:
www.forbes.com/forbes/2010/0830/health-retirement-savings-erisa-danger-in-
401k_print.html); Liz Pulliam Weston, 7 Ways to Mess Up Your 401(k), MSN.com (December
31,
2007),
available
at:
articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/7MostCommon401kBl
unders.aspx); Joanne Sammer, Managed Accounts: A new direction for 401(k) plans, Journal of
Accountancy,
Vol.
204,
No.
2
(August
2007),
available
at:
www.aicpa.org/pubs/jofa/aug2007/sammer.htm); Roland Jones, How Americans Mess Up Their
401(k)s, MSNBC.com (June 20, 2006), available at: www.msnbc.msn.com/id/12976549/);
Bridgitte C. Mandrian and Dennis F. Shea, The Power of Suggestion: Inertia in 401(k)
Participation and Savings Behavior, 116 Q. J. Econ. 4, 1149 (2001), available at:
mitpress.mit.edu/journals/pdf/qjec_116_04_1149_0.pdf); Nellie Liang & Scott Weisbenner,
2002, Investor behavior and the purchase of company stock in 401(k) plan - the importance of
plan design, Finance and Economics Discussion Series 2002-36, Board of Governors of the
Federal
Reserve
System
(U.S.),
available
at:
www.federalreserve.gov/pubs/feds/2002/200236/200236pap.pdf).
(d)
Employees tend not to change their investment option allocations in the
plan once made;
(e)
No qualified retirement professional would advise rank and file employees
to invest more than a modest amount of retirement savings in company
stock, and many retirement professionals would advise employees to avoid
investment in company stock entirely;
(f)
Lower income employees tend to invest more heavily in company stock
than more affluent workers, though they are at greater risk; and
(g)
Even for risk-tolerant investors, the risks inherent to company stock are
not commensurate with its rewards.
134.
Even though Defendants knew or should have known these facts, and even though
Defendants knew of the substantial investment of the Plan’s funds in Company Stock, they still
took no action to protect the Plan’s assets from its imprudent investment in Company Stock.
FACTS BEARING UPON DEFENDANTS’ FIDUCIARY BREACHES
Overview
135.
In July 1997, the Arch Mineral Corporation merged with Ashland Coal, Inc. to
become Arch Coal Incorporated, one of the largest producers of low-sulfur coal in the United
States. See 2014 Form 10-K at 5. Arch Coal is one of the largest coal producers in the world
with 16 active mines located in the United States. Id. Arch Coal, “sell[s] substantially all of [its]
coal to power plants, steel mills and industrial facilities. Id.
136.
Arch Coal’s success is heavily reliant on high coal prices and strong demand for
coal. Based on this criteria, the last several years have been disastrous for Arch Coal
specifically, and the coal industry in general, with no respite in the foreseeable future. Summed
up, “[p]rices have been sliding (see chart [below]), political opposition growing and demand
dropping. The Dow Jones Total Coal Market index has fallen by 76% in the past five years.”
See Coal Mining, In the Depths, The Economist, Mar. 28, 2015 at 65.
137.
Worldwide, “the tide is turning against coal.” See Coal Mining, In the Depths,
The Economist, Mar. 28, 2015 at 65. In America, coal use peaked in 2007. Id. One of the
reasons is that in the United States, “coal now struggles to compete with natural gas, which has
fallen 80% in price since 2008.” Id. Other coal industry experts have similarly opined that “the
industry faces something historic – persistently low natural gas prices – a reality that caps the
level of potential price improvement in U.S. coal markets.” See Weak 2014 Numbers Worsen An
Already Bad Outlook For Coal Companies, Institute for Energy Economics and Financial
Analysis, Feb. 2, 2015 at 1, available at http://ieefa.org/weak-2014-numbers-worsen-already-
bad-outlook-coal-companies/.
138.
This downturn for the coal industry is not simply a temporary blip. “The fear
now is of a structural shift” in which coal is phased out. Coal Mining, In the Depths, The
Economist, Mar. 28, 2015 at 65. The Economist predicts “new coal-mining investments would
risk becoming stranded assets, and older deep mines would be even more uneconomic than
now.” Id. According to the Economist, “Carbon Tracker, a non-profit group, reckons that more
than $100 billion worth of planned capital spending risks being stranded by 2035. A prospect as
black as a miner’s lungs.” Id.
139.
The fact is that the “U.S. coal industry has decoupled from the broader,
gradually recovering economy and its spiral has deepened.” See Weak 2014 Numbers Worsen
An Already Bad Outlook For Coal Companies, Institute for Energy Economics and Financial
Analysis, Feb. 2, 2015 at 1, available at http://ieefa.org/weak-2014-numbers-worsen-already-
bad-outlook-coal-companies/. It appears that “more pragmatic leaders and champions of the
industry acknowledge the severity of its financial conditions, and have conceded a reality that is
more in line with analysts who see weak prices through 2015 – and then little upside potential
thereafter.” Id.
140.
Predictably, the severe and historic downturn of the coal industry has devastated
Arch Coal’s financials. For full-year 2012, Arch Coal reported a staggering net income loss of
$683,955,000; for full-year 2013, it reported a net income loss of $641,832,000, and for full-year
2014, it reported a net income loss of $558,353,000.
141.
The Company’s financial condition, when viewed through the lens of objective
financial metrics, plainly indicates the Company’s deterioration over the last several years. Not
surprisingly, the Company’s stock price reflects the struggling company’s condition. Arch
Coal’s stock price reached its highest peak on June 1, 2008 at $75.03 per share. The next highest
peak was $36.04 on March 1, 2011. The Company has seen its share price steadily decline ever
142.
In light of the Company’s diminished financial prospects, resulting in a
dramatic shift in the Company’s basic risk profile, Arch Coal Stock was not a prudent Plan
investment option during the Class Period. The Plan’s fiduciaries knew or should have known
this fact and should have taken steps to protect the Plan and its Participants. Sadly though, as set
forth below, the Defendant-fiduciaries did nothing while the retirement savings of the Plan’s
Participants simply evaporated as a result of these inactions.
The Colossal Collapse of the Coal Industry
143.
Modern coal use around the world is largely divided into two types: thermal coal,
used for the production of electric power generation whether by power plants or industries
producing and consuming their own power, and metallurgical coal, which is used by industries in
the production of other materials, such as iron and steel. See The Coal Facts: thermal coal vs.
metallurgical
coal,
Global
News,
June
10,
2013,
available
at
http://globalnews.ca/news/627069/the-coal-facts-thermal-coal-vs-metallurgical-coal/.
144.
Beginning in 2007, certain obstacles to the U.S. coal industry’s continued growth
started to become apparent. In that year, coal plants had severely slowed production, reducing
their use from between 50 and 80% capacity on average to less than 30% on average. This is in
addition to the number of coal plants which either had or were scheduled to be completely
retired. See Bank of America and Citigroup Biggest Lenders to Coal, Bloomberg Business, Apr.
29, 2013, available at http://www.bloomberg.com/news/articles/2013-04-29/bank-of-america-
and-citigroup-biggest-lenders-to-coal.
145.
By the end of 2007, in addition to increased pressure from the natural gas market
as a competitor to thermal coal, regulatory uncertainty about increased emissions standards had
“stalled plans for many new coal plant builds,” needed to replace aging plants which were due to
be retired. See Fitch: Regulatory Challenges and Beneficial Fundamentals for U.S. Coal
Industry, Business Wire, Dec. 19, 2007 at 1. While U.S. electric consumption was growing,
certain coal-plants were aging and due for retirement, and industry uses and exports were
expected to remain flat. “As a result, the US coal industry’s fortunes are inextricably linked with
the development of new U.S. coal-fired plants.” See Uphill struggle for new US coal plant,
Platts Energy Economist, Aug. 1, 2008 at 1.
146.
In 2008, the Dow Jones U.S. Coal Index hit a high of 700. This was driven in
large part by strong demand for metallurgical coal in the developing world, including China and
India. As a result, a number of coal companies whose core business was thermal coal acquired
metallurgical coal companies in an attempt to diversify via debt-heavy deals. See Are coal stocks
ready
to
make
a
comeback?,
CNBC,
Jul.
9,
2014,
available
at
http://www.cnbc.com/id/101816298. The 2008 high is in stark contrast to today’s Dow Jones
U.S. Coal Index which stands below 100.
147.
By 2012, there was a marked decline in U.S. coal demand. In April 2012,
Moody’s forecast “permanent shifts” in the energy sector, as “depressed natural gas prices
continue to put pressure on the goal generation sector.” See Moody’s foresees permanent shifts
in energy sector over next decade, SNL Power Week (Canada), Apr. 9, 2012 at 1.
148.
On June 26, 2012, the U.S. Energy Information Administration (“EIA”) predicted
continuing U.S. coal production declines through 2015. See Annual Energy Outlook 2012, U.S.
Energy Information Administration, Jun. 25, 2012 at 98. Long term, the outlook for coal was
similarly poor:
Over the next 25 years, the share of electricity generation from
coal falls to 38 percent, well below the 48-percent share seen as
recently as 2008, due to slow growth in electricity demand,
increased competition from natural gas and renewable generation,
and the need to comply with new environmental regulations.
149.
On July 13, 2012, the EIA released the results of a study about competition
between coal, natural gas and petroleum in the energy generation sector which clearly showed
the decline of coal as a fuel for energy production in the face of natural gas competition. Noting
that coal’s share of power generation historically “varied in response to changes in the cost and
availability of competing fuels,” the EIA cited the lower cost of natural gas as well as a 96%
growth of natural gas generating capacity between 2002 and 2012 as key factors in coal’s
declining use as illustrated by this chart:
See Competition among fuels for power generation driven by changes in fuel prices, EIA, July
13, 2012, available at http://www.eia.gov/todayinenergy/detail.cfm?id=7090.
150.
In late July 2012, the EIA announced that plant owners and operators were
planning to retire 8.5% of the total 2011 coal-fired plant capacity. See 27 gigawatts of coal-fired
capacity
to
retire
over
next
five
years,
EIA,
July
27,
2012,
available
at
http://www.eia.gov/todayinenergy/detail.cfm?id=7290. This was more than four times the
number of retirements of the preceding five year period:
151.
The EIA also predicted that coal would not recapture its 45% share of the power
generation market over the next 25 years. See Fuel used in electricity generation is projected to
shift
over
the
next
25
years,
EIA,
July
30,
2012,
available
at
http://www.eia.gov/todayinenergy/detail.cfm?id=7310. In fact, coal’s share of power generation,
already historically low, was predicted fall to fall 38% over the next quarter century. Id.
152.
In keeping with projections, in August 2012, the EIA released the results of a
survey of new electric capacity additions by fuel source, showing that new coal-plants were
being far outpaced by natural gas and wind-plants:
See Natural gas, renewables dominate electric capacity additions in the first half of 2012, EIA,
Aug. 20, 2012, available at http://www.eia.gov/todayinenergy/detail.cfm?id=7610.
153.
By September 2012, Moody’s had already seen that any growth in exports for the
U.S. coal industry would be insufficient to offset domestic declines. See Moody’s: Growing
export opportunities for US coal industry insufficient to offset domestic declines, Moody’s
Investors Service, Sep. 14, 2012 at 1. The industry “is going through a long-term shift in market
fundamentals, pressured by abundant, cheap natural gas and ever-stringent environmental
regulations, and has shrunk coal’s share of the US power market by over 10% in the last four
years.” Id.
154.
The situation was clear by the fall of 2012:
Once mighty, the US coal industry’s domestic market appears to
be in terminal decline. New power generation is made up almost
entirely of natural gas plant or renewable energy sources. Old coal
plant closures as being hastened by environmental regulation. In
the face of shale gas, coal no longer seems cheap. On a variety of
fronts, coal has been left standing on the starting line, outpaced by
innovation in other sectors of the energy world.
See US Coal in decline, Platts Energy Economist, Oct. 1, 2012 at 1 (emphasis added).
155.
Coal exports to Canada were also expected to continue their decline, begun in
2007, as depicted in the below chart:
See Canada Week: Canada is a declining market for U.S. coal, EIA, Nov. 29, 2012, available at
http://www.eia.gov/todayinenergy/detail.cfm?id=8970. This was the result of Canadian policies
aimed at reducing coal-fired electric generation as contributors of greenhouse gases. Id.
156.
Long-term prospects for exports to Europe were also dim. With nearly half of
U.S. exports headed to European coal-fired power plants, Laszlo Varro, head of gas, coal and
power markets for the International Energy Agency (“IEA”) stated that, “regulations in Europe
will eventually lead to a substantial decommissioning of coal-fired generation capacity outside of
Germany, similar to what is happening in the U.S. now.” See IEA head: European coal
renaissance ‘not going to be permanent’, SNL Daily Gas Report, Jan. 28, 2013 at 1. Varro also
expressed doubt that the U.S. industry would be a strong competitor for Chinese and Indian
markets, with Indonesia being a closer low-cost supplier and China improving its railroad
infrastructure to move coal from its own mines to power plants. Id. at 2.
Leading to the Start of the Class Period, Numerous Red Flags Warned of the Imprudence
of Arch Coal Stock as an Investment Option for the Plan
157.
In addition to the above objective indicia that the coal industry was undergoing a
historic downturn that would last for the foreseeable future, other objective factors demonstrated
the imprudence of investing retirement savings in Arch Coal Stock.
158.
For example, on June 15, 2011, Arch Coal completed its acquisition of
International Coal Group (or ICG) for $3.4 billion. See Mayur Sontakke, “Understanding Arch
Coal’s Acquisition of International Coal Group,” www.marketrealist.com, December 3, 2014.
“The acquisition helped the company expand its metallurgical [“met”] coal portfolio
significantly.” Id.
159.
However, the acquisition of ICG would prove to be a financial albatross for Arch
Coal. “Soon after the acquisition, met coal prices dropped.” Id. For perspective, in the second
quarter of 2011, a ton of met coal cost $330. See Paul Ausick, Can US Coal Miners Dodge the
Bankruptcy
Bullet?,
24/7
Wall
St.,
available
at
http://247wallst.com/energy-
business/2015/06/17/can-us-coal-miners-dodge-the-bankruptcy-bullet/. “In the first quarter of
2015, that same ton of met coal cost an average of $117.” Id. In the second quarter of 2015, the
price of met coal was $95 per ton. Id.
160.
At the time of the ICG acquisition, the Company had expected to ship 15 million
tons of met coal by the end of 2012 (compared to a shipment of 7.4 million tons in 2011).
However, with a drop in prices and oversupply in the market, the company could ship just half of
it (7.5 million tons) during the year.” Id.
161.
Further, Arch Coal’s debt jumped from $1.5 billion before the ICG acquisition to
$3.7 billion by the end of 2011 after the acquisition. Id. Additionally, at the time of the
completion of Arch’s acquisition of ICG, its stock price closed at $25.10, by the end of the year
Arch’s stock had fallen 42% to $14.51. Marketwatck.com.
162.
There was additional evidence of the Company’s precarious financial condition.
The Altman Z-Score (“Z-Score”), developed in 1968 by Professor Edward Altman of the Stern
School of Business at New York University, is a bankruptcy prediction model commonly
accepted and used by financial analysts. See National Wildlife Federation v. EPA, 286 F.3d 554,
565-66 (D.C. Cir. 2002) (upholding Federal agency’s use of Altman Z-Score analysis for
predicting likelihood of bankruptcy and accepting that it “has been quite accurate over these last
25 years and remains an objective, established tool”) (internal quotes and citations omitted).
163.
A Z-Score greater than 2.99 is the “safe zone” meaning a company is unlikely to
go bankrupt, a score of 1.88 to 2.99 is the “grey zone,” and a score less than 1.88 is the “distress
zone” where there is a high probability the company will go bankrupt within two years.
164.
By March 31, 2012, Arch Coal’s Z-Score was well within the distress zone at
.90. The Company’s debt-to equity ratio stood at 1.26 but was rapidly increasing.
165.
Standard & Poor’s Ratings Services on April 25, 2012, put credit ratings for Arch
Coal “on Credit –Watch with negative implications because of ‘very difficult’ operating
conditions for coal producers.” See Dan Lowrey, “S&P Puts Arch on Credit Watch Negative,
Citing ‘Very Difficult’ Coal Market Conditions,” SNL Daily Coal Report, April 26, 2012. James
Fielding noted that, “Operating conditions for domestic producers of thermal coal and to a lesser
extent, metallurgical coal remain very difficult due to a mild winter, natural gas substitution in
the U.S., and slowing steel production overseas. In our view, these conditions are likely to
decrease demand and hurt contract pricing into 2013.” Id. “Arch has acknowledged that coal
producers are facing significant headwinds in 2012, including the possibility of a significant
reduction in coal demand from electric utilities.” Id. (emphasis added).
166.
Other red flags indicating the Company’s deteriorating financial condition were
apparent. On May 1, 2012, Arch Coal reported its financial results for the first quarter of 2012,
ending March 31, 2012. As reported therein, the Company had a net income of $1.4 million
compared to a $55.8 million net income for the previous quarter, a 97.5% drop. See May 10,
2012 Form 10-Q at 4.
167.
After Arch Coal’s stock dropped 7.4% on May 22, 2012, it was reported that,
“there seems to be no reprieve in sight for coal companies, according to the U.S. Energy
Information Administration, which estimated that electric power coal consumption would
decline by about 10% this year while electricity generation from natural gas is expected to
increase by about 16%.” See Amir Kurtovic, “Big Chill for Coal Stocks: Peabody, Arch, Patriot
Shares Hit New lows, Lose $16.5 Billion in Market Capital,” St. Louis Business Journal, May
25, 2012 (emphasis added). Meredith Bandy, VP of coal equity research for BMO Capital
Markets stated, “There is a possibility that we won’t see any improvement for the coal
industry in the near future.” Id. (emphasis added).
168.
An analysis done by the energy research firm Doyle Trading Consultants
identified Arch Coal “as the coal supplier[] that could be the most vulnerable to looming
coal unit retirements.” See Michael Niven, “Study: Arch, Peabody, Alpha Producers Most
Vulnerable to Coal Unit Retirements,” SNL Daily Coal Report, May 21, 2012 (emphasis added).
The study, “examined a portfolio of 243 GW [gigawatt] of coal-fired generating capacity in the
United States.” Id. “Of the 243 GW of coal capacity analyzed by DTC, the firm found that
approximately 41.1 GW of generation has been announced to be retired by 2020 or is vulnerable
to retirement by then…The firm expects roughly 90% of the 41.1 GW to be retired by 2015,
pushed by the need to comply with the U.S. EPA’s looming Mercury and Air Toxics Standards.”
Id. As of 2010, Arch supplied more than 25 million tons of coal to the vulnerable plants, topping
the list as the company supplying the most coal to vulnerable plants. Id.
169.
On June 21, 2012, Arch Coal stated “that it will cut about 750 full-time
employees, or about a tenth of its workforce, as it closes three higher-cost thermal mining
complexes and temporarily idles or curtails production at several others in Appalachia.” See
Diana Barr, “Arch Coal Cutting 750 Workers, Idling 3 Mines,” St. Louis Business Journal, June
21, 2012. “The company said the moves are prompted by, ‘the unprecedented downturn in
demand for coal-based electricity.’” Id. Arch Coal’s President and CEO, John Eaves, said,
“Current market pressures and a challenging regulatory environment have pushed coal
consumption in the United States to a 20-year low.” Id.
170.
As of June 30, 2012, Arch Coal’s likelihood of bankruptcy had increased even
further as its Z-Score moved even further into the distress zone with a score of .59.
171.
Probably the most eye-popping red flag was the incredible wave of bankruptcy
filings by U.S. coal producers that began in 2012 and continued into 2013, in the wake of calls
that 2013 would see “trough” pricing of coal. See Bankruptcy filings by US coal companies
accelerate as markets flounder, SNL Daily Coal Report, Mar. 1, 2013 at 1. Facing slower
economic growth in countries such as China, thus decreasing demand for metallurgical coal, and
competition from shale gas and stricter environmental regulations hitting thermal coal, the
downturn appeared “more chronic” rather than cyclical. Id. Coal-fired plants, too costly to
retrofit with better pollution control technology in the face of cheap natural gas, were forced to
close, which lead to lower demand for coal especially from Central Appalachian producers. The
largest company to file was Patriot Coal Corporation (“Patriot Coal”) on July 9, 2012, with
assets of nearly $4 billion. Id.
172.
Patriot Coal’s bankruptcy is of particular relevance to the Defendants’ breach of
fiduciary duty to the Plan and its Participants. Defendants were well aware of Patriot Coal
because in 2008 Patriot Coal bought Magnum Coal which was a spinoff from Arch Coal. See
Clement Daly, US Miners’ Union Reaches Settlement With Patriot Coal and Peabody Energy,
Oct. 15, 2013, available at https://www.wsws.org/en/articles/2013/10/15/patr-015.html. Arch
Coal would later be embroiled in litigation with employees of Patriot Coal who accused Arch
Coal of spinning off its failing mines (i.e., Magnum Coal) to avoid having to pay pensions and
long-term health care obligations. See Darren Epps, “UMWA points finger at Peabody, Arch for
Patriot Bankruptcy,” SNL Daily Coal Report, August 30, 2012.10
173.
Like Arch Coal, Patriot Coal sponsored a defined contribution plan. Prior to June
28, 2012, the Patriot Coal plan invested in common stock of Patriot Coal through the Patriot Coal
Stock Fund. The Patriot Coal plan fiduciaries, who were operating with a similar backdrop of
dire circumstances as Defendant-fiduciaries are today, appointed an independent fiduciary on
June 21, 2012 (prior to filing for bankruptcy) to oversee the Patriot Coal Stock Fund. See Patriot
Coal 2012 Form 5500, Notes to Financial Statements For the Years Ended December 31, 2012
and 2011 at 7. Upon information and belief, the Defendant-fiduciaries here have not even taken
such a minimal step toward protecting the Plan and its Participants. This is just another example
of the Company’s disregard for the long-term savings and financial future of its employees.
10 Arch Coal and the employees eventually “reached a $12 million deal to settle [the] legal
issues.” See Taylor Kuykendall, “UMWA, Arch Coal Settle for $12 Over Retirement
Obligations Related to Patriot,” SNL Daily Coal Report, Feb. 5, 2014.
174.
Significantly, “[b]ased on a number of considerations, the independent fiduciary
determined that it was in the best interest of Plan participants and beneficiaries to stop
purchasing Patriot Coal Stock under the Plan and to sell all shares of Patriot Coal held in the
Patriot Coal Stock Fund. On June 28, 2012, all of the shares were sold and participants can no
longer invest in Patriot Coal Stock through the Plan.” See Patriot Coal 2012 Form 5500, Notes
to Financial Statements For the Years Ended December 31, 2012 and 2011 at 7.
175.
The action taken by the Patriot Coal plan fiduciaries along with the numerous
other bankruptcy filings by coal companies in 2012 should have alerted the Defendant-
fiduciaries to take steps to protect the assets of the Plan and its Participants invested in Arch Coal
Stock. This is especially so when considering that during this time period, as noted above, Arch
Coal remained at serious risk of bankruptcy as measured by its Z-Score.
176.
On July 27, 2012, Arch Coal reported its financial results for the second quarter
of 2012, ending June 30, 2012. As reported therein, the Company had a net loss of $435.4
million compared to a profit of $1.4 million the previous quarter. See August 9, 2012 Form 10-Q
at 4. Further, earnings per share were a loss of $2.05 per share for the quarter. Id at 3. The
Company’s liabilities increased $187 million to over $6.8 billion since the start of the year, id. at
5, and Arch Coal’s long term debt had risen nearly 19% since year-end 2011 to $4.46 billion. Id
177.
Trust law states that “if the trustee holds property which when acquired by him
was a proper investment, but which thereafter becomes an investment which would not be a
proper investment for the trustee to make, it becomes the duty of the trustee to the beneficiary to
dispose of the property within a reasonable time.” See Restatement (Second) of Trusts § 231
(1959) (emphasis added); see also discussion supra Introduction.
178.
The Class Period begins on July 27, 2012, because by this point in time, at the
time of the announcement of the disastrous second quarter results, a sufficiently reasonable
amount of time had elapsed for the Plan’s fiduciaries to take action to protect the Plan given the
numerous red flags regarding the Company’s precarious financial position in the preceding
months. Among other things, as noted above, just a month earlier on June 21st, the Company
implemented a work-force reduction citing an unprecedented downturn in the coal industry and
around the same time, the Patriot Coal plan fiduciaries had ceased investment of the Patriot Coal
plan assets in Patriot Coal stock due in part to the dismissal future for coal.
179.
These and the plethora of other red flags described above made clear that Arch
Coal Stock was not a prudent investment option for retirement savings. On July 27, 2012, the
Company Stock was trading at $6.55, which was 91% below the all-time high of $75.03 on June
1, 2008 when coal prices were at their peak.
180.
To be sure, by July 27, 2012, it was patently clear, or should have been clear, to
the Plan’s fiduciaries, that a permanent structural shift in the only true business segment that
comprised Arch Coal’s business, i.e., coal, was irreparably compromised for the foreseeable
future given, inter alia, the depressed prices of coal prices and drastically reduced demand for
coal over the last several years. Because of these and other factors delineated above, by July 27,
2012, the basic risk profile and future business prospects of Arch Coal had so dramatically
changed, that continued deterioration of the price of Arch Coal Stock was inevitable, making
Arch Coal Stock an imprudent Plan investment option.
181.
The news only got worse from this point forward. Just a week later, “in an
investor presentation released Aug. 7, [2012] Arch Coal Inc. offered a more pessimistic view for
metallurgical coal in the current global market than in a May presentation.” Darren Epps,
“Metallurgical Coal Markets Suddenly Unattractive, Arch Says,” SNL Daily Coal Report,
August 9, 2012. “Arch said seaborne coal markets, including met coal, were oversupplied by
about 25 million tonnes in the first half in 2012.” Id. Just in May 2012, Arch claimed the met
coal market was poised for recovery. Id.
182.
More bad news followed. On September 12, 2012, Arch Coal announced that it
would idle the Imperial Mine in Upshur, West Virginia, due to a lack of market demand. See
Darren Epps, “Arch Coal Idling Imperial Mine in West Virginia, Moving Employees to Leer,”
SNL Daily Coal Report, September 13, 2012.
183.
On September 30, Arch Coal’s Z-Score remained at .59, still in the distress zone.
By year’s end, however, Arch Coal’s Z-Score had dropped even lower to .41, falling further into
the distress zone.
184.
The Company reported a net loss of $295 million for the fourth quarter of 2012
and a net loss of $681.6 million for the year. See Arch Coal Inc., Arch Coal, Inc. Reports Fourth
Quarter and Full Year 2012 Results [press release], February 5, 2013 at 1. Arch Coal’s total
assets declined by $207.2 million, while liabilities increased to almost $7.2 billion from 2011 to
2012. Id at 8.
2013 Was a New Year But the Same Old Story for Arch Coal
185.
As 2013 began, there was no mistaking the fact that there was no recovery in
sight for Arch Coal or the coal industry in general. In February 2013, “Arch Coal Inc. CFO John
Drexler said …that the company expects Central Appalachia coal production to total less than
130 million tons in 2013, down from about $185 million tons in 2011, due to a ‘collapsing’
thermal market for the high-Btu coal.” See Darren Epps, “Arch Sees Central App Thermal
Market Collapsing; Idled Mines Unlikely to Return,” SNL Daily Coal Report, February 27, 2013
(emphasis added). Arch closed 10 complexes in the area and Drexler said, “we don’t see those
coming back in the near term.” Id.
186.
Arch Coal reported it had a net loss of $70 million for the first quarter of 2013,
ending March 31, 2013, compared to a net income of $1.4 million for the same quarter of the
previous year. See May 8, 2013 Form 10-Q at 6. Furthermore revenue for the first quarter fell to
$825.5 million, a drop of nearly 20% from a year back. Id at 3.
187.
At the end of the first quarter of 2013, Arch Coal’s Z-Score had dropped even
further to .3 and its debt to equity ratio had increased to 1.84.
188.
Analysts continued to forecast bleak conditions for the coal industry stating that
“Weak economic conditions in Europe, slower growth in Asia and readily available supply
across the globe are impacting the international markets for both thermal coal and metallurgical
coal.” Get ready for drop in US coal exports, industry official say, SNL Daily Coal Report, Apr.
29, 2013. Citigroup Global Markets Inc. in particular predicted that 2013 would see price
declines in almost all commodities, including thermal coal. Id.
189.
On May 10, 2013, Fitch Ratings downgraded the ratings for Arch Coal to B-, six
steps into junk territory, from B. See Debbie Cai, “Fitch Cuts Arch Coal Rating on Oversupply
of U.S. Coal,” Dow Jones News Service, May 10, 2013. Reasons given for the downgrade were
that “[d]omestic oversupply in steam coal [was] expected to result in substantially lower
earnings” through the year, and the Company noted that weak metallurgical coal prices could
persist beyond the year. Id. Additionally, “Fitch also [saw] lower earnings, combined with high
debt levels after the acquisition of International Coal Group in 2011, as leading to high leverage
metrics over the ratings horizon.” Id.
190.
In early June 2013, citing, “difficult and persistently weak coal markets,” Arch
Coal announced that it was idling two mines at its Cumberland River complex and some
operations at its Hazard complex in Kentucky.” See Dan Lowrey, “Arch Coal Curtailing
Additional Met Coal Production, Laying Off 110,” SNL Coal Daily Report, June 10, 2013.
“Arch already [had] laid off hundreds of Appalachian coal miners … and cut millions of tons of
production in response to a worldwide decline in coal demand and excess supply from other
coal-producing regions.” Id.
191.
At the end of June 2013, with the “lingering slump in coal markets,” Arch Coal
announced that it had agreed to sell three of its non-core Utah mines in order to give the
company more “financial flexibility.” See Jeffrey Tomich, “Arch Coal to Sell Utah Mines for
$435 Million,” St. Louis Post-Dispatch, June 29, 2013.
192.
As of June 30, 2013, Arch Coal’s Z-Score remained in the distress zone at 0.43.
193.
For the second quarter of 2013, ending June 30, 2013, the Company had a net loss
of $74.2 million. See July 30, 2013 Form 10-Q at 3. Further, revenues for Arch Coal declined
over 20% from the same quarter in 2012, dropping to $766.3 million. Id. at 3. The Company
also lost 8.2% of its cash and cash equivalents from the beginning of the year falling to $644.2
million. Id. at 5.
194.
For the third quarter of 2013, ending September 30, 2013, Arch Coal had a net
loss of $128.4 million. See November 12, 2013 Form 10-Q at 3. This third quarter loss brought
the Company’s total loss for the year to date to $270.6 million. Id. at 3.
195.
By the end of the third quarter of 2013, Arch’s debt-to-equity ratio stood at 1.97.
The Company’s Z-Score continued to languish in the distress zone at .32.
196.
In October 2013, another alarm sounded for the U.S. coal industry, with the
release of a study noting that most of the coal estimated to exist in the U.S. is “buried too
deeply,” or was otherwise too unprofitable to extract, and thus unlikely to be mined. Speaking
for the Institute for Energy Economics and Financial Analysis (“IEEFA”), Tom Sanzillo stated
that the country will undergo a shift in its energy mix, leading to an industry that would “be
smaller with less producers, fewer mines and higher prices.” See New reports say US has
reached ‘peak coal’, SNL Daily Coal Report, Oct. 31, 2013.
197.
Before it reported its fourth quarter 2013 results, “Arch Coal warned it expects to
post lower-than-planned shipments and production levels from some facilities.” See Ben Fox
Rubin, “Arch Coal Warns of Lower-Than-Expected Shipments, Production,” Dow Jones
Industrial News, January 21, 2014. Powder River Basin shipments declined more than 15%
because of rail service issues. Id. “Arch has idled several operations and reduced its production
in mining complexes throughout Appalachia due to persistent decline in demand for coal-based
electricity. Power plants have been switching to natural gas as prices hover near 10-year lows.
Additionally, increased environmental regulation and rising costs have compounded the coal
producers’ challenges.” Id.
198.
For the year ending December 31, 2013, Arch Coal had a net loss of $641.8 with
revenues dropping 20% from 2012. February 28, 2014 Form 10-K at F-5. Further, Arch Coal
lost over a billion dollars of its total assets for the year prior. Id. at F-7.
199.
At year’s end, December 31, 2013, Arch Coal’s Z-score dropped even lower to
0.22. Its debt to equity ratio was now at 2.29.
The Company’s Struggles Continued and the Losses Mounted Throughout 2014
200.
Shockingly, while the Plan and its Participants’ retirement savings continued to
shrink as a result of the diminution in the value of Arch Coal Stock, Defendant Eaves saw his
compensation rise from $4.3 million in 2013 to $7.3 million in 2014.11
201.
In the first half of 2014, Citigroup published three reports which reiterated the
major structural decline in the coal industry caused by new, stricter emission standards,
increasing competition by renewable energy sources and limited feasibility in opening new coal
plants in the wake of older plant retirement. “In short, Citigroup says, the evolution in electricity
markets is being driven by a combination of regulatory and technology changes.” See Beginning
of the end for coal? Citi sees structural decline, Renew Economy, May 15, 2014, available at
http://reneweconomy.com.au/2014/beginning-end-coal-citi-sees-structural-decline-30396.
202.
In February 2014, recognizing its critical situation, Arch Coal begun to take
desperate measures. Seeking to “increase cash flow” and “improve operational efficiencies”
Arch Coal reduced its dividend to $0.01 per share and also announced that it sold its ADDCAR
Systems LLC subsidiary for $21 million. See Darren Epps, “Arch Coal Sells Highwall Mining
Unit for $21M, Declares Annual Dividend,” SNL Energy M&A Review, March 1, 2014. Arch
had acquired ADDCAR as part of the International Coal Group deal in 2011. Id. The ADDCAR
divestiture came less than eight months after Arch Coal announced plans to sell Utah longwall
mines to Bowie Resources LLC. Id.
203.
Then, on March 5, 2014, Arch Coal announced it reached a deal to sell its Hazard
subsidiary in Central Appalachia to Blackhawk Mining for $26.3 million. See Darren Epps,
“Arch Coal Makes Another Deal, Sells Hazard Unit to Blackhawk Mining,” SNL Daily Coal
Report, March 6, 2014.
11 See Dan Lowrey, “Arch Coal CEO Eaves’ 2014 Compensation Rises to $7.3 Million,” SNL
Daily Coal Report, March 3, 2015.
204.
Jefferies LLC downgraded Arch Coal on March 25, 2013 because of “sluggish”
metallurgical coal prices and lower natural gas prices. See Dan Lowrey, “Analyst Downgrades
Arch Coal, Alpha Natural on Outlook for Met Coal, Gas Prices,” SNL Daily Coal Report, March
26, 2013. Jefferies analyst Peter Ward noted that Arch Coal “made untimely acquisitions during
a cyclical high in met coal markets that they are now paying for with heavy debt loads.” Id.
“The problem is that Arch needs a lot of free cash flow in order to materially reduce its high debt
level.” Id.
205.
Arch Coal’s third quarter results for the period ending March 31, 2014, were
dismal. The Company had a net loss of $124.1 million compared to a loss of $70 million for the
same quarter last year, an increase loss of 77.2%. See May 12, 2014 Form 10-Q at 3.
206.
As of March 31, 2014, Arch Coal’s Z-score was 0.19, meaning the Company
continued to remain at great risk of bankruptcy. Additionally, its debt to equity ratio had
increased to 2.42.
207.
May 2014 brought more bad news for the coal industry and Arch Coal. The
IEEFA noted that there was a global shrink in the demand for thermal coal. Increasing Chinese
coal production would further limit the ability of American and Australian mines to offset
shrinking domestic use through exports, as well as China’s own environmental initiatives and
move to more efficient energy generation. See Briefing Note: Thermal Coal Outlook, May 15,
2014 at 6, available at http://ieefa.org/thermal-coal-outlook-may2014/. United States thermal
coal capacity would continue to fall, with newer natural gas and solar power plants vastly
outnumbering new coal plant additions. Id. at 6-7. Further, Europe and Japan were increasingly
relying on stronger output from renewable energy sources, including off-shore wind farms and
new solar power capacities. Id. at 7-8.
208.
In June 2014, the Environmental Protection Agency announced new regulations
for curbing carbon dioxide emissions from power plants, with major implications for both power
plants and the coal companies that supply them. See Jacob Barker, “Carbon Rules Loom Large
for Coal-Heavy Missouri, Illinois,” St. Louis Post Dispatch, June. 1, 2014. Arch Coal was
obviously shaken by the news as Arch Coal Senior VP of Strategy and Public Policy, Deck S.
Sloan, responded to the EPA’s proposed regulations by expressing how “costly” the regulations
would be. See “Arch Coal Comments on EPA’s Greenhouse Gas Regulations,” Energy Monitor
Worldwide, June 10, 2014.
209.
Arch Coal’s financial results for the second quarter of 2014, ending June 30, 2014
presented more gloomy news. The Company had a net loss of $96.9 million compared to a loss
of $72.2 million for the same quarter 2013. See August 8, 2014 Form 10-Q at 3. The Company
also lost $334 million in total assets since the start of the year. Id at 5.
210.
On June 30, 2014, Arch’s Z-Score remained in the distress zone at 0.13. The
Company’s debt to equity ratio was now 2.53.
211.
The hemorrhaging continued. On July 21, 2014 Arch Coal reported it was laying
off 213 employees and closing its Cumberland River Coal Company Complex. See Jacob Kirn,
“Arch Coal Lays Off 213 in Appalachia Mine Closure,” St. Louis Business Journal, July 21,
2014. This was a clear sign of the Company’s financial difficulties. According to Arch Coal
President and CEO, John Eaves, the closure reduced Arch Coal’s annual 2013 metallurgical coal
sales volumes by about 200,000 tons. Id.
212.
September brought more bad news for the U.S. coal industry and Arch Coal.
According to a report issued by the EIA, in the first half of 2014, 4,350 megawatts of new
generation capacity came online, completely attributable to natural gas, solar, wind and other
sources. No coal capacity was added. Even the 1,500 megawatts of coal-fired capacity added in
2013 was minimized by the 4,500 megawatt capacity added by natural gas-fired plants that same
year, as demonstrated by this chart:
See Natural gas, solar, and wind lead power plant capacity additions in first-half 2014, EIA,
Sept. 9, 2014, available at http://www.eia.gov/todayinenergy/detail.cfm?id=17891
213.
For the third quarter of 2014, ending September 30, 2014, Arch Coal posted yet
another net loss, this time of $97.2 million; bringing total losses for the year to $318.2 million.
See November 7, 2014 Form 10-Q at 3.
214.
As of September 30, 2014, Arch Coal Stock was trading at $2.40, down 64% from
its value at the start of the Class Period.
215.
By November 2014, IEEFA noted the sharp decline of U.S. coal stocks relative
the positive performance of the stock market:
While the overall U.S. stock market has risen dramatically since
2010, U.S. coal stocks have collapsed, and the U.S. coal
industry is in its fourth year of decline. Third-quarter earnings
reports show the trend continuing. The four largest producers in
the Power River Basin (Alpha, Arch, Cloud Peak, and Peabody)
continue to see their stock prices drop as they report declining
revenues, tighter margins, and distressed asset sales.
See 20 Fourth-Quarter Questions for Powder River Basin Coal Producers, Nov. 11,
2014 at 1 (emphasis added), available at http://ieefa.org/20questions/.
216.
The article further detailed that each producer reported declining revenues ranging
from 10 to 30 percent from 2011 through 2013. Id. Noting a “fundamental structural coal-
industry change,” due in part to increased, constant competition from cheap natural gas as well
as a diminishing likelihood with the industry’s ability to offset domestic losses with exports, the
article saw “little true likelihood of a significant turnaround.” Id.
217.
Arch Coal was not the only coal company to experience stock market declines
due to the downturn in the industry as a whole. As explained by SNL Daily Coal Report:
Under assault from almost every direction, U.S. coal equities saw
their value shrink to historic lows, with some equities hitting all-
time lows.
See Peabody hits back at coal critics, calling for rejection of ‘climate alarmism’, Sept. 29, 2014
(emphasis added).
218.
For the year ending December 31, 2014, Arch Coal reported a net loss of $558.4
million. See February 27, 2015 Form 10-K at 61. This marked the third straight year that Arch
Coal reported a net loss of income. Id. at 61. Revenues declined for the fourth straight year
dipping to $2.9 billion. Id. at 61. Arch Coal’s total assets also declined for the fourth straight
year, this year falling 6.2% from $8.99 billion in 2013 to $8.43 billion in 2014. Id. at 61.
In 2015, Arch Coal Fared No Better as the Company’ Financial Condition Continued to
Deteriorate, Losses Continued to Mount and its Stock Price Continued to Plummet
219.
At the beginning of 2015, Arch Coal Stock was trading below $2 a share,
recording a per share price of $1.68 on January 2, 2015. A month later, in the midst of its
continuing struggles, the Company announced that it would stop paying dividends to investors
“in light of ongoing market weakness.” See “Arch Coal Posts Smaller Loss, Stops Dividend
Payments,” Associated Press State & Local, February 3, 2015.
220.
Arch Coal’s financial results for the first quarter of 2015, ending March 31, 2015,
was once again extremely disappointing. As reported, the Company had a net loss of $113.2
million, the tenth straight quarter posting a loss. See April 30, 2015 Form 10-Q at 3. The
company had also lost $115 million in total assets since the end of year 2014. Id. at 5.
221.
By March 31, 2015 Arch Coal’s Z-Score stood at .23 and its debt to equity ratio
was a dreadful 3.3 meaning the Company’s debt was more than three times its equity.
222.
A little over a month later on May 6, 2015, Bank of America published a new
coal policy, attached as Exhibit C, that cemented the generally held view that the coal industry
was an unduly risky segment in which to invest. Following a due diligence review, the bank
announced:
Over the past several years, Bank of America has significantly
reduced our exposures to coal extraction companies. Going
forward, Bank of America will continue to reduce our credit
exposure to coal extraction companies. This commitment applies
globally, to companies focused on coal extraction and to divisions
of diversified mining companies that are focused on coal.
223.
The dire outlook for the coal industry shows no signs of abating. On May 12,
2015, Patriot Coal filed for bankruptcy protection for the second time in three years, the results
of competition from natural gas, high emission standards and weakened demand for
metallurgical coal in China. It had emerged from the previous bankruptcy in December 2013,
having reduced its debt from $3.07 billion to $545 million through the sale of assets and the
closure of some mines. See Patriot Coal Files for Second Bankruptcy in Three Years Amid
Commodity Price Slump, BNA’s Bankruptcy Law Reporter, May 12, 2015, available at
http://www.bloomberg.com/news/articles/2015-05-12/patriot-coal-files-for-bankruptcy-after-
commodity-price-slump. Not surprisingly, “Patriot’s woes are indicative of the wider malaise
in the coal industry.” See Nick Cunningham, Latest Casualty In Energy’s Hardest Hit Industry,
Yahoo Finance, May 25, 2015, available at http://finance.yaoo.com/news/latest-casualty-energy-
hardest-hit-202728319.html.
224.
Other coal companies to file for protection recently include Longview Power
LLC, Dynegy Inc., Edison Mission Energy, James River Coal Co., America West Resources
Inc., Trinity Coal Corp., Americas Energy Co., Clearwater Resources LP and Consolidated
Energy. See Patriot Coal Files for Second Bankruptcy in Three Years Amid Commodity Price
Slump,
BNA’s
Bankruptcy
Law
Reporter,
May
12,
2015,
available
at
http://www.bloomberg.com/news/articles/2015-05-12/patriot-coal-files-for-bankruptcy-after-
commodity-price-slump. An additional four companies, including Arch Coal were seen as
distressed: Walter Energy had raised the possibility of its own bankruptcy filing, Alpha Natural
Resources Inc., the second-largest coal producer by sales, was warned by the New York Stock
Exchange that its shares would be delisted if its shares continued to trade below $1, and Arch
Coal and Peabody Energy Corp. had each lost over 75% of their share value since 2014. Id.
225.
Less than two weeks after Patriot Coal’s bankruptcy filing, Arch Coal released a
statement on May 22, 2015, “that it no longer satisfies the minimum standards necessary to
be listed on the New York Stock Exchange.” See Tony Owusu, “Arch Coal (ACI) Tanks on
Debt Restructuring Negotiations, NYSE Delisting Notice,” Thestreet.com, May 26, 2015
(emphasis added). After having a stock price below $1 for 30 consecutive trading days, Arch
12 Penny stocks are loosely defined as “any stock that trades for pennies or those that trade for
under $5.”
See http://www.investopedia.com/terms/p/pennystock.asp.
Such stocks “are
generally considered to be highly speculative and high risk because of their lack of liquidity,
large bid-ask spreads, small capitalization and limited following and disclosure. They will often
trade over the counter through the OTCBB and pink sheets. Id.
Coal received a delisting notice. Id. Arch Coal Stock is now effectively a “penny stock” trading
for less than $.50 as of the filing of the instant complaint.12
226.
Another blow to Arch Coal and the coal industry was the recent revelation in an
article that the Office of Surface Mining Reclamation and Enforcement (OSMRE), “the nation’s
leading coal industry regulator” is examining whether coal companies, including Arch Coal, still
qualify for a government program that allows coal companies to self-insure or “self-bond” for
clean-up costs in case of bankruptcy. See Patrick Rucker, Coal Giant Peabody Faces Federal
Scrutiny Over Clean-Up Insurance, Yahoo! Finance, June 4, 2015, available at
http://finance.yahoo.com/news/coal-giant-peabody-faces-federal-174047899.html. The reason
for the examination is OSMRE’s concern that “slumping coal prices and declining demand have
put industry balance sheets under stress, raising questions about whether … coal firms meet the
financial criteria to self bond.” Id. Importantly, as the article notes, “the shares of many major
coal companies … have fallen by more than 90 percent in the last four years and industry
analysts warn that near-term bankruptcies are a real danger.” Id. (emphasis added).
227.
According to Greg Conrad, director of the Interstate Mining Compact
Commission which speaks for coal producing states, “[t]his is the first time we’ve see [sic] this:
a downturn in the coal industry raising questions about self bonds.” Id.
228.
If Arch Coal were to be disqualified from the government program, it would be
subjected to substantial cost increases as it would have to pay market rates to insure the billions
of dollars required to restore old mines and ravaged landscapes back to health. Id.
229.
By the end of 2014, it appeared that Arch Coal would no longer qualify to self-
bond. In order to maintain its qualification for self-bonding, Arch Coal “must have a ratio of
total liabilities to net worth of 2.5 times or less, and a ratio of current assets to current liabilities
of 1.2 times or greater.” Id. However, a review of securities filings found that Arch Coal failed
both those tests at the end of 2014. Id.
230.
As of the filing of the instant complaint, for all the reasons set forth above, Arch
Coal has been and remains an imprudent investment option for the Plan.
DEFENDANTS KNEW OR SHOULD HAVE KNOWN THAT ARCH COAL WAS AN
IMPRUDENT INVESTMENT FOR THE PLAN, YET FAILED TO PROTECT THE
PLAN’S PARTICIPANTS
231.
As illustrated by the following chart, Arch Coal’s tenuous financial condition as
measured by, inter alia, its Z-Score and debt-equity ratio began in early 2012, but accelerated
sharply during the third quarter ending September 30, 2012.
232.
Further, as the below graph of Arch Coal’s performance relative to the S&P 500
makes clear, the Company has severely underperformed the general market:
Source:
http://www.google.com/finance?q=INDEXSP%3A.INX&ei=DhtuVZLQKcG7rgGHt4HgDQ.
233.
Arch Coal is radically underperforming compared to the oil and gas sector as well
as the S&P 500 Index, having lost over 93% of the share price in three years compared to a
sector increase of nearly 12%:
Source:
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/industries.jhtml?tab=learn&indu
stry=101020
234.
Even compared to the Dow Jones U.S. Coal Index, Arch Coal has lost more
market capitalization than its peers:
Source: Google Finance http://www.google.com/finance?cid=4931635
235.
The Company’s financial condition, when viewed through the lens of objective
financial metrics, plainly indicates the Company’s deterioration over the last several years.
During the Class Period, although they knew or should have known that Company Stock was an
imprudent investment for the Plan, Defendants did nothing to protect the significant investment
of the Plan Participants’ retirement savings in Arch Coal Stock.
236.
Since the beginning of the Class Period through the filing of the instant complaint,
the Plan’s imprudent investments in Arch Coal Stock have been decimated, as indicated below:
Source: http://bigcharts.marketwatch.com.
237.
As a result of the enormous erosion of the value of Arch Coal, the Plan’s
Participants, the retirement savings of whom were heavily invested in Arch Coal Stock, suffered
unnecessary and unacceptable losses.
238.
Because of their high ranking positions within the Company and/or their status as
fiduciaries of the Plan, Defendants knew or should have known of the existence of the above-
mentioned problems.
239.
Defendants knew or should have known that, due to the Company’s spiraling
financial reality and outlook given its exposure to losses stemming from the problems described
above, Company Stock was imprudent no matter what its price. Regardless, the Company Stock
price inevitably dropped drastically and steadily beginning in 2011, a year before the start of the
Class Period, and continued throughout the Class Period due to the pervasive problems facing
the Company. There was absolutely no objective evidence that the Company Stock price would
or could recover. Yet, Defendants failed to protect the Plan and its Participants from these
foreseeable losses.
240.
Upon information and belief, Defendants failed to adequately review the
performance of the other fiduciaries of the Plan to ensure that they were fulfilling their fiduciary
duties under the Plan and ERISA. Defendants also failed to conduct an appropriate investigation
into whether Arch Coal Stock was a prudent investment for the Plan and, in connection
therewith, failed to provide the Plan’s Participants with information regarding Arch Coal’s
problems so that the Plan’s Participants could make informed decisions regarding whether to
include Arch Coal Stock in their accounts in the Plan.
241.
An adequate (or even cursory) investigation by Defendants would have revealed
to a reasonable fiduciary that investment by the Plan in Arch Coal Stock during the Class Period
was clearly imprudent. A prudent fiduciary acting under similar circumstances would have acted
during the Class Period to protect the Plan’s Participants against unnecessary losses, and would
have made different investment decisions.
242.
Because Defendants knew or should have known that Arch Coal Stock was not a
prudent investment option for the Plan during the Class Period, they had an obligation to protect
the Plan and its Participants from unreasonable and entirely predictable losses incurred during
the Class Period as a result of the Plan’s investment in Arch Coal Stock.
243.
Defendants had available to them several different options for satisfying this duty,
including, among other things: divesting the Plan of Arch Coal Stock; discontinuing further
contributions to and/or investment in Arch Coal Stock under the Plan; resigning as fiduciaries of
the Plan if, as a result of their employment by Arch Coal, they could not loyally serve the Plan
and the Plan’s Participants in connection with the Plan’s acquisition and holding of Arch Coal
Stock; making appropriate public disclosures as necessary; and/or consulting independent
fiduciaries regarding appropriate measures to take in order to prudently and loyally serve the
Participants of the Plan.
244.
Despite the availability of these and other options, Defendants failed to take any
adequate action during the Class Period to protect the Plan’s Participants from losses resulting
from the Plan’s investment in Arch Coal Stock.
AT LEAST CERTAIN OF THE DEFENDANTS SUFFERED
FROM CONFLICTS OF INTEREST
245.
Pursuant to the duty of loyalty, an ERISA fiduciary must discharge his duties
solely in the interest of the participants and beneficiaries. 29 U.S.C. § 1104(a)(1)).
246.
Arch Coal’s SEC filings during the Class Period, including Form DEF 14A Proxy
Statements, make clear that a portion of certain officers’ compensation, including Defendants
Eaves and Lang, was in the form of stock awards and option awards. For example, in 2014,
Defendant Eaves received $2,744,517 in stock awards while Defendant Lang received
$1,628,718. See 2014 Form DEF 14A Proxy Statement (filed Mar. 20, 2015) at 60.
247.
Defendant Eaves and Lang were also beneficial owners of Arch Coal Stock. As
of February 26, 2015, Defendants Eaves and Lang owned 315,712, and 99,416 shares of Arch
Coal Stock, respectively. Id. at 33.
248.
Because of at least some of the Defendants’ compensation in Arch Coal Stock
and ownership of Arch Coal Stock, these Defendants had a conflict of interest which put them in
the position of having to choose between their own interests as executives and stockholders, and
the interests of the Plan’s Participants, whose interests Defendants were obligated to loyally
serve with an “eye single” to the Plan. See generally Mertens v. Hewitt Assoc., 508 U.S. 248,
251-52 (1993); 29 U.S.C. § 1104(a)(1)(B). These Defendants, while attempting to shore up Arch
Coal during the Class Period as its stock price inevitably plummeted, abandoned their duties to
the Plan and its Participants, and failed to consider at any time during the Class Period what was
in the best interest of the Plan and its Participants as they should have done as Plan fiduciaries.
249.
Some Defendants may have had no choice in tying their compensation to Arch
Coal Stock (because compensation decisions were out of their hands), but Defendants did have
the choice of whether to keep the Plan’s Participants’ retirement savings tied up to a large extent
in Arch Coal Stock or to take steps to protect the Plan and its Participants.
CLAIMS FOR RELIEF UNDER ERISA
250.
At all relevant times, Defendants are/were and acted as fiduciaries within the
meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A).
251.
ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), provides, in pertinent part, that a civil
action may be brought by a participant for relief under ERISA § 409, 29 U.S.C. § 1109.
252.
ERISA § 409(a), 29 U.S.C. § 1109(a), “Liability for Breach of Fiduciary Duty,”
provides, in pertinent part, that any person who is a fiduciary with respect to a plan who breaches
any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be
personally liable to make good to such plan any losses to the plan resulting from each such
breach, and to restore to such plan any profits of such fiduciary which have been made through
use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial
relief as the court may deem appropriate, including removal of such fiduciary.
253.
ERISA §§ 404(a)(1)(A) and (B), 29 U.S.C. §§ 1104(a)(1)(A) and (B), provide, in
pertinent part, that a fiduciary shall discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to
participants and their beneficiaries, and with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with like aims.
These fiduciary duties under ERISA §§ 404(a)(1)(A) and (B) are referred to as the duties
of loyalty, exclusive purpose and prudence and, as courts within this Circuit have noted, these
duties “have been described as ‘the highest known to the law.’” See, e.g., Braden, 588 at 598
(quoting Donovan, 680 F.2d at 272 n.8).
254.
These duties entail, among other things:
(a)
the duty to conduct an independent and thorough investigation into, and
continually to monitor, the merits of all the investment alternatives of a
plan;
(b)
the duty to avoid conflicts of interest and to resolve them promptly when
they occur. A fiduciary must always administer a plan with an “eye
single” to the interests of the participants and beneficiaries, regardless of
the interests of the fiduciaries themselves or the plan sponsor;
(c)
the duty to disclose and inform, which encompasses: (1) a negative duty
not to misinform; (2) an affirmative duty to inform when the fiduciary
knows or should know that silence might be harmful; and (3) a duty to
convey complete and accurate information material to the circumstances
of participants and beneficiaries.
255.
ERISA § 405(a), 29 U.S.C. § 1105 (a), “Liability for breach by co-fiduciary,”
provides, in pertinent part, that:
[I]n addition to any liability which he may have under any other
provision of this part, a fiduciary with respect to a plan shall be
liable for a breach of fiduciary responsibility of another fiduciary
with respect to the same plan in the following circumstances: (A) if
he participates knowingly in, or knowingly undertakes to conceal,
an act or omission of such other fiduciary, knowing such act or
omission is a breach; (B) if, by his failure to comply with section
404(a)(1), 29 U.S.C. § 1104(a)(1), in the administration of his
specific responsibilities which give rise to his status as a fiduciary,
he has enabled such other fiduciary to commit a breach; or (C) if
he has knowledge of a breach by such other fiduciary, unless he
makes reasonable efforts under the circumstances to remedy the
breach.
256.
Plaintiff therefore brings this action under the authority of ERISA § 502(a) for
Plan-wide relief under ERISA § 409(a) to recover losses sustained by the Plan arising out of the
breaches of fiduciary duties by Defendants for violations under ERISA § 404(a)(1) and ERISA §
COUNT I
FAILURE TO PRUDENTLY AND LOYALLY MANAGE THE PLAN’S ASSETS
(BREACHES OF FIDUCIARY DUTIES IN VIOLATION OF ERISA §§ 404 AND 405 BY
THE COMPANY DEFENDANT AND THE RETIREMENT COMMITTEE
DEFENDANTS)
257.
Plaintiff incorporates the allegations contained in the previous paragraphs of this
Complaint as if fully set forth herein.
258.
This Count alleges fiduciary breaches against the Company Defendant and the
Retirement Committee Defendants (the “Prudence Defendants”).
259.
At all relevant times, as alleged above, the Prudence Defendants were fiduciaries
of the Plan within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) in that they had
or exercised discretionary authority or control over the administration and/or management of the
Plan and/or exercised any authority or control over the disposition of the Plan’s assets.
260.
Under ERISA, fiduciaries who have or exercise discretionary authority or control
over management of a plan or exercise any authority or control over the disposition of a plan’s
assets are responsible for ensuring that all investment options made available to participants
under a plan are prudent. Furthermore, such fiduciaries are responsible for ensuring that assets
within the plan are prudently invested. The Prudence Defendants were responsible for ensuring
that all investments in Company Stock in the Plan were prudent. The Prudence Defendants are
liable for losses incurred as a result of such investments being imprudent.
261.
According to DOL regulations interpreting the duty of prudence, in order to
comply with the duty of prudence, a fiduciary must give “appropriate consideration to those facts
and circumstances that, given the scope of such fiduciary’s investment duties, the fiduciary
knows or should know are relevant to the particular investment or investment course of action
involved, including the role that the investment or investment course of action plays in that
portion of the plan’s investment portfolio with respect to which the fiduciary has investment
duties.” 29 C.F.R. § 2550.404a-1(b)(1). “Appropriate consideration,” according to DOL
regulations, includes but is not necessarily limited to “(i)[a] determination by the fiduciary that
the particular investment or investment course of action is reasonably designed…to further the
purposes of the plan, taking into consideration the risk of loss and the opportunity for gain (or
other return) associated with the investment or investment course of action.” 29 C.F.R. §
2550.404a-1(b)(2).
262.
A fiduciary’s duty of loyalty and prudence requires it to disregard plan documents
or directives that it knows or reasonably should know would lead to an imprudent result or would
otherwise harm plan participants or beneficiaries. ERISA § 404(a)(1)(D), 29 U.S.C. §
1104(a)(1)(D). Thus, a fiduciary may not blindly follow plan documents or directives that would
lead to an imprudent result or that would harm plan participants or beneficiaries, nor may it
allow others, including those whom they direct, or who are directed by the plan, including plan
trustees, to do so.
263.
The Prudence Defendants’ duty of loyalty and prudence also obligates them to
speak truthfully to Participants, not to mislead them regarding the Plan or its assets, and to
disclose information that Participants need in order to exercise their rights and interests under the
Plan. This duty to inform Participants includes an obligation to provide Participants with
complete and accurate information, and to refrain from providing inaccurate or misleading
information, or concealing material information, regarding Plan investments/investment options
such that Participants can make informed decisions with regard to the prudence of investing in
such options made available under the Plan.
264.
The Prudence Defendants breached their duties to prudently and loyally manage
the Plan’s assets. During the Class Period, the Prudence Defendants knew or should have known
that, as described herein, Company Stock was not a suitable and appropriate investment for the
Plan. Yet, during the Class Period, despite their knowledge of the imprudence of the investment,
the Prudence Defendants failed to take any meaningful steps to protect Plan’s Participants from
the inevitable losses that they knew would ensue as the already-weakened Arch Coal faced
mounting losses as the core of its business model – the coal industry – became increasingly
obsolete and its ultimate demise became more of a likelihood.
265.
The Prudence Defendants further breached their duties of loyalty and prudence by
failing to divest the Plan of Company Stock during the Class Period when they knew or should
have known that it was not a suitable and appropriate investment for the Plan.
266.
The Prudence Defendants also breached their co-fiduciary obligations by, among
their other failures, knowingly participating in each other’s failure to protect the Plan from
inevitable losses. The Prudence Defendants had or should have had knowledge of such breaches
by other fiduciaries of the Plan, yet made no effort to remedy them.
267.
As a direct and proximate result of the breaches of fiduciary duties during the
Class Period alleged herein, the Plan and, indirectly, Plaintiff and the Plan’s other Participants
and beneficiaries lost a significant portion of their retirement investments. Had the Prudence
Defendants taken appropriate steps to comply with their fiduciary obligations during the Class
Period, Participants could have liquidated some or all of their holdings in Company Stock and
thereby eliminated, or at least reduced, losses to the Plan and themselves.
268.
Pursuant to ERISA § 502(a), 29 U.S.C. § 1132(a) and ERISA § 409, 29 U.S.C. §
1109(a), Defendants in this Count are liable to restore the losses to the Plan caused by their
breaches of fiduciary duties alleged in this Count.
COUNT II
BREACH OF DUTY TO AVOID CONFLICTS OF INTEREST
(BREACHES OF FIDUCIARY DUTIES IN VIOLATION OF ERISA §§ 404 AND 405 BY
THE DIRECTOR AND FINANCE COMMITTEE DEFENDANTS)
269.
Plaintiff incorporates the allegations contained in the previous paragraphs of this
Complaint as if fully set forth herein.
270.
This Count alleges fiduciary breaches against the Director and Finance
Committee Defendants (the “Conflicts of Interest Defendants”).
271.
At all relevant times, as alleged above, the Conflicts of Interest Defendants were
fiduciaries of the Plan within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A).
Consequently, they were bound by the duties of loyalty, exclusive purpose and prudence.
272.
ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A), imposes on plan fiduciaries a
duty of loyalty, that is, a duty to discharge their duties with respect to a plan solely in the interest
of the participants and beneficiaries and for the exclusive purpose of providing benefits to
participants and beneficiaries.
273.
During the Class Period, the Conflicts of Interest Defendants breached their duty
to avoid conflicts of interest and to promptly resolve them by, inter alia: failing to timely engage
independent fiduciaries who could make independent judgments concerning the Plan’s
investments in the Company’s own securities; and by otherwise placing their own and/or the
Company’s interests above the interests of the Participants with respect to the Plan’s investment
in Company Stock.
274.
As a consequence of the Conflicts of Interest Defendants’ breaches of fiduciary
duty during the Class Period, the Plan suffered tens of millions of dollars in losses, as its
holdings of Company Stock were devastated. If the Conflicts of Interest Defendants had
discharged their fiduciary duties to prudently manage and invest the Plan’s assets, the losses
suffered by the Plan would have been minimized or avoided. Therefore, as a direct and
proximate result of the breaches of fiduciary duties alleged herein, the Plan and, indirectly,
Plaintiff and the Plan’s other Participants, lost a significant portion of their retirement
investments.
275.
Pursuant to ERISA § 502(a), 29 U.S.C. § 1132(a), and ERISA § 409, 29 U.S.C. §
1109(a), Defendants in this Count are liable to restore the losses to the Plan caused by their
breaches of fiduciary duties alleged in this Count.
COUNT III
FAILURE TO ADEQUATELY MONITOR OTHER FIDUCIARIES AND
PROVIDE THEM WITH COMPLETE AND ACCURATE INFORMATION
(BREACHES OF FIDUCIARY DUTIES IN VIOLATION OF ERISA § 404
BY THE COMPANY, DIRECTOR, AND FINANCE COMMITTEE DEFENDANTS)
276.
Plaintiff incorporates the allegations contained in the previous paragraphs of this
Complaint as if fully set forth herein.
277.
This Count alleges fiduciary breaches against the Company, Director, and Finance
Committee Defendants (the “Monitoring Defendants”).
278.
At all relevant times, as alleged above, the Monitoring Defendants were
fiduciaries of the Plan, within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A).
Thus, they were bound by the duties of loyalty, exclusive purpose, and prudence.
279.
As alleged above, the scope of the fiduciary responsibilities of the Monitoring
Defendants included the responsibility to appoint, remove, and, thus, monitor the performance of
other Plan fiduciaries.
280.
Under ERISA, a monitoring fiduciary must ensure that monitored fiduciaries are
performing their fiduciary obligations, including those with respect to the investment and
holding of a plan’s assets, and must take prompt and effective action to protect the plan and
participants when they are not.
281.
The monitoring duty further requires that appointing fiduciaries have procedures
in place so that on an ongoing basis they may review and evaluate whether the “hands-on”
fiduciaries are doing an adequate job (for example, by requiring periodic reports on their work
and the plan’s performance, and by ensuring that they have a prudent process for obtaining the
information and resources they need). In the absence of a sensible process for monitoring their
appointees, the appointing fiduciaries would have no basis for prudently concluding that their
appointees were faithfully and effectively performing their obligations to the plan’s participants
or for deciding whether to retain or remove them.
282.
Furthermore, a monitoring fiduciary must provide the monitored fiduciaries with
complete and accurate information in their possession that they know or reasonably should know
that the monitored fiduciaries must have in order to prudently manage the plan and the plan’s
assets, or that may have an extreme impact on the plan and the fiduciaries’ investment decisions
regarding the plan.
283.
During the Class Period, the Monitoring Defendants breached their fiduciary
monitoring duties by, among other things:
(a)
failing, at least with respect to the Plan’s investment in Company Stock, to
properly monitor their appointee(s), to properly evaluate their
performance, or to have any proper system in place for doing so, and
standing idly by as the Plan suffered enormous losses as a result of the
appointees’ imprudent actions and inaction with respect to Company
Stock;
(b)
failing to ensure that the monitored fiduciaries appreciated the true extent
of the Company’s precarious financial situation and the likely impact that
financial failure would have on the value of the Plan’s investment in
Company Stock;
(c)
to the extent any appointee lacked such information, failing to provide
complete and accurate information to all of their appointees such that they
could make sufficiently informed fiduciary decisions with respect to the
Plan’s assets and, in particular, the Plan’s investment in Company Stock;
and
(d)
failing to remove appointees whose performance was inadequate in that
they continued to permit the Plan to make and maintain investments in the
Company Stock despite the practices that rendered it an imprudent
investment during the Class Period.
284.
As a consequence of the Monitoring Defendants’ breaches of fiduciary duty, the
Plan suffered tremendous losses. If the Monitoring Defendants had discharged their fiduciary
monitoring duties as described above, the losses suffered by the Plan would have been
minimized or avoided.
285.
The Monitoring Defendants are liable as co-fiduciaries because they knowingly
participated in each other’s fiduciary breaches as well as those by the monitored fiduciaries, they
enabled the breaches by those Defendants, and they failed to make any effort to remedy these
breaches despite having knowledge of them.
286.
Therefore, as a direct and proximate result of the breaches of fiduciary duty by the
Monitoring Defendants during the Class Period alleged herein, the Plan and, indirectly, Plaintiff
and the Plan’s other Participants and beneficiaries, lost tens of millions of dollars of retirement
savings.
287.
Pursuant to ERISA §§ 409, 502(a)(2) and (a)(3), 29 U.S.C. §§ 1109, 1132(a)(2)
and (a)(3), the Monitoring Defendants are liable to restore the losses to the Plan caused by their
breaches of fiduciary duties alleged in this Count and to provide other equitable relief as
appropriate.
COUNT IV
FAILURE TO PRUDENTLY AND LOYALLY MANAGE THE PLAN’S ASSETS
(BREACHES OF FIDUCIARY DUTIES IN VIOLATION OF ERISA §§ 404 AND 405 BY
DEFENDANT MERCER)
288.
Plaintiff incorporates the allegations contained in the previous paragraphs of this
Complaint as if fully set forth herein.
289.
This Count alleges fiduciary breaches against Mercer (the “Trustee Defendant”).
290.
At all relevant times, as alleged above, the Trustee Defendant was a fiduciary of
the Plan within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) in that it had or
exercised discretionary authority or control over the administration and/or management of the
Plan or exercised any authority or control over the disposition of the Plan’s assets.
291.
As noted above, according to DOL regulations interpreting the duty of prudence,
a fiduciary must give “appropriate consideration to those facts and circumstances that, given the
scope of such fiduciary’s investment duties, the fiduciary knows or should know are relevant to
the particular investment or investment course of action involved, including the role that the
investment or investment course of action plays in that portion of the plan’s investment portfolio
with respect to which the fiduciary has investment duties.” 29 C.F.R. § 2550.404a-1(b)(1).
“Appropriate consideration,” according to DOL regulations, includes but is not necessarily
limited to “(i)[a] determination by the fiduciary that the particular investment or investment
course of action is reasonably designed…to further the purposes of the plan, taking into
consideration the risk of loss and the opportunity for gain (or other return) associated with the
investment or investment course of action.” 29 C.F.R. § 2550.404a-1(b)(2).
292.
Under ERISA, fiduciaries who have or exercise discretionary authority or control
over management of a plan or exercise any control over the disposition of a plan’s assets are
responsible for ensuring that all investment options made available to participants under a plan
are prudent. Furthermore, such fiduciaries are responsible for ensuring that assets within the
plan are prudently invested. The Trustee Defendant could not blindly follow directions of the
Prudence Defendants if they knew or should have known such directions were improper under
293.
A directed trustee’s duty of prudence requires it to disregard plan documents or
directives that it knows or reasonably should know would lead to an imprudent result or would
otherwise harm plan participants or beneficiaries. ERISA § 404(a)(1)(D), 29 U.S.C. §
1104(a)(1)(D). Thus, a fiduciary may not blindly follow plan documents or directives that would
lead to an imprudent result or that would harm plan participants or beneficiaries, nor may it
allow others, including those whom they direct, or who are directed by the plan, including plan
trustees, to do so.
294.
The Trustee Defendant breached its duties to prudently and loyally manage the
Plan’s assets. During the Class Period, the Trustee Defendants knew or should have known that,
as described herein, Company Stock was not a suitable and appropriate investment for the Plan.
Yet, during the Class Period, despite its knowledge of the imprudence of the investment, the
Trustee Defendant failed to take any meaningful steps to protect Plan’s Participants from the
inevitable losses that it knew would ensue as it became increasingly obvious that Arch Coal was
in severe distress with no relief in the foreseeable future.
295.
The Trustee Defendant further breached its duties of loyalty and prudence by
failing to divest the Plan of Company Stock when it knew or should have known that it was not a
suitable and appropriate investment for the Plan.
296.
The Trustee Defendant also breached its co-fiduciary obligations by, among its
other failures, knowingly participating in the failure of the Plan’s other fiduciaries to protect the
Plan from inevitable losses. The Trustee Defendant had or should have had knowledge of such
breaches by other fiduciaries of the Plan, yet made no effort to remedy them.
297.
As a direct and proximate result of the breaches of fiduciary duties alleged herein,
the Plan, and indirectly the Plan’s participants and beneficiaries, lost a significant portion of their
retirement investment. Had the Trustee Defendant taken appropriate steps to comply with its
fiduciary obligations, Participants could have liquidated some or all of their holdings in
Company Stock and thereby eliminated, or at least reduced, losses to the Plan.
298.
Pursuant to ERISA § 502(a), 29 U.S.C. § 1132(a) and ERISA § 409, 29 U.S.C. §
1109(a), Defendant in this Count is liable to restore the losses to the Plan caused by its breaches
of fiduciary duties alleged in this Count.
CAUSATION
299.
The total Arch Coal price collapse of nearly 100% as of the filing of the instant
complaint, which devastated the Plan’s assets, could have and would have been avoided in whole
or in part by Defendants complying with their ERISA fiduciary duties. Defendants could have
taken certain actions based on the publicly known information alone such as, and not limited to:
investigating whether Arch Coal Stock was a prudent retirement investment; retaining outside
advisors to consult them or to act as fiduciaries; seeking guidance from governmental agencies
(such as the DOL or SEC); resigning as fiduciaries of the Plan; stopping or limiting additional
purchases of Arch Coal Stock by the Plan; and/or by divesting the Arch Coal Stock held by the
300.
Despite these and other options, Defendants – who knew or should have known
that Arch Coal Stock was an imprudent retirement investment – chose to, as fiduciaries, continue
allowing the Plan to acquire further Arch Coal Stock, while taking no action to protect their
wards as Arch Coal’s condition worsened and the Plan’s Participants’ retirement savings were
decimated. Prudent fiduciaries would have acted otherwise and taken appropriate actions to
protect the Plan and its Participants.
301.
To the extent Defendants wanted to take action based on non-publicly disclosed
information that they were privy to, the following alternative options – which are pled as
alternative statements under FED. R. CIV. P. 8(d)(2) to the extent they are inconsistent – were
available to Defendants and (a) could have been done without violating securities laws or any
other laws, (b) should have been done to fulfill Defendants’ fiduciary obligations under ERISA,
and (c) would not have been more likely to harm the Plan than to help it.
302.
First, Defendants could have and should have directed that all Company and
Participant contributions in Arch Coal Stock be held in cash. The refusal to purchase Arch Coal
Stock is not a “transaction” within the meaning of insider trading prohibitions. This action
would not have required any independent disclosures that could have had a materially adverse
effect on the price of Arch Coal Stock.
303.
Alternatively, Defendants should have closed the Plan to further investment in
Arch Coal Stock and directed that contributions be diverted from the Arch Coal Stock into other
(prudent) investment options or, if there were no such instructions, the Plan’s default investment
304.
Additionally, and importantly, because Defendants could and should have
concluded that Arch Coal Stock was an imprudent retirement savings vehicle based solely upon
public information, no disclosure was required before conducting an orderly liquidation of the
Plan’s holdings.
305.
Defendants also could have:
sought guidance from the DOL or SEC as to what they should have done;
resigned as Plan fiduciaries to the extent they could not act loyally and prudently;
retained outside experts to serve either as advisors or as independent fiduciaries
specifically for the Plan and not the Company in general.
306.
The Plan suffered millions of dollars in losses during the Class Period because
substantial assets of the Plan were imprudently invested, or allowed to be invested, by
Defendants in Company Stock during the Class Period, in breach of Defendants’ fiduciary
duties, as reflected in the diminished account balances of the Plan’s Participants.
307.
Had Defendants properly discharged their fiduciary and/or co-fiduciary duties, the
Plan and its Participants would have avoided a substantial portion of the losses that they suffered
through the Plan’s continued investment in Company Stock.
308.
Given the totality of circumstances prevailing during the Class Period, no prudent
fiduciary would have made the same decision to retain the clearly imprudent Arch Coal Stock as
an investment in the Plan.
309.
Despite the availability of these and other options, Defendants took no meaningful
action during the Class Period to protect the Plan’s Participants from losses as a result of the
Company Stock’s imprudence until it was too late to make any substantial difference.
REMEDIES FOR BREACHES OF FIDUCIARY DUTY
310.
As noted above, as a consequence of Defendants’ breaches, the Plan suffered
significant losses.
311.
ERISA § 502(a), 29 U.S.C. § 1132(a) authorizes a plan participant to bring a civil
action for appropriate relief under ERISA § 409, 29 U.S.C. § 1109. Section 409 requires “any
person who is a fiduciary . . . who breaches any of the . . . duties imposed upon fiduciaries . . . to
make good to such plan any losses to the plan….” Section 409 also authorizes “such other
equitable or remedial relief as the court may deem appropriate….”
312.
With respect to calculation of the losses to a plan, breaches of fiduciary duty
result in a presumption that, but for the breaches of fiduciary duty, the Participants in the Plan
would not have made or maintained its investments in the challenged investment and, where
alternative investments were available, that the investments made or maintained in the
challenged investment would have instead been made in the most profitable alternative
investment available. In this way, the remedy restores the values of the Plan’s assets to what
they would have been if the Plan had been properly administered.
313.
Plaintiff, the Plan, and the Class are therefore entitled to relief from Defendants in
the form of: (1) a monetary payment to the Plan to make good to the Plan the losses to the Plan
resulting from the breaches of fiduciary duties alleged above in an amount to be proven at trial
based on the principles described above, as provided by ERISA § 409(a), 29 U.S.C. § 1109(a);
(2) injunctive and other appropriate equitable relief to remedy the breaches alleged above, as
provided by ERISA §§ 409(a) and 502(a), 29 U.S.C. §§ 1109(a) and 1132(a); (3) reasonable
attorney fees and expenses, as provided by ERISA § 502(g), 29 U.S.C. § 1132(g), the common
fund doctrine, and other applicable law; (4) taxable costs; (5) interests on these amounts, as
provided by law; and (6) such other legal or equitable relief as may be just and proper.
314.
Each Defendant is jointly and severally liable for the acts of the other Defendants
as a co-fiduciary.
JURY DEMAND
Plaintiff demands a jury.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff requests the following relief:
A.
A Judgment that the Defendants, and each of them, breached their ERISA
fiduciary duties to the Participants during the Class Period;
B.
A Judgment compelling the Defendants to make good to the Plan all losses to the
Plan resulting from Defendants’ breaches of their fiduciary duties, including losses to the Plan
resulting from imprudent investment of the Plan’s assets, and to restore to the Plan all profits the
Defendants made through use of the Plan’s assets, and to restore to the Plan all profits which the
Participants would have made if the Defendants had fulfilled their fiduciary obligations;
C.
A Judgment imposing a Constructive Trust on any amounts by which any
Defendant was unjustly enriched at the expense of the Plan as the result of breaches of fiduciary
D.
A Judgment awarding actual damages in the amount of any losses the Plan
suffered, to be allocated among the Plan Participants’ individual accounts in proportion to the
accounts’ losses;
E.
A Judgment requiring that Defendants allocate the Plan’s recoveries to the
accounts of all Participants who had any portion of their account balances invested in Arch Coal
Stock maintained by the Plan in proportion to the accounts’ losses attributable to the decline in
the price of Arch Coal Stock;
F.
A Judgment awarding costs pursuant to 29 U.S.C. § 1132(g);
G.
A Judgment awarding attorneys’ fees pursuant to 29 U.S.C. § 1132(g) and the
common fund doctrine; and
H.
A Judgment awarding equitable restitution and other appropriate equitable
monetary relief against the Defendants.
Dated: June 30, 2015
Respectfully submitted,
DYSART TAYLOR COTTER
MCMONIGLE & MONTEMORE, P.C.
By: /s/ Don R. Lolli
Don R. Lolli
Bar Number: 56263MO
4420 Madison Avenue
Kansas City, MO 64111
Telephone: (816) 931-2700
Facsimile: (816) 931-7377
Email: dlolli@dysarttaylor.com
KESSLER TOPAZ MELTZER & CHECK LLP
Edward W. Ciolko
Donna Siegel Moffa
Mark K. Gyandoh
Julie Siebert-Johnson
280 King Of Prussia Road
Radnor, PA 19087
Telephone: (610) 667-7706
Facsimile: (610) 667-7056
Email: eciolko@ktmc.com
dmoffa@ktmc.com
mgyandoh@ktmc.com
jsjohnson@ktmc.com
Counsel for Plaintiff
| consumer fraud |
nLIeC4cBD5gMZwczdyY4 |
COLLECTIVE ACTION
CASE NO. _________________
JUDGE ____________________
JURY DEMAND
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
DUBLIN DIVISION
LYNDSEY MICHELLE LOYD, On
Behalf of HERSELF and All Others
Similarly Situated,
Plaintiff,
v.
JACKS ENTERPRISE, LLC d/b/a
JOHNNY’S PIZZA,
Defendant.
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COLLECTIVE ACTION COMPLAINT
1.
Plaintiff Lyndsey Michelle Loyd (“Named Plaintiff”) brings this collective action
on behalf of herself and all others similarly situated against Defendant JACKS Enterprise, LLC
d/b/a Johnny’s Pizza (“JACKS”), her employer, to recover unpaid minimum and overtime wages
under the Fair Labor Standards Act (“FLSA”).
2.
JACKS operates a pizza restaurant chain in the state of Georgia. Named Plaintiff
and those similarly situated are servers who worked for JACKS during the applicable statutory
period in at least one of its restaurants in Georgia.
3.
Named Plaintiff brings her FLSA claims on her own behalf and on behalf of all
similarly situated employees of JACKS as a collective action pursuant to 29 U.S.C. § 216(b).
JURISDICTION
4.
This Court has jurisdiction over Named Plaintiff’s claims because they are
brought pursuant to 29 U.S.C. § 216(b) and because they raise a federal question pursuant to
28 U.S.C. § 1331.
5.
Venue properly lies in this judicial district pursuant to 28 U.S.C. § 1391 because
Defendant resides in this judicial district and because the claims arose in this judicial district.
PARTIES
6.
Named Plaintiff Lyndsey Michelle Loyd is a resident of East Dublin, Laurens
County, Georgia and was employed by JACKS as a server at its Johnny’s Pizza restaurant
located in Dublin, Laurens County, Georgia from or around March 2016 until September 2016.
7.
Defendant JACKS is a Georgia domestic limited liability company with its
principal office located at 1909 Springdale Road, Dublin, Georgia 31021. Defendant’s registered
agent is John C. Hall, Jr., CPA, 307 W. Gaines Street, Dublin, Georgia 31021.
8.
Throughout the statutory period covered by this action, JACKS employed
individuals who are engaged in interstate commerce and/or in the production of goods for
interstate commerce or are engaged in handling, receiving, selling, or otherwise working on
goods or materials that were moved in or produced for interstate commerce. As such, JACKS is
and was covered by the FLSA.
FACTS
9.
Named Plaintiff and those she seeks to represent in this action were employed as
servers for JACKS in Georgia.
10.
During the three-year period relevant to this lawsuit, JACKS has employed
dozens of servers at its restaurants.
11.
From approximately March 2016 until September 2016, Named Plaintiff was
employed by JACKS as a server at its location in Dublin, Georgia.
12.
Throughout the applicable statutory period, JACKS paid Named Plaintiff and its
other servers an hourly wage below $7.25. For example, JACKS paid Named Plaintiff an hourly
wage between $2.15 and $2.30.
13.
In seeking to comply with the FLSA mandate that employees receive a minimum
wage of $7.25 per hour, JACKS purported to utilize a “tip credit” for each hour worked by
Named Plaintiff and other servers at JACKS’ Georgia restaurants. See 29 U.S.C. § 203(m).
14.
JACKS required Named Plaintiff and other servers to contribute a portion of their
tips to its employees who worked in the position of Dishwasher.
15.
JACKS’ Dishwashers do not receive tips directly from customers because
Dishwashers generally work in or near the kitchen area and do not interact with restaurant
customers. A Dishwasher’s job primarily consists of cleaning and washing cooking utensils as
well as cleaning and washing silverware and dishes used by restaurant patrons.
16.
JACKS also had a policy and practice of requiring Named Plaintiff and its other
servers to spend more than 20% of their shift performing non-tip-producing work, including, but
not limited to, rolling silverware, dusting and cleaning the restaurant, sweeping, mopping,
stocking the refrigerator, chopping vegetables, stocking and maintaining the salad bar, preparing
salad, stocking the soft drink machine, and changing out beer kegs.
17.
When the tips received by Plaintiff and similarly situated servers did not cover the
difference between the lower tipped hourly rate they received and the $7.25 per hour statutory
minimum wage, JACKS did not make any payments to Plaintiff and similarly situated servers to
ensure that they were paid the FLSA-mandated minimum wage.
COLLECTIVE ALLEGATIONS
18.
Named Plaintiff brings her FLSA claim pursuant to 29 U.S.C. § 216(b) on behalf
of all individuals who, during any time within the past three years, were employed as servers at
any JACKS restaurant in Georgia.
19.
Named Plaintiff’s FLSA claims should proceed as a collective action because
Named Plaintiff and other similarly situated servers, having worked pursuant to the common
policies described herein, are “similarly situated” as that term is defined in 29 U.S.C. § 216(b)
and the associated decisional law.
CAUSES OF ACTION
COUNT I
Violation of the Minimum Wage Requirements of the FLSA
20.
All previous paragraphs are incorporated as though fully set forth herein.
21.
The FLSA entitles employees to a minimum hourly wage of $7.25.
22.
While restaurants may utilize a “tip credit” to satisfy their minimum wage
obligations to servers, they forfeit the right to do so when they require servers to share tips with
other restaurant employees who do not “customarily and regularly receive tips.” See 29 U.S.C. §
203(m). Federal courts interpreting this statutory language hold that restaurants lose their right to
utilize a “tip credit” when tips are shared with employees—such as JACKS’ Dishwashers—
whose direct customer interaction is minimal. Federal courts interpreting this statutory language
also hold that restaurants lose their right to utilize a “tip credit” when their tipped employees—
such as JACKS’ servers—spend more than 20% of their shift performing non-tip-producing
23.
By requiring Named Plaintiff and other servers to share tips with Dishwashers,
JACKS has forfeited its right to utilize the “tip credit” in satisfying its minimum wage
obligations to Named Plaintiff and other servers. As such, JACKS has violated the FLSA’s
minimum wage mandate by paying Plaintiff and other servers an hourly wage below $7.25.
24.
By requiring Named Plaintiff and other servers to spend more than 20% of their
shift performing non-tip-producing work, JACKS has forfeited its right to utilize the “tip credit”
in satisfying its minimum wage obligations to Named Plaintiff and other servers. As such,
JACKS has violated the FLSA’s minimum wage mandate by paying Plaintiff and other servers
an hourly wage below $7.25.
25.
In violating the FLSA, JACKS has acted willfully and with reckless disregard of
clearly applicable FLSA provisions.
PRAYER FOR RELIEF
WHEREFORE, Named Plaintiff prays for the following relief, on behalf of herself and
all others similarly situated:
A.
An order permitting this litigation to proceed as a collective action pursuant to
29 U.S.C. § 216(b);
B.
Prompt notice of this litigation, pursuant to 29 U.S.C. § 216(b), to all similarly
situated workers;
C.
A finding that JACKS violated the FLSA;
D.
A finding that JACKS’ FLSA violations are willful;
E.
A judgment against JACKS and in favor of Named Plaintiff and similarly situated
workers for compensation for all unpaid and underpaid wages that JACKS failed and refused to
pay in violation of the FLSA;
F.
Prejudgment interest to the fullest extent permitted under the law;
G.
Liquidated damages to the fullest extent permitted under the FLSA;
H.
Litigation costs, expenses, and Plaintiff’s attorneys’ fees to the fullest extent
permitted under the FLSA and Federal Rules of Civil Procedure; and
I.
Such other and further relief as this Court deems just and proper in equity and
under the law.
JURY DEMAND
Named Plaintiff demands a jury as to all claims so triable.
Dated: August 30, 2018
Respectfully submitted,
/s/ Michael J. Moore
MICHAEL J. MOORE (GA Bar No. 520109)
POPE MCGLAMRY, KILPATRICK, MORRISON &
NORWOOD, P.C.
3391 Peachtree Road, NE, Suite 300
P.O. Box 191625 (31119-1625)
Atlanta, GA 30326
Telephone: (404) 523-7706
michaelmoore@pmkm.com
efile@pmkm.com
DAVID W. GARRISON (No. 24968)*
JOSHUA A. FRANK (No. 33294)*
BARRETT JOHNSTON MARTIN & GARRISON, LLC
Bank of America Plaza
414 Union Street, Suite 900
Nashville, TN 37219
Telephone: (615) 244-2202
Facsimile: (615) 252-3798
dgarrison@barrettjohnston.com
jfrank@barrettjohnston.com
* Pro Hac Vice Motion anticipated
Attorneys for Plaintiff
| employment & labor |
9lWVBIkBRpLueGJZ8jRc | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
Civil Action No. 1:18-cv-02551-AT
CLASS ACTION
DIEGO CERVANTES, Individually and
on Behalf of the Invesco 401(k) Plan
and All Others Similarly Situated,
Plaintiff,
vs.
AMENDED COMPLAINT FOR
LIABILITY UNDER ERISA
INVESCO HOLDING COMPANY
(US), INC.; INVESCO LTD.;
INVESCO NATIONAL TRUST
COMPANY; INVESCO ADVISERS,
INC.; INVESCO BENEFITS PLAN
COMMITTEE; SUZANNE
CHRISTENSEN; JOHN COLEMAN;
WASHINGTON DENDER; PETER
GALLAGHER; DAVID GENOVA;
DOUGLAS SHARP; BEN UTT; GARY
WENDLER; KEVIN M. CAROME;
LOREN M. STARR; and JOHN
DOES 1-20,
Defendants.
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TABLE OF CONTENTS
Page
NATURE OF THE ACTION .................................................................................... 1
JURISDICTION AND VENUE ................................................................................ 5
PARTIES.................................................................................................................... 6
Plaintiff ............................................................................................................ 6
Defendants ....................................................................................................... 6
Invesco Ltd. ..................................................................................................... 6
The Plan Sponsor Defendants .......................................................................... 7
The Invesco Benefits Committee Defendants ................................................. 8
The Investment Manager Defendants ............................................................ 10
The Plan ......................................................................................................... 10
The “Doe” Defendants ................................................................................... 11
DEFENDANTS’ FIDUCIARY DUTIES UNDER ERISA .................................... 11
The Duties of Loyalty and Prudence ............................................................. 11
Fiduciaries Are Required Under ERISA to Act in the Best Interest of
Plan Participants When Selecting and Maintaining Investment
Options ........................................................................................................... 14
Co-Fiduciary Liability ................................................................................... 15
SUBSTANTIVE ALLEGATIONS ......................................................................... 16
The Plan ......................................................................................................... 16
The Plan Investment Options ........................................................................ 19
- i -
Page
The Self-Directed Schwab Account .............................................................. 23
Defendants Acted to Benefit Invesco to the Detriment of the Plan and
Plan Participants ............................................................................................ 26
The Plan Investments Were Imprudent and the Result of an Imprudent
Process ........................................................................................................... 27
Invesco Emerging Markets Equity Trust and Invesco Developing
Markets Fund ................................................................................................. 28
Invesco High Yield Bond Fund ..................................................................... 31
Invesco American Franchise Fund ................................................................ 32
Invesco Diversified Dividend Fund ............................................................... 35
Invesco Mid Cap Growth Trust ..................................................................... 37
Investments in the Invesco Short-Term Investment Fund Were
Imprudent ....................................................................................................... 40
Restricting the Schwab Account to PowerShares ETFs Was the Result
of an Imprudent Process ................................................................................ 41
The Inclusion of Expensive Versions of Plan Investments Through the
Schwab Account Was the Result of an Imprudent Process........................... 43
CLASS ACTION ALLEGATIONS ........................................................................ 44
COUNT I .................................................................................................................. 46
Breach of Fiduciary Duties in Violation of ERISA §404(a) Against
the Plan Sponsor Defendants and the Benefits Committee Defendants........ 46
COUNT II ................................................................................................................ 52
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Page
Breach of Fiduciary Duties in Violation of ERISA §404(a) Against
the Plan Sponsor Defendants for Failure to Monitor Other Fiduciaries ....... 52
COUNT III ............................................................................................................... 55
Prohibited Transactions in Violation of ERISA §406(a)(1) (A), (C)
and (D) Against Defendant Invesco, the Plan Sponsor Defendants, the
Benefits Committee Defendants and the Investment Manager
Defendants ..................................................................................................... 55
COUNT IV ............................................................................................................... 58
Prohibited Transactions in Violation of ERISA §406(b)(1) and (3)
Against Defendant Invesco, the Plan Sponsor Defendants, the Benefits
Committee Defendants, and the Investment Manager Defendants ............... 58
COUNT V ................................................................................................................ 62
Co-fiduciary Liability Under ERISA §405 Against the Plan Sponsor
Defendants, the Benefits Committee Defendants, and the Investment
Manager Defendants ...................................................................................... 62
COUNT VI ............................................................................................................... 63
Knowing Participation in a Fiduciary Breach or Violation of ERISA
Pursuant to ERISA 502(a)(3) Against Defendant Invesco and the
Investment Manager Defendants ................................................................... 63
ENTITLEMENT TO RELIEF ................................................................................. 65
PRAYER FOR RELIEF .......................................................................................... 66
- iii -
Plaintiff brings this action individually, on behalf of a class of all participants in
Invesco Ltd.’s 401(k) Plan (the “Plan”) between May 25, 2012 to the date of
Judgment (the “Class Period”), and on behalf of the Plan, for breach of fiduciary duty
and prohibited transactions under the Employee Retirement Income Security Act of
1974, as amended, 29 U.S.C. §1001, et seq. (“ERISA”), against the Defendants, as
defined below. As alleged herein, Defendants have breached their fiduciary duties of
prudence and loyalty with respect to the Plan, and entered into prohibited transactions
in violation of ERISA, to the detriment of the Plan and its participants and
beneficiaries.
NATURE OF THE ACTION
1.
Invesco Ltd. (“Invesco”) is an investment management firm that offers
mutual funds and other types of investment products to customers. The Plan is
offered to employees of Invesco’s wholly-owned subsidiaries. ERISA, which
regulates the operation of the Plan, requires plan fiduciaries to act solely in the interest
of the Plan’s participants and beneficiaries. To meet their fiduciary obligations, the
Plan’s fiduciaries are required to establish and maintain a prudent process to search
the market for the best investment options for Plan participants and to monitor the
Plan’s investment options on an ongoing basis.
2.
Defendants did not consider or act in the best interest of the Plan and its
participants throughout the Class Period. Instead, Defendants put their interests
before the Plan participants by treating the Plan as an opportunity to promote and
generate fees from proprietary investment products offered by Invesco and its
subsidiaries. Instead of engaging in a prudent process to benefit the interests of Plan
participants, Defendants used Plan participants as a captive market for Invesco’s
proprietary investment products to benefit and enrich Invesco and its affiliates.
3.
Participants in the Plan were entitled to save for retirement by choosing
from an assortment of investment funds selected for the Plan (the “Plan Investments”).
Plan participants were also able to invest in securities other than those offered in the
Plan as Plan Investments by opening a self-directed brokerage account with the
brokerage firm Charles Schwab & Co., Inc. (the “Schwab Account”).
4.
In structuring the Plan, the Plan fiduciaries acted to solely benefit Invesco
and its affiliate entities to the detriment of the Plan participants in connection with
both the Plan Investments and the Schwab Account.
5.
The Plan fiduciaries filled the Plan with Invesco mutual funds and
collective investment trust (“CITs”) in breach of their fiduciary duties. During the
Class Period, between 55% to 68% of the Plan Investments were affiliated with
Invesco and 100% of the actively managed Plan Investment choices in key investment
- 2 -
categories were affiliated with Invesco, even though these Plan investment options
performed worse and/or had higher fees than other comparable unaffiliated investment
options.
6.
Furthermore, the Plan fiduciaries violated their fiduciary duties in
connection with the Schwab Account. The Schwab Account is a full service
brokerage account that could have afforded Plan participants the opportunity to invest
in a wide assortment of investments, including all publicly listed equity securities, and
thousands of ETFs. But during the Class Period, Plan fiduciaries restricted the
investment options available to Plan participants which benefited Invesco and harmed
Plan participants.
7.
The Plan’s fiduciaries modified the features of the Schwab Account to
prevent Plan participants from purchasing any publicly listed equity securities other
than ETFs affiliated with Invesco. Plan participants were not able to purchase any
blue chip common stocks or ETFs offered by Invesco’s largest competitors, like
BlackRock, Vanguard and State Street, even though those ETFs may have been more
liquid, had lower fees or a better track records, or were in investment categories not
offered by Invesco. The Schwab Account was set up so that any Plan participant who
sought to invest in a liquid security that could be traded while the market was open
was forced to invest in an Invesco-affiliated ETF.
- 3 -
8.
As alleged herein, Defendants acted in their own interests to the
detriment of Plan participants. Instead of carefully examining and selecting the most
prudent investment options for the Plan or prudently monitoring the Plan to eliminate
its poor investment options, Defendants caused a majority of Plan Investments to
consist of Invesco-affiliated mutual funds and CITs, and limited the Schwab Account
to Invesco affiliated ETFs, enabling Invesco and its subsidiaries to earn lucrative fees,
increase its assets under management, and serve business interests unrelated to the
benefit of Plan participants. Defendants breached their fiduciary duties and engaged
in prohibited transactions in other ways as well, as alleged below.
9.
To remedy these fiduciary breaches and prohibited transactions, Plaintiff,
individually and as a representative of a Class of participants and beneficiaries in the
Plan, brings this action on behalf of the Plan to recover all losses resulting from
Defendants’ breaches of fiduciary duty and other ERISA violations and restore to the
Plan any profits made by the fiduciaries or the persons and/or entities who knowingly
participated in the fiduciaries’ imprudent and disloyal use of Plan assets. In addition,
Plaintiff seeks such other equitable or remedial relief as the Court may deem
appropriate.
- 4 -
JURISDICTION AND VENUE
10.
Plaintiff brings this action pursuant to 29 U.S.C. §132(a), which provides
that participants or beneficiaries in an employee retirement plan may pursue a civil
action on behalf of a plan to remedy breaches of fiduciary duty and other violations of
ERISA for monetary and appropriate equitable relief.
11.
This Court has jurisdiction over the subject matter of this action pursuant
to 28 U.S.C. §1331, because it is a civil action arising under the laws of the United
States, and it has exclusive jurisdiction under ERISA §502(e)(1), 29 U.S.C.
§1132(e)(1).
12.
Venue is proper is this District pursuant to ERISA §502(e)(2), 29 U.S.C.
§1132(e)(2), because the Plan was and is administered in Atlanta, Georgia within this
District, violations of ERISA took place in this District, and/or a defendant resides or
may be found in this District. Venue is also proper in this District pursuant to 28
U.S.C. §1391(b) because a defendant resides and/or does business in this District and
because a substantial part of the events or omissions giving rise to the claims asserted
herein occurred within this District.
- 5 -
PARTIES
Plaintiff
13.
Plaintiff Diego Cervantes has been a Plan participant during the Class
Period and invested in Plan Investments affiliated with Invesco. Plaintiff Cervantes
has suffered financial harm and has been injured by Defendants’ unlawful conduct as
described herein. Furthermore, Defendants have been unjustly enriched from the fees
and expenses generated as a result of Plaintiff Cervantes’ Plan Investments.
Defendants
Invesco Ltd.
14.
Defendant Invesco Ltd. (“Invesco”) is an investment management
company headquartered in Atlanta, Georgia. Defendant Invesco operates its for-profit
investment management business through its wholly-owned subsidiaries, Invesco
Advisers, Inc. (“Invesco Advisers”), Invesco National Trust Company (“Invesco Trust
Co.”), and PowerShares Capital Management LLC (“PowerShares”).
15.
During the Class Period, Invesco’s investment management business was
promoted by the Plan because a majority of the Plan’s investment options were
affiliated with Invesco and managed and sponsored by Invesco’s subsidiaries: Invesco
Advisers and Invesco Trust Co. The Plan’s fiduciaries, members of the Invesco
Benefits Plan Committee (“IBPC”) and Invesco Holding Company (US) Inc. (“IVZ
- 6 -
Inc.”) board of directors, were Invesco officers which created a conflict of interest and
an incentive to retain poor performing Invesco investment options managed and
sponsored by Invesco affiliates.
The Plan Sponsor Defendants
16.
Defendant IVZ Inc. is a Delaware corporation and the named Plan
Sponsor in the documents governing the Plan (the “Plan Documents”). According to
the Plan Documents, Defendant IVZ Inc., as the Plan Sponsor, is responsible for
ensuring the Plan’s proprietary and affiliate investment options would not be
prohibited under ERISA.
17.
Additionally, the Board of Directors of Defendant IVZ Inc. (the “Board”)
is responsible for overseeing the Plan’s appointment and designation of Plan
fiduciaries, the removal of fiduciaries, and the appointment and removal of the Plan
administrator.
18.
The Board consisted of the following individual defendants during the
Class Period, both of whom were senior executives of Invesco:
(a)
Kevin M. Carome, Invesco Senior Managing Director and General
Counsel; and
(b)
Loren M. Starr, Invesco Chief Financial Officer and Senior
Managing Director.
- 7 -
19.
The Defendants listed in ¶¶16-18 are referred to herein as the “Plan
Sponsor Defendants.” At all relevant times herein, the Plan Sponsor Defendants were
fiduciaries within the meaning of ERISA §3(21)(A), 29 U.S.C. §1002(21)(A) because
they had discretionary authority to evaluate the Plan’s proprietary investment options
and determine whether they should be removed from the Plan, exercised or possessed
discretionary authority or discretionary control with respect to management of the
Plan, and/or exercised or possessed authority or control with respect to management
or distribution of the Plan’s assets, and/or had discretionary authority or discretionary
responsibility in the administration of the Plan.
The Invesco Benefits Committee Defendants
20.
The IBPC is the Plan administrator and named fiduciary of the Plan. The
IBPC’s responsibilities include, inter alia: (i) control, management and administration
of the Plan; (ii) establishment of the Plan’s investment policy; (iii) selecting and
monitoring the Plan Investments available to Plan participants; (iv) responsibility for
the management, disposition and investment of Plan assets; (v) the power to appoint
and remove Plan Investment managers; and (vi) ensuring that the Plan complies with
ERISA, including the duties of loyalty and prudence codified in ERISA 404(c). As
alleged below, the IBPC selected wholly-owned subsidiaries of Invesco to manage a
majority of Plan Investments.
- 8 -
21.
During the Class Period, the IBPC consisted of the following individual
Defendants, each of whom was a senior executive of Invesco:
(a)
Defendant Washington Dender, Head of Invesco Human
Resources and chairperson of the IBPC;
(b)
Defendant Ben Utt, Managing Director of Invesco U.S.
Institutional Sales;
(c)
Defendant Gary Wendler, Head of Invesco’s Product Development
and Investment Risk;
(d)
Defendant Suzanne Christensen, Head of Invesco Enterprise Risk
& Analytics;
(e)
Defendant Peter Gallagher, Head of Invesco Retail Sales;
(f)
Defendant John Coleman, Invesco Managing Director and Chief
Administrative Officer;
(g)
Defendant Douglas Sharp, Head of Invesco’s EMEA Retail Group,
who was removed as a member of the IBPC in October 2015; and
(h)
Defendant David Genova, Invesco Global Investments Director.
22.
The Defendants listed in ¶¶20-21 are referred to herein as the “Benefits
Committee Defendants.” At all relevant times herein, the members of the IBPC (as
well as the IBPC itself) were fiduciaries within the meaning of ERISA §3(21)(A),
- 9 -
29 U.S.C. §1002(21)(A) as a result of their membership on the IBPC and because they
each exercised or possessed discretionary authority or discretionary control with
respect to management of the Plan and/or exercised or possessed authority or control
with respect to management or distribution of the Plan’s assets, and/or had
discretionary authority or discretionary responsibility in the administration of the Plan.
The Investment Manager Defendants
23.
Defendants Invesco Advisers and Invesco Trust Co. (collectively, the
“Investment Manager Defendants”) are wholly-owned subsidiaries of Invesco.
During the Class Period, the Investment Manager Defendants sponsored and managed
the Plan Investments. At all relevant times herein, the Investment Manager
Defendants received compensation in connection with proprietary and/or affiliated
mutual fund and CIT Plan Investments. As the sponsor, investment advisor, and
investment sub-advisor of the affiliated Plan Investments, the Investment Management
Defendants are parties in interest to the Plan as defined by ERISA §3(14).
The Plan
24.
The Plan is a Nominal Defendant and at all relevant times herein has
been an “employee pension benefit plan” within the meaning of ERISA §3(2)(A),
29 U.S.C. §1002(2)(A), and a “defined contribution plan” or “individual account
plan” within the meaning of ERISA §3(34), 29 U.S.C. §1002(34). The Plan is named
- 10 -
as a nominal defendant pursuant to Fed. R. Civ. P. 19 to ensure that complete relief
can be granted as to claims brought on behalf of the Plan.
The “Doe” Defendants
25.
To the extent there are additional officers and employees of Invesco,
members of the Board, the IBPC, or other entities or persons who were fiduciaries, or
parties in interest to the Plan during the Class Period, the identities of whom are
currently unknown to Plaintiff, Plaintiff reserves the right, once their identities are
ascertained, to seek leave to join them to the instant action. Thus, without limitation,
unknown “Doe” defendants include other individuals and entities who were
fiduciaries of the Plan within the meaning of ERISA §§3(21) and/or 402(a)(1) during
the Class Period and are personally liable under ERISA §409(a).
DEFENDANTS’ FIDUCIARY DUTIES UNDER ERISA
The Duties of Loyalty and Prudence
26.
ERISA imposes strict fiduciary duties of loyalty and prudence upon plan
fiduciaries. ERISA §404(a)(1)(a) sets forth the duty of loyalty, which states that
fiduciaries must discharge their duties solely in the interest of plan participants and
beneficiaries and for the exclusive purpose of providing benefits to participants and
their beneficiaries and defray reasonable expenses of administering the plan.
- 11 -
27.
The duty of loyalty requires fiduciaries to act with an “eye single” to the
interests of plan participants.1 As the Supreme Court has noted, “Perhaps the most
fundamental duty of a [fiduciary] is that he [or she] must display . . . complete loyalty
to the interests of the beneficiary and must exclude all selfish interest and all
consideration of the interests of third persons.” Id. at 224.
28.
Where fiduciaries have conflicting interests that raise questions regarding
their loyalty, the fiduciaries “are obliged at a minimum to engage in an intensive and
scrupulous independent investigation of their options to insure that they act in the best
interests of the plan beneficiaries.”2
29.
ERISA §404(a)(1)(b) also imposes a “prudent person” standard upon
fiduciaries.3 This duty of prudence means that ERISA fiduciaries must discharge their
responsibilities “with the care, skill, prudence, and diligence” that a prudent person
“acting in a like capacity and familiar with such matters would use.”4 The duty of
prudence means that fiduciaries must not only select prudent investments, but that,
1
Pegram v. Herdrich, 530 U.S. 211, 235 (2000).
2
Kanawi v. Bechtel Corp., No. 09-16253 (9th Cir. 2009) (DOL Amicus Brief).
3
This standard measures fiduciaries’ investment decisions and disposition of
assets. See Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2467 (2014)
(citation omitted).
4
ERISA §404(a)(1)(b).
- 12 -
they must monitor the investments to ensure they do not become imprudent over
30.
In measuring the prudence of fiduciaries’ conduct, courts state that the
key element is the process for considering and examining relevant information. As
one court explained, “ERISA §404(a)(1)(B) requires only that the [fiduciaries]
vigorously and independently investigate the wisdom of a contemplated investment; it
matters not that the investment succeeds or fails, as long as the investigation is
‘intensive and scrupulous and . . . discharged with the greatest degree of care that
could be expected under all the circumstances by reasonable beneficiaries and
participants of the plan.’”6
31.
Thus, to meet the prudent process requirement, fiduciaries must
vigorously and thoroughly investigate the investment options to obtain relevant
information and then base their decisions on the information obtained. This means
considering competing funds to determine which fund should be included in the plan’s
investment line-up. “A fiduciary must engage in an objective, thorough, and
5
See Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828 (2015).
6
Donovan v. Walton, 609 F. Supp. 1221, 1238 (S.D. Fla. 1985).
- 13 -
analytical process that involves consideration of the quality of competing providers
and investment products, as appropriate.”7
32.
In satisfying these duties, fiduciaries should consider a variety of funds
and the expenses associated with the possible funds.8 Furthermore, under ERISA, a
fiduciary “has a continuing duty to monitor [plan] investments and remove imprudent
ones” that exists “separate and apart from the [fiduciary’s] duty to exercise prudence
in selecting investments.”9 If an investment is imprudent, the plan fiduciary “must
dispose of it within a reasonable time.” Id.
Fiduciaries Are Required Under ERISA to Act in the Best Interest of Plan
Participants When Selecting and Maintaining Investment Options
33.
To meet their fiduciary obligations, ERISA requires plan fiduciaries to
establish and maintain a prudent process to search the market for the best investment
options. Moreover, ERISA requires fiduciaries to regularly monitor and review
existing investment options to determine whether it is prudent to keep or remove those
options from the Plan. Where fiduciaries have conflicting interests that raise
7
72 Fed. Reg. 60453 (October 24, 2007) (Preamble).
8
See Tibble v. Edison Int’l, No. CV-07-5359-SVW, 2010 U.S. Dist. LEXIS
69119 (C.D. Cal. July 8, 2010) (noting that fiduciaries must engage in a thorough
investigation of the merits of an investment and noting that the fiduciaries considered
five investment criteria, including the expense ratio, when selecting funds).
9
Tibble, 135 S. Ct. at 1828.
- 14 -
questions about their loyalty to the Plan, they “are obliged at a minimum to engage in
an intensive and scrupulous independent investigation of their options to ensure that
they act in the best interests of the plan beneficiaries.”10
Co-Fiduciary Liability
34.
ERISA §405(a) imposes explicit co-fiduciary liability on plan fiduciaries,
provides for fiduciary liability for a co-fiduciary’s breach: “In addition to any liability
which he may have under any other provision of this part, a fiduciary with respect to a
plan shall be liable for a breach of fiduciary responsibility of another fiduciary with
respect to the same plan in the following circumstances: (1) if he participates
knowingly in, or knowingly undertakes to conceal, an act or omission of such other
fiduciary, knowing such act or omission is a breach; (2) if, by his failure to comply
with section 404(a)(1) in the administration of his specific responsibilities which give
risk to his status as a fiduciary, he has enabled such other fiduciary to commit a
breach; or (3) if he has knowledge of a breach by such other fiduciary, unless he
makes reasonable efforts under the circumstances to remedy the breach.”
35.
ERISA §409(a) authorizes a plan participant to bring a civil action to
enforce a breaching fiduciary’s liability to the plan: “Any person who is a fiduciary
with respect to a plan who breaches any of the responsibilities, obligations, or duties
10
Kanawi v. Bechtel, No. 09-16253 (9th Cir. 2009) (DOL Amicus Brief).
- 15 -
imposed upon fiduciaries by this title shall be personally liable to make good to such
plan any losses to the plan resulting from each such breach, and to restore to such plan
any profits of such fiduciary which have been made through use of assets of the plan
by the fiduciary, and shall be subject to such other equitable or remedial relief as the
court may deem appropriate, including removal of such fiduciary.”
36.
In addition to the duties of loyalty and prudence imposed by ERISA
§404, certain transactions are expressly prohibited by ERISA §406, and are
considered per se violations of ERISA because they entail a high potential for abuse.
37.
Each of the Defendants are subject to co-fiduciary liability under
29 U.S.C. §1105(a)(1)(3) because they enabled other fiduciaries to commit breaches
of fiduciary duty through their appointment powers, failed to comply with 29 U.S.C.
§1104(a)(1) in the administration of their duties, or failed to remedy the known
breaches of duty carried out by other fiduciaries.
SUBSTANTIVE ALLEGATIONS
The Plan
38.
The Plan, established and effective as of January 1, 2000, is a defined-
contribution Plan for the Invesco subsidiaries: (i) IVZ Inc. (the Plan Sponsor);
(ii) Invesco Management Group Inc.; (iii) Invesco Group Services, Inc.; and
(iv) Invesco North American Holding, Inc. (collectively the “Plan Employers”). The
- 16 -
Plan provides retirement income for employees of the Plan Employers. The amount
of retirement income available to Plan participants is derived from the investment
returns generated on contributions by or on behalf of Plan participants, less fees and
expenses. Eligible employees of the Plan Employers may participate in the Plan by
contributing up to 75% of their eligible earnings to the Plan.
39.
The written instrument, within the meaning of ERISA §402, 29 U.S.C.
§1102, by which the Plan is maintained is the Invesco 401(k) Plan (the “Plan
Document”), amended as of January 1, 2015. Under the Plan Documents, Charles
Schwab Trust Company (“Schwab”) is the directed trustee and custodian of the Plan,
receiving both direct and indirect compensation from the Plan.
40.
According to the Plan Document, Defendant Invesco is the parent
company of the Plan Sponsor, IVZ, Inc. As of December 31, 2016, the Plan had over
$890 million in assets, making it one of the largest 401(k) plans in the country.
41.
The IBPC is the named fiduciary of the Plan. The IBPC is expressly
responsible under the Plan Document for the: (i) control, management and
administration of the Plan; (ii) establishment of the Plan’s investment policy; and
(iii) selection and monitoring of the Investment Funds available to Participants in the
- 17 -
42.
The IBPC is composed of senior Invesco executives who have an interest
in promoting Invesco’s asset management business. For example, Defendant Ben Utt
is the Invesco Director of U.S. Institutional Sales and Services, Defendant Peter
Gallagher is Invesco’s Head of U.S. Retail Sales, and Defendant David Genova is
Invesco’s Global Investments Director. Each of these IBPC members has a conflict of
interest with the Plan participants since a key part of their responsibilities involved
increasing sales, fund inflows, assets under management, and profitability for Invesco.
For example, the bonus performance criteria under the Invesco Executive Incentive
Bonus Plan includes assets under management, net revenue yield on assets under
management, operating revenues, and net asset flows. The Plan fiduciaries on the
IBPC have strong personal incentives to use Plan assets to positively impact Invesco’s
business even though their actions might negatively impact Plan participants.
43.
During the Class Period, Invesco generated fees and increased assets
under management as a result of the inclusion and retention of proprietary Plan
Investments. According to the Plan Documents and Invesco’s Fee and Investment
Notices provided to Plan participants, Invesco-affiliated entities earned lucrative fees
by charging Plan participants “operating expenses” in connection with their
investments in proprietary Plan Investments. The operating expenses were paid
- 18 -
indirectly from the participants’ accounts on an annual basis, thereby diluting their
value and enriching Invesco and its subsidiaries.
The Plan Investment Options
44.
Plan participants may elect to make before-tax contributions or after-tax
(aka Roth) contributions or a combination of both. New employees who are eligible
to participate in the Plan who do not elect to be excluded from the Plan will be
automatically enrolled as a participant in the Plan.
45.
According to the Plan’s “Summary Plan Description” (the “SPD”), Plan
participants are permitted to direct the investment of their funds into the Plan
Investments, which are selected and monitored by the Benefit Committee Defendants
and/or those who were delegated those responsibilities by the Plan Sponsor
Defendants. The Plan fiduciaries did not employ a careful and thoughtful process to
select, offer or monitor prudent investment options to serve the best interests of Plan
participants. Rather, Defendants used the Plan to serve the business interests of
Invesco by generating fees, increasing assets under management, and increasing the
liquidity of its ETF products.
46.
First, during the Class Period, between 55% to 68% of all Plan
Investments were affiliated with Invesco. Second, Invesco-affiliated investment
options were the exclusive investment option in key categories of actively managed
- 19 -
investments. Specifically, if a Plan participant had sought an actively managed
investment option during the Class Period, between 74% and 88% of those choices
would have been limited to Invesco-affiliated options and 100% of the actively
managed investment options in many key investment categories were affiliated with
Invesco. Below is a chart showing the percentage of all funds that were affiliated with
Invesco as well as the percentage of actively managed funds that were affiliated with
Invesco:
Total
% Invesco-
Year
Options 11
Invesco-
affiliated
Active
Options
Invesco-
affiliated
(Active)
% Invesco-
affiliated
affiliated (Active)
2012
25
15
60%
17
14
82%
2013
26
16
62%
18
15
83%
2014
31
21
68%
23
20
87%
2015
25
15
60%
17
14
82%
2016
27
15
55%
19
14
74%
2017
25
15
60%
16
14
88%
47.
Third, the only Plan Investment in numerous investment categories,
regardless of whether they were passive or actively managed investments, were
limited to investment options affiliated with Invesco. The below chart lists each
category of Plan Investments in which the only option was an Invesco-affiliated
option:
11
This chart does not include the Invesco Stock Fund which was offered as part of
the Plan until 2015.
- 20 -
Investment Categories With Only Invesco–Affiliated Options
Category
2012
2013
2014
2015
2016
2017
High Yield Bond
X
X
X
X
X
X
World Allocation/ Allocation –
30% to 50% Equity
X
X
X
X
X
X
Large Blend
X
X
X
X
X
X
Mid-Cap Growth
X
X
X
X
X
X
Small Value
X
X
X
X
X
X
Small Growth
X
X
X
X
X
X
Foreign Large Growth
X
X
X
X
X
X
Diversified Emerging Mkts.
X
X
X
X
X
X
Stable Value/ Money Market-
Taxable
X
X
X
X
X
X
48.
In addition to the Invesco-affiliated investments, the Plan Investments
consisted of the Invesco Stock Fund (until 2015), seven to eight passive index funds
managed by State Street Global Advisors (“SSGA”), and depending on the year, a few
other non-affiliated mutual funds, including a fund that seeks to provide returns linked
to the rate of inflation, an alternative long and short fund, a bond fund and a mid-cap
value fund. Thus, if a Plan participant wanted an actively managed investment in the
large growth, diversified emerging markets, or high yield bond categories, the only
options were poor performing Plan Investments affiliated with Invesco. If a Plan
participant simply wanted to participate in the small cap growth, small cap blend,
large cap blend, diversified emerging markets, or stable value investment categories,
even with an index fund, they were also limited to Plan Investments affiliated with
Invesco.
- 21 -
49.
The manner in which the Plan invested funds that were not expressly
directed by Plan participants was also set up to benefit Invesco to the detriment of
Plan participants. According to the SPD, to the extent a participant failed to direct a
portion of their funds for investment, those funds will be automatically invested in a
portfolio referred to as the “Moderately Conservative Model Portfolio” (the
“MCMP”). As of September 2017, nearly 60% of the MCMP was invested in
Invesco-affiliated investments. As such, the Plan was structured so that a majority of
funds that were not directed by Plan participants were automatically placed into
Invesco Plan Investments.
50.
Defendants’ strategy of generating investments in Invesco-affiliated
investments was successful. By December 31, 2016, $569,797,686 or 81% of
investments by Plan participants were in Invesco-affiliated funds.12 This benefitted
Invesco by increasing assets under management and generating associated fees. Plan
participants, however, were harmed due to the poor performance and/or high fees of
the Invesco-affiliated funds relative to other more prudent non-Invesco investment
options.
12
This number consists of the total investments in products offered as Plan
Investments.
- 22 -
The Self-Directed Schwab Account
51.
If Plan participants are interested in purchasing securities other than those
offered in the Plan as Plan Investments, they are permitted to open the Schwab
Account (defined above), which is an individual self-directed brokerage account with
the firm Charles Schwab, and direct up to 100% of their contributions to that account.
Contrary to the statement in the SPD that the Schwab Account provides Plan
participants with “the maximum amount of investment flexibility available,”
Defendants structured the account to limit investment options and to steer money into
Invesco-affiliated investment products. Thus, Defendants actively and imprudently
took steps to structure the Schwab Account to benefit Invesco to the detriment of Plan
participants.
52.
Indeed, the Schwab Account could have offered Plan participants the
ability to invest in all publicly traded individual stocks and bonds, as well as
thousands of ETFs from other ETF companies. The Plan fiduciaries, however,
severely restricted the Schwab Account so that Plan participants were not, and are not,
permitted to purchase equity securities, foreign securities, limited partnerships, fixed
income securities, or any of the thousands of ETFs other than those issued by Invesco-
affiliated PowerShares.
- 23 -
53.
Even though Invesco offers the PowerShares ETFs through the Schwab
Account, there are many other ETFs offered by significantly larger ETF companies,
including Vanguard, BlackRock, and State Street.13 A firm’s ETF business is valued
by various metrics, including number of ETFs, assets under management, and trading
volume/liquidity of the ETFs. PowerShares is viewed as the fourth largest ETF
company, trailing at a distant fourth to Vanguard, BlackRock, and State Street. It was,
and continues to be, in the financial interest of Invesco to increase investments in its
PowerShares ETFs. Thus, even though there are thousands of ETFs, many of which
have better track records and/or lower fees than the PowerShares ETFs, the Plan
fiduciaries excluded those ETFs from the Schwab Account.
54.
Defendants acted in their own self-interest to limit the Schwab Account
to PowerShares ETFs to the detriment of Plan participants. Moreover, the Plan
fiduciaries’ failure to engage in a prudent process is shown by the imprudent
limitations placed on the purchase of non-PowerShares ETFs.
55.
The selection of mutual funds offered to Plan participants through the
Schwab Account was also the result of an imprudent process. Even though Plan
participants were able to purchase non-Invesco mutual funds through the Schwab
13
Even after acquiring Guggenheim Partners’ ETF business in September 2017,
Invesco is still the fourth largest ETF issuer in the United States.
- 24 -
Account, they were also able to purchase more expensive share classes of the same
mutual funds offered as Plan Investments. For example, the Plan offered the High
Yield Bond Fund as a Plan Investment with an expense ratio of 0.68%. Due to an
imprudent process, however, Defendants permitted Plan participants to purchase
through the Schwab Account a more expensive share class of that same fund with an
initial sales charge of 4.25% and an expense ratio of 1.09%.
56.
Since Defendants acted to input restrictions on the Schwab Account, they
should have also acted to limit the purchase of Invesco-affiliated funds. Had the Plan
fiduciaries acted in a prudent manner, they would have excluded from the Schwab
Account those funds that were included in the Plan as Plan Investments in order to
prevent Plan participants from unnecessarily paying higher fees and earning lower
returns. For example, as of December 31, 2016, investors held approximately
$1,500,000 in the retail and investor shares of the Invesco High Yield Fund, Invesco
Balanced Risk Allocation Fund, Invesco Developing Markets Fund, Invesco Floating
Rate Fund, Invesco Diversified Dividend Fund and Invesco American Franchise Fund
even though they could have purchased those same funds in the Plan, paid less in
expenses, and achieved a higher return.
57.
Thus, the Plan fiduciaries failed to act prudently and served their own
interest by restricting the ETFs that can be purchased through the Schwab Account
- 25 -
and by failing to restrict proprietary Invesco investment options that were also offered
through the Plan.
Defendants Acted to Benefit Invesco to the Detriment of the Plan and Plan
Participants
58.
The Plan fiduciaries failed to meet their fiduciary obligations to the Plan
participants who trusted them to construct a Plan that prioritized their interests over
Invesco’s profits and that offered superior investment options and world-class
investment management. Defendants did not consider or act in the best interest of the
Plan and its participants throughout the Class Period. Instead, the Plan fiduciaries put
their interests before Plan participants by treating the Plan as an opportunity to
promote and generate fees for Invesco’s propriety investment businesses. Defendants
acted to bolster Invesco’s investment management business by constructing the Plan
in a way so that money would be funneled to Invesco’s financial products even though
it was imprudent to do so.
59.
Invesco prioritized profit over fiduciary duty and saddled the Plan’s
participants with substandard proprietary mutual funds, CITs, and ETFs. The Plan
fiduciaries could have, but failed to, include investment options with comparable or
better performance from unaffiliated fund managers. Furthermore, the Plan
fiduciaries breached their fiduciary duties by failing to remove imprudent investment
options from the Plan or structure the Schwab Account to include unaffiliated ETFs
- 26 -
and exclude imprudent affiliated mutual funds. The inclusion, retention, and addition
of the Plan Investments and the investment options made available through the
Schwab Account were the result of an imprudent process.
The Plan Investments Were Imprudent and the Result of an Imprudent
Process
60.
The Plan was loaded with Invesco-affiliated products due to their
affiliation with Invesco. Defendants used Plan participants as a captive investor base
to foster investments in Invesco-affiliated products and benefit Invesco as well as
Invesco Advisers, Invesco Trust Co. and PowerShares. The structure of the Plan as
well as the Plan Investments were imprudent and the result of the failure of the Plan
fiduciaries to engage in a prudent process.
61.
A fiduciary acting in the best interest of the Plan and its participants and
with due care would not have added or retained many of the Plan Investments because
of their poor performance and/or high fees compared with readily available non-
affiliated investment options. Prior to and during the Class Period, Invesco-affiliated
funds in the Plan suffered from poor performance compared to readily apparent more
prudent investment options. Below are representative examples of Invesco-affiliated
funds that were imprudent. A prudent and loyal fiduciary under the same
circumstances would not have selected, retained, or added the following imprudent
investments.
- 27 -
Invesco Emerging Markets Equity Trust and Invesco Developing Markets
Fund
62.
The Invesco Emerging Markets Equity Trust (the “Emerging Markets
Trust” or “EMET”) was a Plan Investment at the beginning of the Class Period. The
Emerging Markets Trust performed poorly prior to and during the Class Period. For
example, as of December 31, 2011, the EMET’s one year trailing return of -24.27%,
five year trailing return of 1.68%, and ten year trailing return of 9.67%, significantly
underperformed its benchmark’s (the “MSCI EM NR USD”) one year return
of -18.42% five year trailing return of 2.40%, and ten year trailing return of 13.86%.
According to the Fee and Investment Notices provided to Plaintiff and Plan
participants, the EMET continued to underperform its benchmark during 2012 to
63.
During June 2014, the Plan replaced the EMET with another investment
option. A prudent fiduciary would have looked to the market for the best available
options. The Plan’s fiduciaries, however, did not act as prudent fiduciaries. Rather,
they substituted the EMET for another proprietary investment option affiliated with
Invesco, the Invesco Developing Markets Fund (the “Developing Markets Fund” or
“GTDFX”). The Invesco Developing Markets Fund, like the Emerging Markets
Trust, had a poor track record and was not a prudent investment selection.
- 28 -
64.
The Developing Markets Fund was not only imprudent because of
performance – it was also imprudent because of its high fees. The EMET was a CIT
with operating expenses of 0.21%. While a prudent fiduciary would have substituted
EMET for a better performing investment option with similar if not lower expenses,
the Plan fiduciaries selected a proprietary mutual fund GTDFX which not only had a
track record of poor performance, but had an operating expense ratio of 1.01% –
nearly 5 times more expensive than EMET.
65.
In the year before GTDFX was added to the Plan, it lost 2.81% versus a
gain of 15.29% for its benchmark, the “MSCI ACWI EX USA NR USD,” placing the
GTDFX in the bottom 58% of comparable emerging market mutual funds. Then, in
2015, its first full year within the Plan, it lost 18.34%, well below its benchmark and
placing it in the bottom 83 % of comparable Diversified Emerging Market mutual
66.
An August 8, 2018 Morningstar analyst report describes the GTDFX’s
performance as “dismal.” As of September 4, 2018, it’s one year trailing returns were
-12.54%, placing it in the bottom 97% of all emerging market mutual funds.
67.
If Plan participants wanted to invest in an actively managed strategy in
the Diversified Emerging Market investment category during the Class Period, the
GTDFX and EMET were their only Plan options.
- 29 -
68.
If the Plan fiduciaries had faithfully executed their fiduciary duties to the
Plan and its participants, they would have selected one of the many better performing
non-affiliated funds available with comparable investment strategies in the Diversified
Emerging Markets Category.
69.
The following table summarizes the poor performance and cumulative
harm to investors in the Developing Markets Fund as compared to other similar
available investment alternatives that were not included in the Plan.
INVESCO ERISA
Invesco Developing Markets Fund Class R6 (GTDFX) as Compared to Peer Group Investments
Compounded
Cumulative
Annual
Returns
Growth Rate
Fund
2011
2012
2013
2014
2015
2016
2017
GTDFX
-11.34%
19.66%
-2.81%
-2.82%
-18.34%
20.22%
30.86%
28.73%
3.67%
$0.89
$1.06%
$1.03
$1.00
$0.82
$0.98
$1.29
28.73%
3.67%
-2.05%
14.60%
37.11%
7.81%
-10.10%
9.55%
38.46%
126.26%
12.37%
GuideMark Emerging
Markets Fund Institutional
Shares (GILVX)
+/- GTDFX
9.29%
-5.06%
39.92%
10.63%
8.24%
-10.67%
7.60%
97.54%
8.70%
-17.00%
23.22%
15.02%
3.75%
-10.97%
4.08%
40.63%
59.04%
6.85%
Baron Emerging Markets
Fund Institutional Shares
(BEXIX)
+/- GTDFX
-5.66%
3.56%
17.83%
6.57%
7.37%
-16.14%
9.77%
30.31%
3.18%
-21.60%
24.86%
0.42%
-1.21%
-7.87%
7.90%
46.36%
41.29%
5.06%
American Century
Emerging Markets Fund
R6 Class (AEDMX)
+/- GTDFX
-10.26%
5.20%
3.23%
1.61%
10.47%
-12.32%
15.50%
12.57%
1.39%
70.
As the chart above shows, the Developing Markets Fund cumulative
return from 2011 through 2017 was only 28.73% compared to available alternative
investments such as GILVX, BEXIX, and AEDMX which returned, 126.26%,
59.04%, and 41.29%, respectively during that period.
- 30 -
Invesco High Yield Bond Fund
71.
The Invesco High Yield Bond Fund (the “High Yield Fund”) was a Plan
Investment during the Class Period. Between the start of the Class Period and May
2013, the Plan offered the R5 class of shares of the fund (ticker “AHIYX”) and after
that time offered the R6 class of shares (ticker “HYIFX”). If Plan participants wanted
to invest in an actively managed strategy in the high yield bond investment category,
the High Yield Fund was their only Plan option.
72.
Prior to and during the Class Period, the High Yield Fund performed
poorly. For example, it only earned 1.75% during 2011, placing it in the bottom 76 of
comparable mutual funds in the High Yield Bond Investment Category, according to
Morningstar. In 2014, the High Yield Fund only returned 1.77%, well below the
performance of its benchmark “Bloomberg Barclays US Aggregate Bond TR USD”
which returned 5.97%. During 2016, the High Yield Fund returned only 11.74%,
placing it in the bottom 74% of comparable mutual funds in the High Yield Bond
investment category.
73.
If the Plan fiduciaries had faithfully executed their fiduciary duties to the
Plan and its participants, they would have selected one of the many better performing
non-affiliated funds available with comparable strategies in the High Yield Bond
investment category.
- 31 -
74.
The following table summarizes the poor performance and cumulative
harm to investors in the High Yield Bond Fund as compared to other available
investment alternatives that were not included in the Plan:
INVESCO ERISA
Invesco High Yield R6 (HYIFX) as Compared to Peer Group Investments
Compounded
Cumulative
Annual
Returns
Growth Rate
Fund
2011
2012
2013
2014
2015
2016
2017
HYIFX
1.75%
17.83%
7.35%
1.77%
-2.67%
11.74%
6.53%
51.75%
6.14%
3.15%
16.50%
9.69%
3.46%
-2.07%
16.32%
8.78%
68.98%
7.78%
Lord Abbett High Yield R6
Shares (LHYVX)
+/- HYIFX
1.40%
-1.33%
2.34%
1.69%
0.60%
4.58%
2.25%
6.17%
16.88%
10.19%
1.48%
-7.37%
16.74%
8.00%
62.06%
7.14%
Ivy High Income Y Shares
(WHIYX)
+/- HYIFX
4.42%
-0.95%
2.84%
-0.29%
-4.70%
5.00%
1.47%
1.76%
18.27%
6.28%
2.75%
-4.23%
14.73%
7.49%
55.22%
6.48%
AB High Income R Shares
(AGDRX)
+/- HYIFX
0.01%
0.44%
-1.07%
0.98%
-1.56%
2.99%
0.96%
4.53%
13.78%
6.69%
2.31%
-3.11%
14.70%
7.19%
54.67%
6.43%
PGIM High Yield R Shares
(JDYRX)
+/- HYIFX
2.78%
-4.05%
-0.66%
0.54%
-0.44%
2.96%
0.66%
75.
As the chart above shows, the High Yield Bond Fund’s cumulative return
from 2011 through 2017 was only 51.75%, compared to available alternative
investments such as LHYVX, WHIYX, AGDRX, and JDYRX which returned,
68.98%, 62.06%, 55.22%, 54.67% respectively, during that period.
Invesco American Franchise Fund
76.
The Invesco American Franchise Fund was a Plan investment option
offered to Plan participants during the Class Period. It was first offered to Plan
participants as a mutual fund, the American Franchise Fund R6 (“VAFFX”), which
was managed by Invesco Advisers. In November 2014, the Plan moved the Plan
assets from VAFFX into the Invesco American Franchise Trust (the “AFT”), which is
- 32 -
managed by Invesco Trust Co. and sub-managed by Invesco Advisers. During the
Class Period, if Plan participants wanted to invest in an actively managed strategy in
the large growth investment category, the VAFFX and AFT were their only Plan
options.
77.
Before and during the Class Period, the American Franchise Fund
performed worse than comparable mutual funds in the same Large Growth investment
category. For example, according to Morningstar, in 2009, VAFFX performed 4.54%
below the average of other mutual funds in the Large Growth investment category. In
2011, VAFFX’s returns were 8.84% worse than its benchmark, the S&P 500, and
4.27% worse than the average of comparable funds in the Large Growth investment
category, according to Morningstar. VAFFX continued to underperform in 2012 with
returns that were 2.55% worse than its benchmark, and 1.89% worse than the average
of comparable funds in the Large Growth investment category, according to
Morningstar. In 2014, VAFFX performed in the bottom 66% of mutual funds in the
same Large Growth investment category, according to Morningstar, with returns
4.95% less than its benchmark.
78.
Plan participants continued to suffer from poor returns after the assets
were transferred to the AFT. According to Morningstar, in 2016, the AFT only
achieved 2.11% in net returns, which were 9.85% less than the performance of its
- 33 -
benchmark, the S&P 500. And, as of July 31, 2018, its gross trailing returns,
according to Morningstar in the one year and three year periods were 17.14% and
13.50%, respectively, underperforming the gross returns of the S&P 500 of 19.66%
and 16.11%, respectively.
79.
If the Plan fiduciaries had faithfully executed their fiduciary duties to the
Plan and its participants, they would have selected one of the many better performing
non-affiliated funds available with comparable strategies in the Large Growth
category.
80.
The following table summarizes the poor performance and cumulative
harm to investors in the American Franchise Fund as compared to other available
investment alternatives that were not included in the Plan:
INVESCO ERISA
Invesco American Franchise Trust as Compared to Peer Group Investments
Compounded
Cumulative
Annual
Returns
Growth Rate
Fund
2011
2012
2013
2014
2015
2016
2017
-6.73%
13.45%
40.40%
8.74%
5.42%
2.11%
27.34%
121.43%
12.03%
Invesco American
Franchise Trust
1.67%
18.67%
41.57%
9.34%
11.27%
1.15%
36.46%
186.84%
16.25%
T. Rowe Price Blue Chip
Growth Trust
+/- Invesco Am Franchise
8.40%
5.22%
1.17%
0.60%
5.85%
-0.96%
9.12%
-0.83%
19.98%
39.54%
9.83%
11.51%
2.09%
34.46%
179.10%
15.79%
T. Rowe Price Growth
Stock Trust
+/- Invesco Am Franchise
5.90%
6.53%
-0.86%
1.09%
6.09%
-0.02%
7.12%
-8.60%
19.20%
36.19%
11.65%
10.01%
0.15%
35.56%
147.43%
13.82%
Schwab Institutional
Large Cap Growth Trust
+/- Invesco Am Franchise
-1.87%
5.75%
-4.21%
2.91%
4.59%
-1.96%
8.22%
- 34 -
81.
As the chart above shows, the Invesco American Franchise cumulative
return14 from 2011 through 2017 was 121.43%, compared to available alternative
CITs such as the T. Rowe Price Blue Chip Growth Trust, T. Rowe Price Growth Stock
Trust, and Schwab Institutional Large Cap Growth Trust, which returned, 186.84%,
179.10%, and 147.43% respectively, during that period.
Invesco Diversified Dividend Fund
82.
The Diversified Dividend Fund was a Plan investment option offered to
Plan participants during the Class Period. It was first offered to Plan participants as a
mutual fund, the Diversified Dividend Fund R6 (“LCEFX”) managed by Invesco
Advisers. Then, in November 2014, the Plan moved the Plan assets in LCEFX to the
Invesco Diversified Dividend Trust (the “DDT”), which is managed by Invesco Trust
Co. and sub-managed by Invesco Advisers.
83.
Prior to and during the Class Period, the LCEFX consistently
underperformed comparable mutual funds in the same investment category. For
example, according to Morningstar, in 2009 the fund returned 23.66%, which was
2.80% less than its benchmark the S&P 500. Then, in 2011, the fund lost 0.20%,
underperforming the 2.11% return of its benchmark. During 2013, even though the
14
Due to limited availability of data, the American Franchise cumulative returns
are net of all fees and tracks the performance of VAFFX to January 2016 and then the
AFT from January 2016 to December 31, 2017.
- 35 -
LCEFX returned 29.42%, it substantially underperformed its peers and was in the
bottom 72% of mutual funds in the same Large Value investment category, according
to Morningstar.
84.
Plan participants continued to suffer poor returns from their investment in
the DDT. According to Morningstar, in 2015, the DDT lost 0.14%, underperforming
its benchmark by 1.52%. And, in 2017, the DDT’s net return was 8.87%, which was
12.96% less than its benchmark, the S&P 500, and 8.33% less than the average of
other comparable investments in the Large Value category. According to
Morningstar, as of July 31, 2018, DDT’s gross trailing returns, in the one year and
three year periods were 5.08% and 7.05%, respectively, compared to the gross returns
of its benchmark, the S&P 500, which returned 19.66% and 16.11%, respectively.
85.
If the Plan fiduciaries had faithfully executed their fiduciary duties to the
Plan and its participants, they would have selected one of the many better performing
funds available with comparable strategies.
86.
The following table summarizes the poor performance and cumulative
harm to investors in the Diversified Dividend Plan investment option as compared to
other available investment alternatives that were not included in the Plan:
- 36 -
INVESCO ERISA
Invesco Diversified Dividend Trust as Compared to Peer Group Investments
Compounded
Cumulative
Annual
Returns
Growth Rate
Fund
2011
2012
2013
2014
2015
2016
2017
-0.20%
17.28%
29.42%
12.42%
2.20%
14.95%
8.87%
117.80%
11.76%
Invesco Diversified
Dividend Trust
-3.09%
21.51%
38.50%
10.02%
-4.81%
20.22%
17.29%
140.86%
13.38%
Schwab Institutional Large
Cap Value Trust
+/- Invesco Divers Div
-2.89%
4.23%
9.08%
-2.40%
-7.01%
5.27%
8.42%
0.43%
16.67%
36.19%
10.81%
-0.24%
14.50%
18.02%
138.37%
13.21%
MFS Large Cap Value
Trust
+/- Invesco Divers Div
0.63%
-0.61%
6.77%
-1.61%
-2.44%
-0.45%
9.15%
-6.10%
18.48%
38.26%
10.74%
-2.03%
18.77%
15.32%
128.55%
12.53%
The Boston US Dynamic
Large Cap Value Trust
+/- Invesco Divers Div
-5.90%
1.20%
8.84%
-1.68%
-4.23%
3.82%
6.45%
-1.57%
15.68%
36.89%
13.55%
-2.62%
10.79%
18.79%
126.81%
12.41%
AB US Diversified Value
Trust
+/- Invesco Divers Div
-1.37%
-1.60%
7.47%
1.13%
-4.82%
-4.16%
9.92%
87.
As the chart above shows, the Invesco Diversified Dividend Plan’s
cumulative return15 from 2011 through 2017 was 117.80%, compared to available
alternative CITs such as the Schwab Institutional Large Cap Value Trust, MFS Large
Cap Value Trust, Boston U.S. Dynamic Large Cap Value Trust, and AB U.S.
Diversified Value Trust, which returned, 140.86%, 138.37%, 128.55%, 126.81%,
respectively, during that period.
Invesco Mid Cap Growth Trust
88.
The Invesco Mid Cap Growth Fund was offered to Plan participants
during the Class Period. It was first offered to Plan participants as a mutual fund, the
Mid Cap Growth R6 Fund (“VGRFX”) managed by Invesco Advisers. Then, in
November 2014, the Plan moved the Plan assets in VGRFX into the Invesco Mid Cap
15
Due to limited availability of data, the Diversified Dividend returns are net of
all fees and tracks the performance of LCEFX to January 2016 and then DDT from
January 2016 to December 31, 2017.
- 37 -
Growth Trust (the “MCGT”), managed by Invesco Trust Co. and sub-managed by
Invesco Advisers. If Plan participants wanted to invest in an actively managed
strategy in the Mid Cap Growth investment category, VGRFX and MCGT were their
only Plan options.16
89.
Prior to and during the Class Period, VGRFX performed worse than
comparable mutual funds in the same investment category. For example, according to
Morningstar, in 2008, the fund lost 48.40%, underperforming its benchmark by
11.40% and the average returns of mutual funds in the Mid Cap investment category
by 4.63%. In 2011, the fund lost 9.10%, underperforming its benchmark by 11.22%
and the average returns of mutual funds in the Mid Cap investment category by
5.14%.
90.
Plan participants continued to suffer from poor returns from their
investment in the MCGT. For example, in 2015 and 2016, the MCGT
underperformed its benchmark, the S&P 500, by 6.69% and 11.73%, respectively.
According to Morningstar, as of July 31, 2018, MCGT’s gross trailing returns, in the
one year and three year periods, were 17.47% and 8.00%, respectively, which
16
In 2013, the Invesco Dynamics Fund R6 was “reorganized” into the Mid Cap
Growth Fund.
- 38 -
underperformed the trailing returns of its benchmark, the S&P 500, which were
19.66% and 16.11% respectively, during the same periods.
91.
If the Plan fiduciaries had faithfully executed their fiduciary duties to the
Plan and its participants, they would have selected one of the many better performing
funds available with comparable strategies.
92.
The following table summarizes the poor performance and cumulative
harm to investors in the Invesco Mid Cap Growth Trust as compared to other available
investment alternatives that were not included in the Plan:
INVESCO ERISA
Invesco Mid Cap Growth Trust as Compared to Peer Group Investments
Compounded
Cumulative
Annual
Returns
Growth Rate
Fund
2013
2014
2015
2016
2017
37.25%
8.39%
1.68%
0.23%
22.74%
86.09%
13.23%
Invesco Mid Cap Growth
Trust
37.76%
13.93%
7.37%
7.13%
25.68%
126.91%
17.81%
T. Rowe Price US Mid Cap
Growth Equity Trust
+/- Invesco Mid Cp Grwth
0.51%
5.54%
5.69%
6.90%
2.94%
39.29%
10.97%
1.57%
11.92%
24.50%
118.75%
16.95%
Wellington Mid Cap
Opportunities Trust
+/- Invesco Mid Cp Grwth
2.04%
2.58%
-0.11%
11.69%
1.76%
Champlain Mid Cap Trust
37.92%
8.26%
1.66%
19.06%
19.87%
116.63%
16.72%
+/- Invesco Mid Cp Grwth
0.67%
-0.13%
-0.02%
18.83%
-2.87%
31.32%
8.85%
-0.62%
13.18%
22.48%
96.90%
14.51%
Transamerica Partners Mid
Growth Trust
+/- Invesco Mid Cp Grwth
-5.93%
0.46%
-2.30%
12.95%
-0.26%
Voya Mid Cap Growth Trust
31.96%
9.05%
0.55%
7.49%
25.11%
94.58%
14.24%
+/- Invesco Mid Cp Grwth
-5.29%
0.66%
-1.13%
7.26%
2.37%
93.
As the chart above shows, the Invesco Mid Cap Growth Trust cumulative
return17 from 2011 through 2017 was 86.09%, compared to available alternative CITs
17
Due to limited availability of data, the Invesco Mid Cap Growth cumulative
returns are net of all fees and tracks the performance of MGRFX to January 2016 and
then the MCGT from January 2016 to December 31, 2017.
- 39 -
such as the T. Rowe Price US Mid Cap Growth Equity Trust, Wellington Mid Cap
Opportunities Trust, Champlain Mid Cap Trust, Transamerica Partners Mid Growth
Trust, and Voya Mid Cap Growth Trust, which returned 126.91%, 118.75%, 116.63%,
96.90%, and 94.58%, respectively, during that period.
Investments in the Invesco Short-Term Investment Fund Were Imprudent
94.
During the Class Period, the Investment Manager Defendants caused
Plan Investments to invest in the Invesco Short-Term Investment Fund (the “ISTIF”),
a money market fund run by Invesco subsidiary Invesco Trust Co. For example, the
Invesco Stable Value Trust (“Stable Value Trust”) and Invesco International Growth
Equity Trust (“International Growth Trust”) invested more than $200 million and $20
million in the ISTIF, respectively, at times during the Class Period. The Investment
Manager Defendants breached their fiduciary duties to the Plan and Plan participants
by investing Plan assets in the ISTIF.
95.
During the Class Period, and up until 2016, the ISTIF undertook a series
of improper measures that were not disclosed to Plan participants to ensure that the
ISTIF’s net asset value (“NAV”) continued to trade at $1 per share even though the
ISTIF’s NAV had in reality fallen below $1 due to losses in the value of the ISTIF’s
holdings. The measures taken by the ISTIF to artificially inflate its NAV included:
(i) retaining a portion of the ISTIF’s income that should have been distributed to
- 40 -
investors; and (ii) entering into a series of support agreements with an affiliate of
Invesco to provide contingent financial support to the ISTIF. The retention of
distributions that should have gone to Plan Investments, such as the Stable Value
Trust and International Growth Trust, benefitted Invesco by reducing the obligations
of the Invesco affiliate that entered into the support agreements to the detriment of
Plan participants and harmed the Plan’s Investments by reducing the returns of the
Invesco Stable Value Trust and International Growth Trust.
96.
The U.S. Department of Labor (“DOL”) uncovered Invesco’s improper
conduct in connection with the ISTIF and claimed the manipulation of its NAV and
related actions constituted a violation of ERISA. On or about April 29, 2016, the
DOL announced a settlement of more than $10.2 million with Invesco Trust Co. as a
result of their improper conduction related to the ISTIF. The fiduciaries of the Plan
should not have permitted Plan assets to be invested in the ISTIF since it was
manipulating its NAV and withholding distributions to Plan Investments.
Restricting the Schwab Account to PowerShares ETFs Was the Result of an
Imprudent Process
97.
Defendants restricted the Schwab Account so that only the Invesco-
affiliated PowerShares ETFs were available in order to boost Invesco’s ETFs and to
increase the volume of ETF shares traded, an important metric used by ETF investors.
It was imprudent for the Plan to limit the purchase of ETFs to PowerShares because
- 41 -
there are many ETFs provided by other firms that have better performance and lower
fees than PowerShares.
98.
For illustration purposes, below is a sampling of Invesco-affiliated ETFs
available through the Schwab Account that suffered from poor performance relative to
more prudent alternatives not offered through the Schwab Account:
Investment Option
Investment Category
1 Year Trailing
3 Year Trailing
5 Year Trailing
Return18
Return
Return
FTSE RAFI Asia Pacific ex-
Japan portfolio (PAF)
6.95%
“Pacific/Asia ex-Japan stock”
13.27 %
Category Rank:
Bottom 82%
4.21%
Category Rank:
Bottom 83%
+/- Benchmark
-4.32%
0.71%
-2.29%
DB G 10 Currency Harvest
Fund (DBV)
“Multicurrency”
0.02
-0.49%
Category Rank:
Bottom 68%
-2.33%
Category Rank:
Bottom 85%
+/- Benchmark
-1.49
-.88%
-1.83%
Dynamic Biotechnology &
Genome Portfolio (PBE)
“Health”
18.54
-3.09%
Category Rank:
Bottom 88%
12.09%
Category Rank:
Bottom 65%
+/- Benchmark
-0.23%
-7.12%
-1.74%
Global Agriculture Portfolio
(PAGG)
“Natural Resources
14.39%
Category Rank:
Bottom 88%
-1.59%
Category Rank:
Bottom 88%
-0.52%
Category Rank:
Bottom 71%
+/- Benchmark
-15.05%
-2.27%
-0.49%
S&P Small Cap Information
Technology Portfolio (PSCT)
“Technology”
13.00%
Category Rank:
Bottom 96%
15.39%
Category Rank:
Bottom 77%
18.23%
Category Rank:
Bottom 68%
+/- Benchmark
-15.05%
-2.27%
-0.54%
International Dividend
Achievers Portfolio (PID)
“Foreign Large Value”
9.58%
Category Rank:
Bottom 66%
-1.36%
Category Rank:
Bottom 95%
1.60%
Category Rank:
Bottom 93%
+/- Benchmark
-1.12
-4.72%
-3.08%
VRDO Tax Free Weekly
Portfolio (PVI)
“Muni National Short”
0.80%
0.36%
Category Rank
Bottom 90%
0.18%
Category Rank:
Bottom 90%
+/- Benchmark
-0.14%
-0.43%
-1.16
S&P Emerging Markets Low
Volatility Portfolio (EELV)
“Diversified Emerging
Markets”
12.47%
Category Rank:
Bottom 73%
1.17%
Category Rank:
Bottom 92%
-0.28%
Category Rank:
Bottom 91%
+/- Benchmark
-1.11
-3.50
-2.72
18
Trailing returns for the one year, three year and five-year periods of the ETF
investments in the above table were retrieved from Morningstar and are as of May 18,
2018.
- 42 -
99.
Had the Plan’s fiduciaries considered the best interests of Plan
participants and acted prudently, they would have enabled Plan participants to
purchase ETF from firms other than Invesco.
The Inclusion of Expensive Versions of Plan Investments Through the Schwab
Account Was the Result of an Imprudent Process
100. The lack of a prudent process, as well as Defendants acting to benefit
Invesco to the detriment of Plan participants, is shown by the inclusion of expensive
share classes of mutual funds in the Schwab Account even though different – and less
expensive – classes or versions of the same investments were offered as Investment
Funds in the Plan. As alleged above, the Plan fiduciaries took steps to modify the
investment options available to Plan participants through the Schwab Account. Since
they were able to alter the options available through the Schwab Account, the Plan
fiduciaries should have acted in the best interests of Plan participants by ensuring
participants would not unnecessarily waste money on fees, and sacrifice performance
as a result of those fees, by purchasing shares of Invesco mutual funds when shares of
the same funds or investments could have been purchased with lower costs as Plan
Investments. Had Defendants not acted in their own interest, and had they acted
prudently, they would have ensured that the Schwab Account did not offer more
expensive classes of shares of Plan Investments.
- 43 -
101. As reflected in the below chart, at various times during the Class Period,
Plan participants unnecessarily purchased expensive shares of Invesco-affiliated funds
through the Schwab Account even though less expensive (and better performing)
classes of those investments were available directly through the Plan:
Class A
Fund Name
Plan Version
Schwab Version
Plan Net
Expenses
Schwab Acct
Net Expenses
Sales Charge
0.68%
1.09%
4.25%
Invesco High Yield
Fund
Invesco High Yield
Class R6
Invesco High
Yield Fund
Class A
0.01%
1.22%
5.50%
Balanced Risk
Allocation Fund
Balanced Risk
Allocation Trust
Balanced Risk
Allocation Fund
Class A
0.73%
1.15%
5.50%
Invesco Mid Cap
Growth Fund
Invesco Mid Cap
Growth Fund
Class R6
Invesco Mid Cap
Growth Fund
Class A
1.01%
1.43%
5.50%
Invesco Developing
Markets Fund
Invesco Developing
Markets Fund
Class R6
Invesco
Developing
Markets Fund
Class A
0.68%
1.07%
2.50%
Invesco Floating Rate
Fund
Invesco Floating Rate
Fund
Class R6
Invesco Floating
Rate Fund
Class A
0.51%
0.77%
(none)
Invesco Diversified
Dividend Fund
Invesco Diversified
Dividend Fund
Class R6
Invesco
Diversified
Dividend Fund
Investor Class
0.65%
1.08%
5.50%
Invesco American
Franchise Fund
Invesco American
Franchise
Class R6
American
Franchise Fund
Class A
102. The high fees associated with the proprietary investment options
available through the Schwab Account unjustly enriched Defendants to the detriment
of Plan participants.
CLASS ACTION ALLEGATIONS
103. Plaintiff brings this action in this representative capacity on behalf of the
Plan and as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure
on behalf of himself and a Class defined as follows:
- 44 -
All participants in the Invesco 401(k) Plan from May 25, 2012 to the
date of Judgment (the “Class Period”). Excluded from the Class are
Defendants and their families, the officers and directors of Invesco Ltd.
and any of its subsidiaries, at all relevant times, members of their
immediate families and their legal representatives, heirs, successors or
assigns, and any entity in which Defendants have or had a controlling
interest.
104. The members of the Class are so numerous that joinder of all members is
impracticable. The disposition of their claims in a class action will provide substantial
benefits to the parties and the Court. As of December 31, 2016, the Plan had over
3,700 participants.
105. There is a well-defined community of interest in the questions of law and
fact involved in this case. Questions of law and fact common to the members of the
Class that predominate over questions that may affect individual Class members
include, inter alia:
(a)
whether Defendants are fiduciaries of the Plan;
(b)
whether Defendants breached their fiduciary duties of loyalty and
prudence with respect to the Plan;
(c)
whether Defendants had a duty to monitor other fiduciaries of the
(d)
whether Defendants breached their duty to monitor other
fiduciaries of the Plan; and
- 45 -
(e)
the extent of damage sustained by Class members and the
appropriate measure of damages.
106. Plaintiff’s claims are typical of those of the Class because Plaintiff and
the Class sustained damages from Defendants’ wrongful conduct.
107. Plaintiff will adequately protect the interests of the Class and has retained
counsel experienced in class action litigation. Plaintiff has no interests that conflict
with those of the Class.
108. A class action is superior to other available methods for the fair and
efficient adjudication of this controversy.
COUNT I
Breach of Fiduciary Duties in Violation of ERISA §404(a)
Against the Plan Sponsor Defendants
and the Benefits Committee Defendants
109. Plaintiff repeats and realleges the above paragraphs as though fully set
forth herein.
110. The Benefits Committee Defendants were fiduciaries of the Plan under
ERISA §3(21), 29 U.S.C. §1002(21), among other reasons, because the IBPC and its
members were the named fiduciaries of the Plan and responsible for: (i) establishment
of the Plan’s investment policy; (ii) the selection and monitoring of the Plan
Investments’ performance; (iii) determining the number and characteristics of the Plan
- 46 -
Investments; (iv) determining the administrative fees associated with Plan participant
fund elections; and (v) appointing and monitoring investment managers for the Plan
Investments.
111. The Plan Sponsor Defendants were fiduciaries of the Plan under ERISA
§§3(21) and/or 402(a)(1), 29 U.S.C. §§1002(21) and/or 1102(a)(1) because they were
either designated in the Plan Document and the Trust Agreement as the Plan Sponsor
and/or functioned as the Plan Sponsor under ERISA. The Invesco Plan Sponsor
Defendants were responsible for ensuring that the Plan’s proprietary and affiliated
investment options would not be prohibited under ERISA and whether the Plan’s
proprietary and affiliate investment options should be removed from the Plan.
112. As fiduciaries of the Plan, the Plan Sponsor Defendants and the Benefits
Committee Defendants were required pursuant to ERISA §404(a)(1), 29 U.S.C.
§1104(a)(1) to act: “(A) for the exclusive purpose of: (i) providing benefits to
participants and their beneficiaries; and (ii) defraying reasonable expenses of
administering the plan,” and “(B) to discharge their duties on an ongoing basis with
the care, skill, prudence, and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.”
- 47 -
113. ERISA’s duty of prudence required the Plan Sponsor Defendants and the
Benefits Committee Defendants to give appropriate consideration to those facts and
circumstances that, given the scope of their fiduciary investment duties, they knew or
should have known were relevant to the particular investments of the Plan and to act
accordingly. See 29 C.F.R. §2550.404a-1. The Supreme Court has concluded that
this duty is “a continuing duty to monitor [plan] investments and remove imprudent
ones.” Tibble, 135 S. Ct. at 1828.
114. As described above, the Plan Sponsor Defendants and the Benefits
Committee Defendants failed to properly evaluate the Plan’s investments to ensure
that each of these investments remained prudent and failed to prudently monitor or
remove the Plan Investments that were no longer prudent.
115. Under the Plan Documents, both the Plan Sponsor Defendants and the
Benefits Committee Defendants were responsible for ensuring that Invesco’s
proprietary Plan Investments were in compliance with ERISA, as prudent and loyal
investments of the Plan. Both the Plan Sponsor Defendants and the Benefits
Committee Defendants breached this portion of the Trust Agreement by retaining poor
performing and expensive proprietary Plan Investments.
116. At all relevant times herein, the Plan Sponsor Defendants and the
Benefits Committee Defendants had a conflict of interest to select, retain and/or add
- 48 -
proprietary Plan Investments that were imprudent. Acting in their self-interest, rather
than the best interests of the Plan and its participants, the Invesco Plan Sponsor
Defendants and the Benefits Committee Defendants imprudently and disloyally
selected and retained Plan Investments that performed poorly and/or charged
excessive fees that benefited Invesco and its affiliated entities, rather than Plan
participants, despite the availability of superior – and readily available – investment
alternatives as detailed herein. A prudent fiduciary, in possession of the same
information, would have removed the many underperforming and/or expensive
proprietary and affiliated Plan Investments, replaced them with more prudent, lower
cost and/or better performing alternatives, and used the size, leverage and bargaining
power of the Plan, which is one of the larger defined-contribution plans in the United
States, to secure access to superior investment alternatives for Plan participants.
117. The Plan Sponsor Defendants and the Benefits Committee Defendants
breached their duties of prudence and loyalty with respect to the Plan by at least the
following actions or omissions:
(a)
failing to properly investigate the availability of, and give
appropriate consideration to, better performing and lower-cost funds with comparable
or superior performance as alternatives to the Plan Investments plagued with
underperformance;
- 49 -
(b)
failing to evaluate and monitor on a regular basis the performance
of the Plan Investments;
(c)
failing to recommend more prudent additions to the Plan
Investments including better performing and less expensive non-proprietary Plan
Investments;
(d)
failing to implement and employ an ongoing process to monitor the
performance, fees, and expenses of the Plan Investments;
(e)
exposing Plan participants to the ISTIF without their knowledge;
(f)
structuring the Schwab Account to limit equity purchases to
Invesco-affiliated ETFs, and by failing to remove Invesco-affiliated fund choices
when less costly alternatives were available as Plan Investments;
(g)
considering and being motivated in whole or in part by the
promotion or success of the business of Defendant Invesco and its asset management
business; and
(h)
failing to promptly remove the imprudent proprietary and/or
affiliated Plan Investments.
118. Through these actions and omissions, the Plan Sponsor Defendants and
the Benefits Committee Defendants failed to discharge their duties with respect to the
Plan: (A) solely in the interest of the participants and beneficiaries of the Plan, and for
- 50 -
the exclusive purpose of providing benefits to participants and their beneficiaries and
defraying reasonable expenses of administering the Plan, in violation of ERISA
§404(a)(1)(A), 29 U.S.C. §1104(a)(1)(A); and (B) failed to act with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, in violation of ERISA §404(a)(1)(B),
29 U.S.C. §1104(a)(1)(B).
119. As a direct and proximate result of these breaches, the Plan, Plaintiff and
members of the Class suffered substantial losses in the form of higher fees or lower
returns on their investments than they would have otherwise experienced.
Additionally, and regardless of the losses incurred by Plaintiff or any member of the
Class, pursuant to ERISA §§502(a)(2) and (a)(3), and 409(a), 29 U.S.C. §§1132(a)(2)
and (a)(3), and 1109(a), the Plan Sponsor Defendants and the Benefits Committee
Defendants and any non-fiduciary which knowingly participated in these breaches are
liable to disgorge all profits made as a result of these Defendants’ breaches of the
duties of loyalty and prudence.
- 51 -
COUNT II
Breach of Fiduciary Duties in Violation of ERISA §404(a)
Against the Plan Sponsor Defendants
for Failure to Monitor Other Fiduciaries
120. Plaintiff repeats and realleges the above paragraphs as though fully set
forth herein.
121. The Plan Sponsor Defendants were and continue to be fiduciaries of the
Plan under ERISA §3(21)(A), 29 U.S.C. §1002(21)(A), because they were responsible
for: (i) ensuring all proprietary investments offered as part of the Plan Investments
were prudent, loyal, and in compliance with all rules of ERISA; (ii) appointing and
removing members of the IBPC; (iii) monitoring the performance of IBPC members;
(iv) delegating fiduciary authority under the Plan; and (v) making necessary changes
to the Plan.
122. As a fiduciary of the Plan, the Plan Sponsor Defendants were and
continue to be required pursuant to ERISA §404(a)(1), 29 U.S.C. §1104(a)(1), to act
solely in the interest of the participants and beneficiaries of the Plan they served and
(A) “for the exclusive purpose of: (i) providing benefits to participants and their
beneficiaries; and (ii) defraying reasonable expenses of administering the plan,” and
(B) discharging their duties on an ongoing basis “with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in a like
- 52 -
capacity and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims.” Consistent with these duties, the Plan Sponsor
Defendants were required to ensure that the monitored fiduciaries were performing
their fiduciary obligations, including those with respect to the investment and
monitoring of Plan assets, and must take prompt and effective action to protect the
Plan and participants when the monitored fiduciaries fail to perform their fiduciary
obligations in accordance with ERISA.
123. To the extent the Plan Sponsor Defendants delegated fiduciary
monitoring responsibilities to other fiduciary Defendants, each Defendant’s
monitoring duty included an obligation to ensure that any delegated tasks were
performed prudently and loyally.
124. The Plan Sponsor Defendants breached their fiduciary monitoring duties
by, among other things:
(a)
failing to monitor and evaluate the performance of other Plan
fiduciaries or have a system in place for doing so, standing idly by as the Plan suffered
losses as a result of other Defendants’ election to load the Plan with proprietary Plan
Investments when superior non-proprietary investment alternatives were readily
available elsewhere, as detailed herein;
- 53 -
(b)
failing to monitor the processes by which Plan Investments were
chosen, evaluated and retained, which would have alerted a prudent fiduciary to the
preferential treatment Defendants gave to Invesco-affiliated funds out of self-interest,
and not based on the best interest of the Plan’s participants;
(c)
failing to monitor the process by which Plan Investments were
chosen, evaluated or retained, which would have alerted a prudent fiduciary of the
excessive fees and/or underperformance of the proprietary Plan Investments;
(d)
failing to monitor their appointees to ensure that they considered
availability of comparable non-Invesco funds, including lower-cost funds with similar
strategies and similar or superior performance and/or less expensive, better-
performing funds than the proprietary and/or affiliated Plan Investments; and
(e)
failing to remove fiduciaries whose performance was inadequate in
that they continued to maintain costly and self-serving investments in the Plan, all to
the detriment of the Plan and the Plan’s participants’ retirement savings, including
Plaintiff and members of the Class.
125. As a direct and proximate result of these breaches of the duty to monitor,
the Plan, Plaintiff and members of the Class have suffered substantial losses in the
form of higher fees and/or lower returns on their investments than they would have
earned by the prudent and loyal investment of Plan assets.
- 54 -
126. Pursuant to ERISA §§502(a)(2) and (a)(3), and 409(a), 29 U.S.C.
§§1132(a)(2) and (a)(3), and 1109(a), the Plan Sponsor Defendants are liable to
disgorge all fees received from the Plan directly or indirectly, and profits thereon, and
restore all losses suffered by the Plan caused by their breaches of the duty to monitor,
and such other appropriate equitable relief as the Court deems proper.
COUNT III
Prohibited Transactions in Violation of ERISA §406(a)(1) (A), (C) and (D)
Against Defendant Invesco, the Plan Sponsor Defendants, the Benefits
Committee Defendants and the Investment Manager Defendants
127. Plaintiff repeats and realleges the above paragraphs as though fully set
forth herein.
128. ERISA §406(a)(1), 29 U.S.C. §1106(a)(1) provides, in pertinent part, that
a fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if
he knows or should know that such transaction constitutes a direct or indirect –
(A)
sale or exchange, or leasing, of any property between the plan and
a party in interest;
*
*
*
(C)
furnishing of goods, services, or facilities between the plan and a
party in interest;
(D)
transfer to, or use by or for the benefit of, a party in interest, of
any assets of the plan . . .
- 55 -
129. The Plan Sponsor Defendants and the Benefits Committee Defendants
are fiduciaries of the Plan within the meaning of ERISA §3(21), 29 U.S.C. §1002(21)
that caused the Plan to offer the proprietary and/or affiliated Plan Investments and to
continue offering the Plan Investments as options in the Plan.
130. As the employer of the named fiduciaries under the Plan, the corporate
parent that wholly owns the Plan Sponsor, and the corporate parent that wholly owns
the service providers for the Plan, Defendant Invesco is a party in interest under
ERISA §3(14).
131. As service providers to the Plan, the Investment Manager Defendants
were parties in interest within the meaning of ERISA §3(14).
132. The Plan Sponsor Defendants and/or the Benefits Committee Defendants
caused the Plan to almost exclusively select proprietary Invesco products as the Plan
Investments offered to Plan participants during and throughout the Class Period, even
though the Plan Investments, as identified above, were plagued by needlessly high
expenses and underperformance.
133. Since the Investment Manager Defendants were subsidiaries of
Defendant Invesco, Defendant Invesco and the Investment Manager Defendants must
have known that those transactions constituted a direct or indirect furnishing of
services between the Plan and a party in interest.
- 56 -
134. These transactions were for more than reasonable compensation, not
selected solely in the interests of Plan participants and/or were on terms less favorable
than could have been procured if the transactions were the product of arm’s-length
negotiations with outside investors. As described throughout the Complaint,
compensation paid to parties in interest for management of proprietary mutual funds
and CITs was unreasonably high to promote the business of Defendant Invesco and its
wholly-owned subsidiaries Defendant Invesco Advisers and Defendant Invesco Trust
Co. The Plan fiduciaries, all senior executives or officers of Defendant Invesco, acted
in their own self-interest without consideration for Plan participants. As a
representative example, in June 2014, Plan fiduciaries steered participants invested in
the Invesco Emerging Market Equity Trust, with an operating expense of 0.21%, into
the Invesco Developing Markets mutual fund with an operating expense of 1.01% --
80 bps higher even though the Developing Markets mutual fund had a track record of
underperformance. These Defendants failed to consider or select lower cost, non-
proprietary investment alternatives, including those offered by unaffiliated investment
managers with lower fees.
135. By selecting the proprietary and/or affiliated Plan Investments as the
virtually exclusive options in the Plan and by maintaining these as the options in the
Plan, Defendant Invesco, the Invesco Plan Sponsor Defendants, the Benefits
- 57 -
Committee Defendants and the Investment Manager Defendants caused the Plan to
engage in a prohibited transaction in violation of ERISA §406(a)(1) (A), (C) and (D),
29 U.S.C. §1106(a)(1) (A), (C) and (D).
136. As parties in interest, Defendant Invesco and the Investment Manager
Defendants are liable for these violations of ERISA §406(a)(1) (A), (C) & (D), 29
U.S.C. §1106(a)(1) (A), (C) and (D) pursuant to ERISA §502(a)(3).
137. As a result of these prohibited transactions, Defendant Invesco and the
Investment Manager Defendants received, and Plaintiff and members of the Class
paid, millions of dollars in the form of higher fees and lower returns on their
investments than they would have without these prohibited transactions.
COUNT IV
Prohibited Transactions in Violation of ERISA §406(b)(1) and (3)
Against Defendant Invesco, the Plan Sponsor Defendants, the Benefits
Committee Defendants, and the Investment Manager Defendants
138. Plaintiff repeats and realleges the above paragraphs as though fully set
forth herein.
139. ERISA §406(b), 29 U.S.C. §1106(b), provides, in pertinent part, that a
fiduciary with respect to a plan shall not:
(1) deal with the assets of the plan in his own interest or for his own
account,
or . . .
- 58 -
(3) receive any consideration for his own personal account from any
party dealing with such plan in connection with a transaction involving
the assets of the plan.
140. The Plan Sponsor Defendants and the Benefits Committee Defendants
are fiduciaries of the Plan within the meaning of ERISA §§3(21) and 406(b)(1),
29 U.S.C. §§1002(21) and 1106(b)(1).
141. The Invesco Plan Sponsor Defendants and the Benefits Committee
Defendants dealt with the assets of a plan in their own interest or for their own
account by selecting and maintaining the proprietary and/or affiliated Plan
Investments despite their high fees and/or poor performance because Defendant
Invesco received the financial benefit resulting from the performance of its wholly-
owned subsidiaries.
142. Defendant Invesco received consideration for its own account through the
receipt of investment management fees paid from the Plan Investments in the Plan to
its wholly-owned subsidiaries and/or the profits derived from the fees generated by its
wholly-owned subsidiaries in violation of ERISA §406(b)(3), 29 U.S.C. §1106(b)(3).
143. The Investment Manager Defendants were wholly-owned subsidiaries of
Defendant Invesco during and throughout the Class Period. As a result, the
Investment Manager Defendants would have known that the Invesco Plan Sponsor
Defendants and the Benefits Committee Defendants, all senior executives and officers
- 59 -
of Defendant Invesco, were dealing with the Plan in their own interest or for their own
account by selecting and maintaining proprietary and/or affiliated Plan Investments or
that these fiduciaries received consideration for their own account by selecting and
maintaining proprietary and/or affiliated Plan Investments.
144. By selecting the proprietary and/or affiliated Plan Investments and by
maintaining these as the options in the Plan, Defendant Invesco, the Invesco Plan
Sponsor Defendants and the Benefits Committee Defendants caused the plan to
engage in a prohibited transaction in violation of ERISA §406(b)(1) and (3), 29
U.S.C. §1106(b)(1) and (3).
145. With respect to, at minimum, poor performing and expensive proprietary
mutual funds and CIT Plan Investments, including but not limited to the Developing
Markets Fund, Defendant Invesco, the Invesco Plan Sponsor Defendants, Benefits
Committee Defendants, and the Investment Manager Defendants engaged in
prohibited transactions as follows:
(a)
by causing the Plan to engage in transactions that they know or
should know constitute direct or indirect transfers of the Plan’s assets to, or use of the
Plan’s assets by or for the benefit of, parties in interest, in violation of 29 U.S.C.
§1106(a)(1)(D);
- 60 -
(b)
by causing the Plan to engage in the above conduct and omissions,
in which a fiduciary to the Plan dealt with the assets of the plan in his own interest or
for his own account in violation of 29 U.S.C. §1106(b)(1);
(c)
by causing the Plan to engage in the above conduct and omissions,
in which a fiduciary to the Plan received consideration for its own personal account
from any party dealing with the Plan in connection with a transaction involving the
assets of the Plan, in violation of 29 U.S.C. §1106(b)(3); and
(d)
by causing the Plan to pay investment management fees,
investment advisory fees, investment operation fees, or similar fees, which violated
the terms of Prohibited Transaction Exemption 77-3.
146. As parties in interest, Defendant Invesco and the Investment Manager
Defendants are liable for these violations of ERISA §406(b)(1) and (3), 29 U.S.C.
§1106(b)(1) and (3), pursuant to ERISA §502(a)(3).
147. Pursuant to ERISA §§502(a)(2) and (a)(3), and 409(a), 29 U.S.C.
§§1132(a)(2) and (a)(3), and 1109(a), Defendant Invesco, the Invesco Plan Sponsor
Defendants, the Benefits Committee Defendants and the Investment Manager
Defendants are liable to disgorge all amounts and profits received as a result of these
prohibited transactions, and such other appropriate equitable relief as the Court deems
proper.
- 61 -
COUNT V
Co-fiduciary Liability Under ERISA §405
Against the Plan Sponsor Defendants, the Benefits Committee
Defendants, and the Investment Manager Defendants
148. Plaintiff repeats and realleges each of the allegations set forth in the
foregoing paragraphs as if fully set forth herein.
149. ERISA §405(a), 29 U.S.C. §1105(a), imposes liability on a fiduciary, in
addition to any liability which he may have had under any other provision of ERISA,
(1)
he participates knowingly in or knowingly undertakes to conceal
an act or omission of such other fiduciary knowing such act or omission
is a breach;
(2)
by his failure to comply with ERISA §404(a)(1) in the
administration of his specific responsibilities which give rise to his status
as a fiduciary, he has enabled such other fiduciary to commit a breach; or
(3)
he knows of a breach by another fiduciary and fails to make
reasonable efforts to remedy it.
150. The Invesco Plan Sponsor Defendants, the Benefits Committee
Defendants, and the Investment Manager Defendants were all fiduciaries of the Plan
within the meaning of ERISA §402(a), 29 U.S.C. §1102(a), ERISA §3(21)(A), 29
U.S.C. §1002(21)(A), or both.
151. Each of these fiduciaries knew of each breach of fiduciary duty alleged
herein arising out of the imprudent investment of the assets of the Plan in the
- 62 -
proprietary and/or affiliated Plan Investments and the associated breaches. Yet, they
knowingly participated in fiduciary breaches, breached their own duties enabling other
breaches, and/or took no steps to remedy other fiduciary breaches.
COUNT VI
Knowing Participation in a Fiduciary Breach or
Violation of ERISA Pursuant to ERISA 502(a)(3)
Against Defendant Invesco and the Investment Manager Defendants
152. Plaintiff repeats and realleges each of the allegations set forth in the
foregoing paragraphs as if fully set forth herein.
153. ERISA §502(a)(3), 29 U.S.C. §1132(a)(3) imposes liability not only on
fiduciaries of the Plan but also on non-fiduciaries of the Plan who knowingly
participate in fiduciary breaches or other violations of ERISA or the terms of the Plan.
As such, the Investment Manager Defendants (even if they are not fiduciaries), can be
held liable if either of them knowingly participated in the fiduciary breaches or
violations of any fiduciary of the Plan.
154. The Investment Manager Defendants and Defendant Invesco would have
known that each of the other Defendants were fiduciaries of the Plan as these other
Defendants either were senior Invesco executives and officers or were appointed by
Invesco (or high level Invesco executives). The knowledge of any such executives
would be imputed to Invesco.
- 63 -
155. Defendant Invesco and the Investment Manager Defendants would have
been aware of the foregoing breaches and prohibited transactions, including:
(a)
the proprietary and/or affiliated Plan Investments had inferior
investment performance;
(b)
the proprietary and/or affiliated Plan Investments charged
excessive fees;
(c)
the fiduciaries who selected the Plan Investments had conflicts of
interest;
(d)
the selection and continued offering of the proprietary and/or
affiliated Plan Investments was not in the best interests of the participants, but instead
the primary purpose of offering them as an investment option was to increase the
assets under management, to increase the fees charged and the profits of Invesco,
Invesco Advisers, Invesco Trust Co., and PowerShares; and
(e)
several proprietary Plan Investments they managed were invested
in the ISTIF despite the obvious imprudence in doing so.
156. Despite knowledge of these breaches and violations, Defendant Invesco
and the Investment Manager Defendants proceeded to engage in the transactions and
receive lucrative fees for their benefit.
- 64 -
157. By knowingly participating in these breaches and violations, Defendant
Invesco and the Investment Manager Defendants are subject to appropriate equitable
relief including disgorgement of any profits, having a constructive trust placed on any
proceeds received (or which are traceable thereto) and/or is subject to other
appropriate equitable relief.
ENTITLEMENT TO RELIEF
158. By virtue of the violations set forth in the foregoing paragraphs, Plaintiff
and the members of the Class are entitled to sue each of the fiduciary Defendants
pursuant to ERISA §502(a)(2), 29 U.S.C. §1132(a)(2), for relief on behalf of the Plan
as provided in ERISA §409, 29 U.S.C. §1109, including for recovery of any losses to
the Plan, the recovery of any profits resulting from the breaches of fiduciary duty, and
such other equitable or remedial relief as the Court may deem appropriate.
159. By virtue of the violations set forth in the foregoing paragraphs, Plaintiff
and the members of the Class are entitled, pursuant to ERISA §502(a)(3), 29 U.S.C.
§1132(a)(3), to sue any of the Defendants for any appropriate equitable relief to
redress the wrongs described above.
- 65 -
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for judgment as follows:
A.
Declaring that each of the Defendants who are fiduciaries of the Plan
have breached their fiduciary duties under ERISA;
B.
Ordering each fiduciary found to have breached his/her/its fiduciary
duties to the Plan to jointly and severally restore all losses to the Plan that resulted
from the breaches of fiduciary duty, or by virtue of liability pursuant to ERISA §405;
C.
Entering an order requiring: (a) the disgorgement of profit made by any
Defendant; (b) declaring a constructive trust over any assets received by any
breaching fiduciary in connection with his/her/its breach of fiduciary duties, or
violations of ERISA, or any non-fiduciary Defendant who knowingly participated in
that breach or violation; (c) requiring the Plan to divest itself of investments in the
imprudent Plan Investments; and (d) any other appropriate equitable monetary relief,
whichever is in the best interest of the Plan;
D.
Ordering, pursuant to ERISA §206(d)(4), 29 U.S.C. §1056(d)(4), that any
amount to be paid to or necessary to satisfy any breaching fiduciary’s liability can be
satisfied, in whole or in part, by attaching their accounts in or benefits from the Plan;
- 66 -
E.
Removing any breaching fiduciaries as fiduciaries of the Plan and
permanently enjoining them from serving as a fiduciary of any ERISA-covered plan in
which Plaintiff or any member of the Class is a participant or beneficiary;
F.
Appointing an independent fiduciary, at the expense of the breaching
fiduciaries, to administer the Plan and the management of Plan Investments and/or
selection of investment options and/or to oversee the divestment of the Plan’s
investments;
G.
Ordering the Plan’s fiduciaries to provide a full accounting of all fees
paid, directly or indirectly, by the Plan;
H.
Awarding Plaintiff and the Class their attorneys’ fees and costs pursuant
to ERISA §502(g), 29 U.S.C. §1132(g), the common benefit doctrine and/or the
common fund doctrine;
I.
Awarding Plaintiff and the members of the Class pre-judgment and post-
judgment interest;
J.
Awarding such equitable, injunctive or other relief as the Court may
deem appropriate pursuant to ERISA §502(a)(3) or any relief to which Plaintiff and
the Class are entitled to pursuant to Fed. R. Civ. P. Rule 54(c); and
- 67 -
K.
Awarding such equitable, injunctive or other relief as the Court may
deem just and proper.
DATED: September 7, 2018
ROBBINS GELLER RUDMAN
& DOWD LLP
JOHN C. HERMAN
(Georgia Bar No. 348370)
CARLTON R. JONES
(Georgia Bar No. 940540)
/s/ John C. Herman
JOHN C. HERMAN
3424 Peachtree Road, N.E., Suite 1650
Atlanta, GA 30326
Telephone: 404/504-6500
404/504-6501 (fax)
jherman@rgrdlaw.com
cjones@rgrdlaw.com
ROBBINS GELLER RUDMAN
& DOWD LLP
SAMUEL H. RUDMAN
(admitted pro hac vice)
EVAN J. KAUFMAN
(admitted pro hac vice)
JORDAN D. MAMORSKY
(admitted pro hac vice)
58 South Service Road, Suite 200
Melville, NY 11747
Telephone: 631/367-7100
631/367-1173 (fax)
srudman@rgrdlaw.com
ekaufman@rgrdlaw.com
jmamorsky@rgrdlaw.com
- 68 -
JOHNSON FISTEL, LLP
MICHAEL I. FISTEL, JR.
(Georgia Bar No. 262062)
WILLIAM W. STONE
(Georgia Bar No. 273907)
DAVID A. WEISZ
(Georgia Bar No. 134527)
40 Powder Springs Street
Marietta, GA 30064
Telephone: 470/632-6000
770/200-3101 (fax)
michaelf@johnsonfistel.com
williams@johnsonfistel.com
davidw@johnsonfistel.com
Attorneys for Plaintiff
- 69 -
CERTIFICATE OF SERVICE
I hereby certify that on the 7th day of September, 2018, a true and correct copy
of the foregoing was served via CM/ECF filing on all counsel of record.
/s/ John C. Herman
JOHN C. HERMAN
ROBBINS GELLER RUDMAN
& DOWD LLP
3424 Peachtree Road, N.E., Suite 1650
Atlanta, GA 30326
Telephone: (404) 504-6500
Facsimile: (404) 504-6501
jherman@rgrdlaw.com
| securities |
ywIoFYcBD5gMZwczA_nD | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
Dan Cornelius, on behalf of himself and all
others similarly situated
Plaintiff,
v.
Cox Communications, Inc.
Defendant.
CASE NO.: ______
CLASS ACTION COMPLAINT
A Trial by the Maximum Number of Jurors is
hereby Demanded
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For this Class Action Complaint, Plaintiff, Dan Cornelius, by undersigned counsel, states
on behalf of himself and a class of similarly situated persons as follows:
INTRODUCTION
1.
Plaintiff, Dan Cornelius (“Plaintiff”), brings this class action for damages resulting
from the illegal actions of Defendant Cox Communications, Inc. (“Cox” or “Defendant”). Cox
repeatedly called Plaintiff’s cellular telephone using a prerecorded and/or artificial voice – over
Plaintiff’s repeated requests for Defendant to stop and without prior express consent – in violation
of the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. (the “TCPA”).
2.
Cox is the third-largest cable television provider in the United States. As part of its
business, Cox operates an aggressive call campaign where it repeatedly calls consumers’ cellular
telephones using a prerecorded and/or artificial voice, without their consent and over their specific
objections to stop the calls.
3.
Indeed, Plaintiff never provided Cox with prior express consent to place calls to his
cellular telephone number regarding someone else’s Cox account. Nonetheless, Cox has
repeatedly called Plaintiff’s cellular telephone with an identical prerecorded and artificial voice
call recording stating “This message is for [unrelated third party] from Cox Communications. To
prevent further calls, please call our automated service immediately at 844-472-8791. The number
again is 844-472-8971. Please review your account status online at Cox.com as soon as possible.
Thank you.”
4.
Following his receipt of Cox’s wrong number calls, Plaintiff repeatedly called Cox
at the above-referenced telephone number in an effort to get the calls to stop. However, each time
he advised Cox that it was calling him in error and asked Cox to stop calling him, Cox advised
Plaintiff that it could not stop the calls to Plaintiff’s cellular telephone. Moreover, Cox continued
to call Plaintiff’s cellular telephone with the same prerecorded and artificial voice message after
Plaintiff asked Cox to stop calling him.
5.
Plaintiff is not alone; upon information and belief, Cox has done the same thing to
countless other individuals. Accordingly, Plaintiff seeks to certify the following class:
All persons within the United States to whom (1) Cox placed one or more
prerecorded or artificial voice calls, (2) to said person’s cellular telephone, (3) after
said person advised Cox that it was calling a wrong number, or (4) where Cox did
not possess said person’s prior express consent, (5) within the four years prior to
the filing of the Complaint.
JURISDICTION
6.
This action arises out of Defendant Cox’s repeated violations of the Telephone
Consumer Protection Act, 47 U.S.C. § 227, et seq. (“TCPA”).
7.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b), because a
substantial portion of the acts giving rise to this action – including Plaintiff’s receipt of Defendant’s
illegal telephone calls – occurred in this District.
PARTIES
8.
Plaintiff, Dan Cornelius (“Plaintiff”), is an adult individual residing in Hutchinson,
Kansas, and is a “person” as the term is defined by 47 U.S.C. § 153(39).
9.
Defendant, Cox Corporation (“Cox”), is a Delaware business entity with a principal
place of business at 6205-B Peachtree Dunwoody Road, Atlanta, Georgia 30328, and is a “person”
as the term is defined by 47 U.S.C. § 153(39).
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
10.
The TCPA regulates, among other things, the placement of telephone calls using a
prerecorded or artificial voice.
11.
Specifically, 47 U.S.C. § 227(b)(1)(A)(iii) prohibits any call using “an artificial or
prerecorded voice” to a cellular phone without prior express consent by the person being called,
unless the call is for emergency purposes.
FACTUAL ALLEGATIONS APPLICABLE TO PLAINTIFF
12.
Within the last four years Cox began calling Plaintiff’s cellular telephone, number
620-xxx-4426, regarding a separate, unrelated person who Plaintiff does not know.
13.
Cox placed the calls to Plaintiff’s cellular telephone from, inter alia, telephone
number 844-472-8791.
14.
Each time Cox called Plaintiff, it left an identical prerecorded and artificial voice
message on Plaintiff’s cellular telephone stating the following in a robotic-sounding voice: “This
message is for [unrelated third party] from Cox Communications. To prevent further calls, please
call our automated service immediately at 844-472-8791. The number again is 844-472-8971.
Please review your account status online at Cox.com as soon as possible. Thank you.”
15.
Plaintiff never provided his consent to Cox to be contacted on his cellular telephone
regarding someone else’s Cox account.
16.
Beginning in or around May 2020, Plaintiff called Cox at telephone number 844-
472-8791, waited on the line to speak with a live representative, and then asked Cox to stop calling
his cellular telephone and advised it that it was calling Plaintiff in error.
17.
Nonetheless, Cox continued to place numerous identical prerecorded and artificial
voice calls to Plaintiff’s cellular telephone over the following months.
18.
Cox’s calls directly interfered with Plaintiff’s right to peacefully enjoy a service
that Plaintiff paid for and caused Plaintiff a significant amount of anxiety, frustration, annoyance,
and anger.
CLASS ACTION ALLEGATIONS
A. The Class
19.
Plaintiff brings this case as a class action pursuant to Fed. R. Civ. P. 23 on behalf
of himself and all others similarly situated.
20.
Plaintiff represents, and is a member of the following class (the “Class”):
All persons within the United States to whom (1) Cox placed one or more
prerecorded or artificial voice calls, (2) to said person’s cellular telephone, (3) after
said person advised Cox that it was calling a wrong number, or (4) where Cox did
not possess said person’s prior express consent, (5) within the four years prior to
the filing of the Complaint.
21.
Defendant and its employees or agents are excluded from the Class. Plaintiff does
not know the number of members in the Class but believes the class members number in the several
thousands, if not more. Thus, this matter should be certified as a class action to assist in the
expeditious litigation of this matter.
B. Numerosity
22.
Upon information and belief, Defendant placed prerecorded and artificial voice
calls to cellular telephone numbers belonging to thousands of persons throughout the United States
where it lacked prior express consent to place such calls and/or such persons had previously
advised Cox it was calling a wrong number. The members of the Class, therefore, are believed to
be so numerous that joinder of all members is impracticable.
23.
The exact number and identities of the Class members are unknown at this time and
can only be ascertained through discovery. Identification of the Class members is a matter capable
of ministerial determination from Defendant’s records.
C. Common Questions of Law and Fact
24.
There are questions of law and fact common to the Class that predominate over any
questions affecting only individual Class members. These questions include:
a. Whether Cox placed prerecorded and artificial voice calls to persons’ cellular
telephones after said persons advised Cox that it was calling a wrong number;
b. Whether Cox can meet its burden of showing it obtained prior express consent
to place prerecorded and/or artificial voice calls;
c. Whether Defendant’s conduct was knowing and/or willful;
d. Whether Defendant is liable for damages, and the amount of such damages; and
e. Whether Defendant should be enjoined from such conduct in the future.
25.
The common questions in this case are capable of having common answers. If
Plaintiff’s claim that Defendant routinely places prerecorded and artificial voice calls to cellular
telephone numbers without prior express consent, and over requests to stop the calls, is accurate,
Plaintiff and the Class members will have identical claims capable of being efficiently adjudicated
and administered in this case.
D. Typicality
26.
Plaintiff’s claims are typical of the claims of the Class members, as they are all
based on the same factual and legal theories.
E. Protecting the Interests of the Class Members
27.
Plaintiff will fairly and adequately protect the interests of the Class and has retained
counsel experienced in handling class actions and claims involving unlawful business practices.
Neither Plaintiff nor his counsel has any interests which might cause them not to vigorously pursue
this action.
F. Proceeding Via Class Action is Superior and Advisable
28.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of Class members in individually controlling the prosecutions of separate
claims against Defendant is small because it is not economically feasible for Class members to
bring individual actions.
COUNT I
VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT,
47 U.S.C. § 227, ET SEQ.
29.
Plaintiff repeats and realleges the above paragraphs of this Complaint and
incorporates them herein by reference.
30.
Plaintiff brings this claim on behalf of himself and the Class.
31.
Defendant placed calls using a prerecorded and/or an artificial voice to cellular
telephones belonging to Plaintiff and the other members of the Class without their prior express
consent and not for any emergency purpose.
32.
Moreover, Defendant placed calls using a prerecorded and/or an artificial voice to
cellular telephones belonging to Plaintiff and the other members of the Class after they advised
Cox that it was calling a wrong number.
33.
Each of the aforementioned calls by Defendant constitutes a violation of the TCPA.
34.
Plaintiff and the Class are entitled to an award of $500.00 in statutory damages for
each message sent in violation of the TCPA pursuant to 47 U.S.C. § 227(b)(3).
35.
Additionally, Plaintiff and the Class are entitled to and seek injunctive relief
prohibiting such conduct by Defendant in the future.
36.
Further, Plaintiff and the Class are entitled to and seek a declaration from Defendant
Defendant violated the TCPA;
Defendant placed prerecorded and/or artificial voices calls to Plaintiff and the
members of the Class without prior express consent; and
Defendant placed prerecorded and/or artificial voices calls to Plaintiff and the
members of the Class after said persons had previously advised Cox that it was
calling a wrong number
COUNT II
WILLFUL VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT,
47 U.S.C. § 227, ET SEQ.
37.
Plaintiff repeats and realleges the above paragraphs of this Complaint and
incorporates them herein by reference.
38.
Plaintiff brings this claim on behalf of himself and the Class.
39.
Defendant knowingly and/or willfully placed calls using a prerecorded and/or an
artificial voice to cellular numbers belonging to Plaintiff and the other members of the Class
without their prior express consent and not for any emergency purposes.
40.
Moreover, Defendant knowing and/or willfully placed calls using a prerecorded
and/or an artificial voice to cellular telephones belonging to Plaintiff and the other members of the
Class after they advised Cox that it was calling a wrong number.
41.
Each of the aforementioned calls by Defendant constitutes a knowing and willful
violation of the TCPA.
42.
Plaintiff and the Class are entitled to an award of up to $1,500.00 in statutory
damages for each message sent in violation of the TCPA pursuant to 47 U.S.C. § 227(b)(3).
43.
Additionally, Plaintiff and the Class are entitled to and seek injunctive relief
prohibiting such conduct by Defendant in the future.
44.
Further, Plaintiff and the Class are entitled to and seek a declaration from Defendant
Defendant knowingly and/or willfully violated the TCPA;
Defendant knowingly and/or willfully placed prerecorded and/or artificial voices to
calls to Plaintiff and member of the Class who had previously advised Cox that it
was calling a wrong number;
Defendant willfully placed calls to Plaintiff and the Class without prior express
consent; and
It is Defendant’s practice and history to place prerecorded and artificial voice calls
to persons without their prior express consent.
PRAYER FOR RELIEF
WHEREFORE, the Plaintiff prays that judgment be entered against Defendant:
A. Injunctive relief prohibiting such violation of the TCPA by Defendant in the
future;
B. Statutory damages of $500.00 for each and every call in violation of the TCPA
pursuant to 47 U.S.C. § 227(b)(3)(B);
C. Treble damages of up to $1,500.00 for each and every call in violation of the
TCPA pursuant to 47 U.S.C. § 227(b)(3)(C);
D. An award of attorneys’ fees and costs to counsel for Plaintiff and the Class; and
E. Such other and further relief as may be just and proper.
TRIAL BY JURY DEMANDED ON ALL COUNTS
February 26, 2021
Respectfully submitted,
ESLINGER LAW FIRM, LLC
/s/ Jason M. Eslinger
By:
Jason M. Eslinger KS#26595
2517 Jefferson Street
Kansas City, MO 64105
(816) 259-5226 Telephone
(816) 817-1441 Facsimile
jason@eslingerlawfirm.com
ATTORNEYS FOR PLAINTIFF
and
Sergei Lemberg, Esq. (pro hac vice forthcoming)
LEMBERG LAW, L.L.C.
43 Danbury Road
Wilton, CT 06897
Telephone: (203) 653-2250
Facsimile: (203) 653-3424
Attorneys for Plaintiff
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cxRcF4cBD5gMZwczP7UN | LEE LITIGATION GROUP, PLLC
C.K. Lee (CL 4086)
Anne Seelig (AS 3976)
30 East 39th Street, Second Floor
New York, NY 10016
Tel.: 212-465-1188
Fax: 212-465-1181
Attorneys for Plaintiff and the Class
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
DERRICK REAVES,
on behalf of himself and all others similarly
situated,
Plaintiff,
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Case No.
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COMPLAINT
MACY’S, INC.,
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JURY TRIAL DEMANDED
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Defendant.
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Plaintiff DERRICK REAVES (hereinafter “Plaintiff”), on behalf of himself and all others
similarly situated, by his undersigned attorneys, as for his Complaint against the Defendant,
MACY’S, INC., alleges the following:
NATURE OF ACTION
1.
This action is brought by Plaintiff DERRICK REAVES on behalf of himself and
all consumers in the United States who have received unsolicited and unconsented-to
commercial text messages to their mobile phones from MACY’S, INC. (herein “Defendant or
Macy’s”) in violation of the Telephone Consumer Protection Act 47 U.S.C. § 227 et seq.
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JURISDICTION AND VENUE
2.
The Court has federal question jurisdiction over this action under 28 U.S.C. §
1331 because this action arises out of a violation of federal law - 7 U.S.C. § 227(b). See Mims v.
Arrow Fin. Serv., LLC 132 S. Ct. 740 (2012).
3.
This Court has personal jurisdiction over Plaintiff because Plaintiff submits to the
Court's jurisdiction. This Court has general personal jurisdiction over Defendant because
Defendant is headquartered in New York. In the alternative, the Court has personal jurisdiction
over Defendant because Defendant purposefully avails itself of the privilege of conducting
activities in New York by selling products online all across New York and by soliciting New
York residents to enter into its texting program for discounts on products that it sells online.
4.
Venue is proper in this District under 28 U.S.C § 1391 because Defendant’s
violation of the Telephone Consumer Protection Act (TCPA) took place in this District, and
Defendant is subject to personal jurisdiction in this District because its principal place of
business is located in Manhattan, NY.
PARTIES
Plaintiff
5.
Plaintiff REAVES is a citizen of the state of New York and a resident of Kings
County.
Defendant
6.
Defendant, MACY’S INC., is a department store chain headquartered in 151 West
34th Street, New York, NY 10001 with its address for service of process listed at c/o
Corporations Creations Network, 3411 Silverside Road Tatnall Building Ste 104, Wilmington
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FACTUAL ALLEGATIONS
The Telephone Consumer Protection Act
7.
The Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227 et seq., was
enacted by Congress in 1991 and is implemented by the Federal Communications Commission
(“FCC”). In its June 18, 2015 Declaratory Ruling and Order (“2015 TCPA Order”), the FCC
explained the original purposes of the TCPA:
As its very name makes clear, the Telephone Consumer Protection Act is a broad
“consumer protection” statute that addresses the telemarketing practices not just
of bad actors attempting to perpetrate frauds, but also of “legitimate businesses”
employing calling practices that consumers find objectionable… The TCPA
makes it unlawful for any business—“legitimate” or not—to make robocalls that
do not comply with the provisions of the statute. While the Commission has
traditionally sought to “reasonably accommodate[] individuals’ rights to privacy
as well as the legitimate business interests of telemarketers,”…, we have not
viewed “legitimate” businesses as somehow exempt from the statute, nor do we
do so today.
2015 TCPA Order ¶ 2 n.6
8.
The 2015 TCPA Order also explained the continuing relevance of the TCPA,
especially in connection with wireless consumers:
Month after month, unwanted robocalls and texts, both telemarketing and
informational, top the list of consumer complaints received by the Commission.
The Telephone Consumer Protection Act (TCPA) and our rules empower
consumers to decide which robocalls and text messages they receive, with
heightened protection to wireless consumers, for whom robocalls can be costly
and particularly intrusive… With this Declaratory Ruling and Order, we act to
preserve consumers’ rights to stop unwanted robocalls, including both voice calls
and texts, and thus respond to the many who have let us, other federal agencies,
and states know about their frustration with robocalls.
2015 TCPA Order ¶ 1
9.
The TCPA makes it “unlawful for any person… to make any call (other than a
call made for emergency purposes or made with the prior express consent of the called party)
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using any automatic telephone dialing system or an artificial or prerecorded voice… to any
telephone number assigned to a paging service, cellular telephone service… or any service for
which the called party is charged for the call…” 47 U.S.C. § 227(b)(1)(A)(iii).
10. “Prior express content” requires:
an agreement, in writing, bearing the signature of the person called that clearly
authorizes the seller to deliver or cause to be delivered to the person called
advertisements or telemarketing messages using an automatic telephone dialing
system or an artificial or prerecorded voice, and the telephone number to which
the signatory authorizes such advertisements or telemarketing messages to be
delivered.
47 C.F.R. § 64.1200(f)(8)
11.
In addition, the written agreement must include a clear and conspicuous
disclosure informing the signer that:
By executing the agreement, such person authorizes the seller to deliver or cause
to be delivered to the signatory telemarketing calls using an automatic telephone
dialing system or an artificial or prerecorded voice;
§ 64.1200(f)(8)(i)(A)
and
The person is not required to sign the agreement (directly or indirectly), or agree
to enter into such an agreement as a condition of purchasing any property, goods,
or services.
§ 64.1200(f)(8)(i)(B)
12.
The 2015 TCPA Order reaffirmed the FCC’s longstanding position that text
messages qualify as “calls” under the TCPA. ¶107.
13.
Additionally, the 2015 TCPA Order confirmed that text messages which originate
from the Internet fall within the ambit of the TCPA’s prohibitions. The text and legislative
history of the TCPA revealed “Congress’s intent to give the Commission broad authority to
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enforce the protections from unwanted robocalls as new technologies emerge.” ¶ 113
Defendant Violated the TCPA
14.
In March 22, 2018, Plaintiff REAVES visited a Macy’s website and saw the
image below, advertising that he would receive 25% of his purchase by texting the provided
number:
15.
Macy’s continuously posts such images on its websites.
16.
Plaintiff REAVES texted the provided number in the above advertisement in the
hopes of gaining 25% off an online purchase. Plaintiff REAVES received a code to use on his
purchase. However, when Plaintiff REAVES typed the code into the allocated space while
purchasing the items he wanted to purchase, he found out that the code did not apply to his
purchase. Nevertheless, Plaintiff REAVES purchased the items that he intended to purchase from
Macy’s.
17.
Afterwards, Plaintiff REAVES began receiving frequent texts about promotions at
Macy’s. Below is an example of the types of marketing text messages that Plaintiff REAVES
received from Defendant:
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18.
EXHIBIT A contains the full correspondence between Plaintiff REAVES and
Defendant.
19.
The terms and conditions of signing up for texts from Macy’s read “to cancel,
send STOP to 62297.”
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20.
However, on March 26, 2018, Plaintiff texted STOP multiple times to 62297, but
Macy’s continued to send Plaintiff messages. On March 27, 2018 and March 28, 2018,
Defendant sent Plaintiff a total of four text messages, four text messages which were unsolicited.
21.
Plaintiff REAVES did not consent to any of the messages that he received after he
texted STOP to the Defendant.
22.
Defendant sent similar unsolicited marketing texts using an automated telephone
texting system to other similarly situated persons, who likewise never consented to receiving
them. The text messages sent to Plaintiff REAVES were unwanted, annoying, and a nuisance.
Plaintiff REAVES would often expect important messages such as family emergency updates,
and would open his phone to Defendant’s invasive messages instead. In order to identify the
sender, Plaintiff would have to unlock his phone and view the actual message. The messages
were disruptive, and diminished the Plaintiff’s usage and enjoyment of his phone. The Second
Circuits recent decision has acknowledged that such non-financially related injury allegations are
enough to support standing under the TCPA; See Mejia v Time Warner Cable, Inc., 2017 US
Dist LEXIS 120445 [SDNY Aug. 1, 2017, No. 15-CV-6445 (JPO)].) Plaintiff REAVES has a
concrete injury sufficient to confer Article III standing. See Van Patten v Vertical Fitness Group,
LLC, 847 F3d 1037(9th Cir. 2017) (“Unsolicited telemarketing phone calls or text messages, by
their nature, invade the privacy and disturb the solitude of their recipients. A plaintiff alleging a
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violation under the TCPA "need not allege any additional harm beyond the one Congress has
identified.”); Melito v. Am. Eagle Outfitters, Inc., No. 14-CV-2440 (VEC), 2017 U.S. Dist.
LEXIS 146343 (S.D.N.Y. Sep. 8, 2017).
CLASS ACTION ALLEGATIONS
23. Plaintiff REAVES seeks to represent a class consisting of:
All persons in the United States who, beginning four years prior to
the filing of this action, received unsolicited text messages to their
cellular phones from Defendant’s automated telephone dialing
system (the “Class”)
24.
In the Alternative, Plaintiff REAVES seeks to represent a class consisting of
All persons in New York who, beginning four years prior to the
filing of this action, received unsolicited text messages to their
cellular phones from Defendant’s automated telephone dialing
system (the “Class”)
25.
The proposed Class excludes current and former officers and directors of
Defendant, members of the immediate families of the officers and directors of Defendant,
Defendant’s legal representatives, heirs, successors, assigns, and any entity in which it has or has
had a controlling interest, and the judicial officer to whom this lawsuit is assigned.
26.
Plaintiff reserves the right to revise the Class definition based on facts learned in
the course of litigating this matter.
27.
The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of members of the proposed Class is unknown to Plaintiff
at this time and can only be ascertained through the appropriate discovery, Plaintiff believes that
there are thousands of members in the proposed Class. Other members of the Class may be
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identified from records maintained by Defendant or by their own record of text messages. These
members may be notified of the pendency of this action by mail, or by advertisement, using the
form of notice customarily used in class actions such as this.
28.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendant’s wrongful conduct.
29.
Plaintiff will fairly and adequately protect the interests of the members of the
Class because Plaintiff has no interests antagonistic to those of the other members of the Class.
Plaintiff has retained experienced and competent counsel.
30.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Since the damages sustained by individual Members of the
proposed Class may be relatively small, the expense and burden of individual litigation make it
impracticable for the members of the Class to individually seek redress for the wrongful conduct
alleged herein. If Class treatment of these claims were not available, Defendant would likely be
able to persist in its unlawful conduct with impunity.
31.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
common questions of law and fact to the Class are:
a. whether Defendant sent unsolicited marketing text messages to cellular phones
belonging to Plaintiff and the Class;
b. whether Defendant used an automated telephone texting system to do so;
c. whether text recipients provided their prior express consent;
d. whether defendant’s conduct is intentional or negligent; and
e. whether Plaintiff and the Class are entitled to damages for Defendant’s conduct.
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f. The membership of the Class is readily ascertainable from electronic records.
32.
The prosecution of this action as a class action will reduce the possibility of
repetitious litigation. Plaintiff knows of no difficulty which will be encountered in the
management of this litigation which would preclude its maintenance as a class action.
33.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. The damages suffered by any individual class member are too
small to make it economically feasible for an individual class member to prosecute a separate
action, and it is desirable for judicial efficiency to concentrate the litigation of the claims in this
forum. Furthermore, the adjudication of this controversy through a class action will avoid the
potentially inconsistent and conflicting adjudications of the claims asserted herein.
34.
The prerequisites to maintaining a class action for injunctive relief or equitable
relief pursuant to Rule 23(b)(2) are met, as Defendant acts or refuses to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive or equitable relief with
respect to the Class as a whole.
35.
The prerequisites to maintaining a class action for injunctive relief or equitable
relief pursuant to Rule 23(b)(3) are met, as questions of law or fact common to the Class
predominate over any questions affecting only individual members and a class action is superior
to other available methods for fairly and efficiently adjudicating the controversy.
36.
The prosecution of separate actions by members of the Class would create a risk
of establishing inconsistent rulings and/or incompatible standards of conduct for Defendant.
Additionally, individual actions may be dispositive of the interest of all members of the Class,
although certain members of the proposed Class are not parties to such actions.
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37.
Defendant’s conduct is generally applicable to the Class as a whole and Plaintiff
seeks, inter alia, equitable remedies with respect to the Class as a whole. As such, Defendant’s
systematic policies and practices make declaratory relief with respect to the Class as a whole
appropriate.
CAUSES OF ACTION
COUNT I
VIOLATION OF THE TELEPHONE CONSUMER PROTECTION ACT
47 U.S.C. § 227 et seq.
(Brought on behalf of Plaintiff and Class)
38. Plaintiff REAVES realleges and incorporates herein by references the allegations
contained in all preceding paragraphs and further alleges as follows:
39. Plaintiff REAVES brings this claim individually and on behalf of the other members of
the Class for Defendant’s violations of the TCPA.
40. Defendant directly or vicariously violates the TCPA when it uses an automated telephone
texting system to send unsolicited and unauthorized marketing texts to the cellular phones
of Plaintiff and the Class.
41. The TCPA, 47 U.S.C. § 227(b)(3), provides:
(1) Private right of action. A person or entity may, if otherwise permitted by the
laws or rules of court of a State, bring in an appropriate court of that State--
(A) an action based on a violation of this subsection or the regulations
prescribed under this subsection to enjoin such violation,
(B) an action to recover for actual monetary loss from such a violation, or to
receive $ 500 in damages for each such violation, whichever is greater, or
(C) both such actions.
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42. Additionally, the TCPA provides that the Court may, at its discretion, treble the statutory
damages if it finds that Defendant’s violation are willful or knowing. 47 U.S.C. §
227(b)(3)
43. Defendant’s violations of the TCPA were willful and knowing. As shown in Exhibit A,
although Plaintiff had typed STOP on March 26, Defendant continued to send Plaintiff
unsolicited text messages. It was only after Plaintiff typed to Defendant, “Please stop
texting me,” this is very annoying, did Plaintiff convince Defendant to agree to stop
texting Plaintiff. This interaction demonstrates that Defendant’s actions were willful and
knowing.
44. Defendant should also be enjoined from engaging in similar unlawful conduct in the
future.
45. Accordingly, Plaintiff and the Class are entitled to all damages referenced herein,
attorney’s fees, costs, treble damages, injunctive relief, and any other remedies allowed
by the TCPA.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and all others similarly situated, prays for
relief and judgment against Defendant as follows:
(A)
For an Order certifying the Class under Rule 23 of the Federal Rules of Civil
Procedure and naming Plaintiff as representative of the Class and Plaintiff’s attorneys as Class
Counsel to represent members of the Class;
(B)
For an Order declaring that Defendant’s conduct violates the TCPA;
(C)
For an Order finding in favor of Plaintiff and members of the Class;
(D)
For statutory or treble damages for each violation of the TCPA, as determined by
the evidence presented at trial;
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(E)
For prejudgment interest on all amounts awarded;
(G)
For an Order enjoining Defendant from further violations of the TCPA;
(H)
For an Order awarding Plaintiff and members of the Class their reasonable
attorney’s fees and expenses and costs of suit; and
(I)
For such other and further relief as the Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rule of Civil Procedure, Plaintiff, on behalf of
himself and the Class, demand a trial by jury on all questions of fact raised by this Complaint.
Dated: 4.5.2018
Respectfully submitted,
LEE LITIGATION GROUP, PLLC
By: /s/ C.K. Lee
C.K. Lee (CL 4086)
Anne Seelig (AS 3976)
30 East 39th Street, Second Floor
New York, NY 10016
Tel.: 212-465-1188
Fax: 212-465-1181
Attorneys for Plaintiff and the Class
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4dV0D4cBD5gMZwczZxrx | FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
No. 11 cv
Honorable Judge
Magistrate Judge
JURY DEMAND
LYNN LIETZ, RHONDA WILLIAMS,
NEVADA GRIFFIN, FIDELIA EVANS,
TIFFANI HUDSON, MICHELE CLIFT,
CASSANDRA GRIGGS, WENDY
THURMON, VA MOUA-KUE, RAVEN
FLOWERS, CHANEL BICKHAM, BRIAN
JOHNSON, DEANNA SIBLEY, LATOYA
HALMON, DERRICK PREMPEH,
GRZEGORZ SYKUT, ANGELA HARTZOL,
LATOSCA WILLIAMS, JAIME STEWART,
MICHELLE TODD, SHARONDA PORTER,
LATRISE DUDLEY, KAREEM ALI,
TOMEKA HUNTER, ROBIN GRUTZIUS,
ZUBEEN AMEER-WOODLEY, ROBERT
FERRARI II, FELIX A. KING, PATTY
TINTAS, BHRAGULATTA K. SHAH,
ELIZABETH FLOWERS, TAMMY KING,
TENESHA MARTIN, LASHAUNDA
BROWN, MARY LEE KANE, EUNICE
TUCKER, BONNIE MAZENKO, REBECCA
E. CIOTUSZYNSKI, MAGGINEESE
MCCAN, DANIELLE LITTON, DANTE
JOHNSON, PEZAVAN WHATELY, LISA
SPENGLER, RONNIE J. PHIPPS, on behalf
of themselves, and all other plaintiffs
known and unknown,
Plaintiffs
v.
ILLINOIS BELL TELEPHONE COMPANY
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COMPLAINT
NOW COME Plaintiffs, LYNN LIETZ, RHONDA WILLIAMS, NEVADA GRIFFIN,
FIDELIA EVANS, TIFFANI HUDSON, MICHELE CLIFT, CASSANDRA GRIGGS, WENDY
THURMON, VA MOUA-KUE, RAVEN FLOWERS, CHANEL BICKHAM, BRIAN JOHNSON,
DEANNA SIBLEY, LATOYA HALMON, DERRICK PREMPEH, GRZEGORZ SYKUT, ANGELA
LATRISE DUDLEY, KAREEM ALI, TOMEKA HUNTER, ROBIN GRUTZIUS, ZUBEEN AMEER-
WOODLEY, ROBERT FERRARI II, FELIX A. KING, PATTY TINTAS, BHRAGULATTA K. SHAH,
ELIZABETH FLOWERS, TAMMY KING, TENESHA MARTIN, LASHAUNDA BROWN, MARY
LEE KANE, EUNICE TUCKER, BONNIE MAZENKO, REBECCA E. CIOTUSZYNSKI,
MAGGINEESE MCCAN, DANIELLE LITTON, DANTE JOHNSON, PEZAVAN WHATELY, LISA
SPENGLER, RONNIE J. PHIPPS, on behalf of themselves and all other Plaintiffs similarly
situated, by and through their attorney, JOHN W. BILLHORN, and for their Complaint
against Defendants, ILLINOIS BELL TELEPHONE COMPANY, state as follows:
I.
NATURE OF ACTION
1. This action is brought under the Fair Labor Standards Act, 29 U.S.C. §201, et seq.,
the Portal-to-Portal Act, 29 U.S.C. §251 et seq., the Illinois Minimum Wage Law, 820 ILCS
§105/1 et seq., and the Illinois Wage Payment and Collection Act, 820 ILCS §115/1, et seq.
II.
JURISDICTION AND VENUE
2. Jurisdiction arises under the provisions of the Fair Labor Standards Act, 29
U.S.C. §§ 206, 207, the Portal-to-Portal Act, 29 U.S.C. §251 et seq., the Davis Bacon Act,
40 U.S.C. §276a, and for the supplemental Illinois statutory claims, pursuant to 28 U.S.C.
§1367. Venue lies in the Northern District of Illinois in that during all times relevant to the
employment relationship Plaintiffs performed work in this district and are residents of this
district and Defendant is engaged in business in this district.
III.
THE PARTIES
3. Defendant, ILLINOIS BELL TELEPHONE COMPANY, is engaged in the business of
providing telephone and other communication services.
4.
Plaintiffs, LYNN LIETZ, RHONDA WILLIAMS, NEVADA GRIFFIN, FIDELIA
EVANS, TIFFANI HUDSON, MICHELE CLIFT, CASSANDRA GRIGGS, WENDY THURMON, VA
MOUA-KUE, RAVEN FLOWERS, CHANEL BICKHAM, BRIAN JOHNSON, DEANNA SIBLEY,
WILLIAMS, JAIME STEWART, MICHELLE TODD, SHARONDA PORTER, LATRISE DUDLEY,
KAREEM ALI, TOMEKA HUNTER, ROBIN GRUTZIUS, ZUBEEN AMEER-WOODLEY, ROBERT
FERRARI II, FELIX A. KING, PATTY TINTAS, BHRAGULATTA K. SHAH, ELIZABETH
FLOWERS, TAMMY KING, TENESHA MARTIN, LASHAUNDA BROWN, MARY LEE KANE,
EUNICE TUCKER, BONNIE MAZENKO, REBECCA E. CIOTUSZYNSKI, MAGGINEESE MCCAN,
DANIELLE LITTON, DANTE JOHNSON, PEZAVAN WHATELY, LISA SPENGLER, RONNIE J.
PHIPPS, (hereinafter “the named Plaintiffs”), are either past or present employees who
performed work for Defendant as sales and service associates in the call center department.
Plaintiffs, and all other unnamed Plaintiffs known and unknown (hereinafter referred to as
“members of the Plaintiff Class” or “similarly situated Plaintiffs”), are either present or past
employees who worked for Defendant as sales and service associates in the call center
department. As employees performing duties for an enterprise engaged in commerce, the
named Plaintiffs and all members of the Plaintiff Class were also engaged in commerce as
defined by the FLSA.
5.
The claims brought herein by the named Plaintiffs are identical or similar to the
claims of other past and present employees who were subject to the non-compliant policies
and practices alleged herein.
6.
The non-compliant practices as alleged herein were part of a practice and policy
common to a group or “class” of past and present employees. Those past and present
employees are entitled to receive Notice of these proceedings and afforded opportunity to
join their individual claims.
IV.
STATUTORY VIOLATIONS
Collective Action Under The Fair Labor Standards Act
7. Pursuant to the Fair Labor Standards Act, 29 U.S.C. §216(b), Count I of this
action is brought by Plaintiffs as an opt-in representative or collective action, on behalf of
themselves and other Plaintiffs similarly situated who have been damaged by Defendant’s
failure to comply with 29 U.S.C. §201 et. seq. and §251 et. seq. Count II alleges a willful
liquidated damages under the Fair Labor Standards Act, Section 260.
Illinois Minimum Wage Law
8. Pursuant to the Illinois Minimum Wage Law, 820 ILCS §105/1 et seq., Count IV
of this action is brought by Plaintiffs to recover unpaid back wages earned on or before the
date three (3) years prior to the filing of this action. Each and every Plaintiff who joins this
case in the future shall specifically adopt and assert the claims made under this Count IV.
Illinois Wage Payment and Collection Act
9. Pursuant to the Illinois Wage Payment and Collection Act, 820 ILCS §115/1 et
seq., Count V of this action is brought by Plaintiffs to recover unpaid back wages earned or
after the date five (5) years prior to the filing of this action. Each and every Plaintiff who
joins this case in the future shall specifically adopt and assert the claims made under this
Count V.
V.
FACTUAL ALLEGATIONS RELEVANT TO ALL COUNTS
10. Plaintiffs at all times pertinent to the cause of action were employed by
Defendant, said employment being integral and indispensable to Defendant’s business.
11. Defendant has both in the past and presently, willfully employed members of
the Plaintiff Class, including the named Plaintiffs, requiring or allowing work to be
performed before their scheduled work time, during their unpaid meal break and after
their scheduled shift, without pay for that time. In some instances that unpaid time
should have been compensated at time and one-half the workers’ regular hourly rates
because if the unpaid time was properly treated as compensable, the workers would
have been over 40 hours in particular workweeks. In other instances, the unpaid time
should have compensated at the workers’ regular hourly rates pursuant to the
requirements of the federal and state statues herein relied upon.
VIOLATION OF FAIR LABOR STANDARDS ACT
1-11. Paragraphs 1 through 11 are re-alleged and incorporated as though set forth
fully herein as paragraphs 1 through 11 of this Count I.
12.
Pursuant to Fair Labor Standards Act, 29 U.S.C. §201 et. seq., and the Portal-
to-Portal Act 29 U.S.C. §251 et. seq., the Plaintiffs, and all other Plaintiffs similarly situated,
known and unknown, are entitled to compensation for all hours worked and compensation
at a rate not less than one and one-half times their regular rate of pay for all hours worked in
excess of forty (40) hours in any week during the two (2) years preceding the filing of this
action.
13.
Defendant has at all times relevant hereto failed and refused to pay
compensation to its employees, including the named Plaintiffs herein, and all other
Plaintiffs similarly situated, known and unknown, as described above.
WHEREFORE, Plaintiffs, on behalf of themselves and all other Plaintiffs similarly
situated, known and unknown, respectfully requests this Court to enter an order:
(a)
awarding back pay equal to the amount of all unpaid overtime compensation
for the two (2) years preceding the filing of this Complaint, according to the applicable
statute of limitations;
(b)
awarding prejudgment interest with respect to the total amount of unpaid
overtime compensation;
(c)
awarding Plaintiffs’ reasonable attorney’s fees and costs incurred as a result of
Defendant’s violations of the Fair Labor Standards Act; and,
(d)
for such additional relief as the Court deems appropriate under the
circumstances.
COUNT II
WILLFUL VIOLATION OF THE FAIR LABOR STANDARDS ACT
1-13. Paragraphs 1 through 13 of Count I are realleged and incorporated as though
set forth fully herein as Paragraphs 1 through 13 of Count II.
violation of the Fair Labor Standards Act in that its practice, as described above, continues
and all past amounts of unpaid wages remain unpaid.
15. Pursuant to the Fair Labor Standards Act, Plaintiffs and all other employees
similarly situated, past or present, are entitled to compensation at a rate not less than one
and one-half times their regular rate of pay for all the hours worked in excess of forty (40) in
any given week, entitled to pay for all hours worked, in three (3) years preceding the filing of
this complaint.
WHEREFORE, Plaintiffs, on behalf of themselves and all other Plaintiffs similarly
situated, known and unknown, respectfully requests this Court to enter an order:
(a)
awarding back pay equal to the amount of all unpaid compensation for one
(1) additional year, totaling three (3) years preceding the filing of this Complaint;
(b)
awarding prejudgment interest with respect to the amount of unpaid overtime
compensation;
(c)
awarding Plaintiffs’ reasonable attorney’s fees and Court costs incurred as a
result of Defendants’ violation of the Fair Labor Standards Act; and
(d)
for such additional relief as the Court deems appropriate under the
circumstances.
COUNT III
LIQUIDATED DAMAGES
UNDER THE FAIR LABOR STANDARDS ACT
1-15. Paragraphs 1 through 15 of Count II are re-alleged and incorporated as though
set forth fully herein as Paragraphs 1 through 15 of Count III.
16. In denying the named Plaintiffs and members of the Plaintiff Class
compensation, as described above, Defendant’s acts were not based upon good faith or
reasonable grounds.
known and unknown, are entitled to liquidated damages equal to the amount of unpaid
compensation, pursuant to 29 U.S.C. §260.
WHEREFORE, Plaintiffs, on behalf of themselves and all other Plaintiffs similarly
situated, known and unknown, respectfully request this Court to enter an order:
(a)
awarding liquidated damages equal to the amount of all unpaid
compensation;
(b)
awarding Plaintiffs’ reasonable attorney’s fees and costs incurred as a result of
Defendants’ violation of the Fair Labor Standards Act; and
(c)
for such additional relief as the Court deems appropriate under the
circumstances.
COUNT IV
SUPPLEMENTAL STATE LAW CLAIM
VIOLATION OF THE ILLINOIS MINIMUM WAGE LAW
1-17. Paragraphs 1 through 17 of Count III are re-alleged and incorporated as though
set forth fully herein as Paragraphs 1 through 17 of this Count IV.
18. As described in the foregoing paragraphs, Defendant’s compensation policies
and practices are in violation of the Illinois Minimum Wage Law, 820 ILCS §115/1 et. seq.
19. During a portion or all of the relevant time at issue herein, the Illinois Minimum
Wage Law provided that an employer who fails to pay the required amount of wages due an
employee under the law shall be liable to the underpaid employee or employees for the
unpaid wages and for punitive damages in the amount of 2% of the amount of such
underpayments for each month following the date such underpayments remain unpaid.
20. Defendant’s failure to pay compensation, as described above, has been willful
and/or in bad faith.
WHEREFORE, Plaintiffs, on behalf of themselves and all other Plaintiffs similarly
situated, known and unknown, respectfully request this Court to enter an order:
herein, and such other violations which may come to light during the prosecution of this
matter, in violation of the provisions of the Illinois Minimum Wage Law;
(b)
awarding an amount of damages, to be shown by the evidence, to which
Plaintiffs and other members of the Plaintiff Class are entitled;
(c)
allowing this Court to retain jurisdiction of the case until such time it is
assured Defendant has remedied the compensation policies and practices complained of
herein and are determined to be in full compliance with the law;
(d)
directing Defendant to pay to Plaintiffs’ reasonable attorney’s fees, costs, and
litigation expenses, as provided by statute;
(e)
for such additional relief it deems just and appropriate under the
circumstances.
COUNT V
SUPPLEMENTAL STATE LAW CLAIM
VIOLATION OF THE ILLINOIS WAGE PAYMENT AND COLLECTION ACT
1-20. Paragraphs 1 through 20 of Count IV are realleged and incorporated as
though set forth fully herein as Paragraphs 1 through 20 of this Count V.
21. The Illinois Wage Payment and Collection Act, §2, defines wages as
“any compensation owed to an employee by an employer pursuant to an employment
contract or agreement between the 2 parties, . . . .”. Payment to separated employees is
termed “final compensation” and defined as “wages, salaries, earned commissions, earned
bonuses . . . . and any other compensation owed the employee by the employer pursuant to
an employment contract or agreement between the two parties”.
22. At all times relevant there existed an agreement between Plaintiffs, as well as
members of the Plaintiff class, with Defendant that Defendant would comply in all respects
with pertinent state and federal wage and hour law. Defendant has breached that agreement
in that Defendant’s compensation policies violate wage and hour provisions of both state
and federal law.
shall pay “[A]ll wages earned by any employee during a semi-monthly or bi-weekly pay
period shall be paid to such employee not later than 13 days after the end of the pay period
in which such wages were earned”.
24. The Illinois Wage Payment and Collection Act, §5, provides that
“[E]very employer shall pay the final compensation of separated employees in full, at the
time of separation, if possible, but in no case later than the next regularly scheduled payday
for such employee”.
25. Defendant’s acts as complained of herein and described above, namely the
continuing refusal and failure to pay the earned wages to Plaintiffs and the Plaintiff class,
constitutes a violation of the Illinois Wage Payment and Collection Act.
WHEREFORE, Plaintiffs, on behalf of themselves and all other Plaintiffs similarly
situated, known and unknown, respectfully request this Court to enter an order:
(a)
declaring and decreeing Defendant’s compensation practices as described
herein, and such other violations which may come to light during the prosecution of this
matter, in violation of the provisions of the Illinois Wage Payment and Collection Act;
(b)
awarding an amount of damages, to be shown by the evidence, to which
Plaintiffs and other members of the Plaintiff Class are entitled;
(c)
allowing this Court retain jurisdiction of the case until such time as it is
assured that Defendant has remedied the compensation policies and practices complained
of herein and are determined to be in full compliance with the law;
(d) directing Defendant to pay to Plaintiffs’ reasonable attorney’s fees, costs, and
litigation expenses, as provided by statute;
circumstances.
Respectfully submitted,
Electronically Filed 01/07/2011
/s/ John W. Billhorn
___________________________
John William Billhorn
BILLHORN LAW FIRM
120 S. State Street, Suite 400
Chicago, IL 60603
(312) 853-1450
| employment & labor |
SwxHFocBD5gMZwczDgDx |
Case No.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
ISAIAH POTTER, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
VERRICA PHARMACEUTICALS INC.,
TED WHITE, and BRIAN DAVIS,
Defendants.
Plaintiff Isaiah Potter (“Plaintiff”), individually and on behalf of all others similarly
situated, by and through his attorneys, alleges the following upon information and belief, except
as to those allegations concerning Plaintiff, which are alleged upon personal knowledge.
Plaintiff’s information and belief is based upon, among other things, his counsel’s investigation,
which includes without limitation: (a) review and analysis of regulatory filings made by Verrica
Pharmaceuticals Inc. (“Verrica” or the “Company”) with the United States (“U.S.”) Securities
and Exchange Commission (“SEC”); (b) review and analysis of press releases and media reports
issued by and disseminated by Verrica; and (c) review of other publicly available information
concerning Verrica.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or otherwise
acquired Verrica securities between September 16, 2019 and June 29, 2020, inclusive (the “Class
Period”), seeking to pursue claims against the Defendants under the Securities Exchange Act of
1934 (the “Exchange Act”).
2.
Verrica is a dermatology therapeutics company that develops treatments for
people living with skin diseases. Its lead product candidate, VP-102, is a drug-device
combination of a topical solution of cantharidin administered through the Company’s single-use
precision applicator. The Company is initially developing VP-102 for the treatment of
molluscum contagiosum, or molluscum, a highly contagious and primarily pediatric viral skin
disease, and common warts.
3.
On June 29, 2020, Verrica disclosed receipt of a letter from the U.S. Food and
Drug Administration (“FDA”) regarding the Company’s New Drug Application (“NDA”) for
VP-102 for the treatment of molluscum contagiosum. The letter identified certain deficiencies
that preclude discussion of labeling and post-marketing requirements. Moreover, according to
the Company, the FDA’s information requests have included “specific request related to a
potential safety issue with the applicator that could arise if the instructions for use were not
properly followed.”
4.
On this news, the Company’s share price fell $3.06, or nearly 22%, to close at
$11.01 per share on June 30, 2020, on unusually heavy trading volume.
5.
Throughout the Class Period, Defendants made materially false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that the
Company’s proprietary applicator used for VP-102 posed certain safety risks if the instructions
were not properly followed; (2) that, as a result, Verrica would incorporate certain user features
to mitigate the safety risk; (3) that the addition of the user feature would require additional
testing for stability supportive data; (4) that, as a result of the foregoing, regulatory approval for
VP-102 was reasonably likely to be delayed; and (5) that, as a result of the foregoing,
Defendants’ positive statements about the Company’s business, operations, and prospects, were
materially misleading and/or lacked a reasonable basis.
6.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
7.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
8.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. § 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
9.
Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and
Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the dissemination of materially false and/or misleading information,
occurred in substantial part in this Judicial District. In addition, the Company’s principal
executive offices are located in this District.
10.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
11.
Plaintiff Isaiah Potter, as set forth in the accompanying certification, incorporated
by reference herein, purchased or otherwise acquired Verrica securities during the Class Period,
and suffered damages as a result of the federal securities law violations and false and/or
misleading statements and/or material omissions alleged herein.
12.
Defendant Verrica is incorporated under the laws of Delaware with its principal
executive offices located in West Chester, Pennsylvania. Verrica’s common stock trades on the
NASDAQ exchange under the symbol “VRCA.”
13.
Defendant Ted White (“White”) was, at all relevant times, the President and Chief
Executive Officer of the Company.
14.
Defendant Brian Davis (“Davis”) has been the Chief Financial Officer of the
Company since October 18, 2019.
15.
Defendants White and Davis (collectively the “Individual Defendants”), because
of their positions with the Company, possessed the power and authority to control the contents of
the Company’s reports to the SEC, press releases and presentations to securities analysts, money
and portfolio managers and institutional investors, i.e., the market. The Individual Defendants
were provided with copies of the Company’s reports and press releases alleged herein to be
misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent
their issuance or cause them to be corrected. Because of their positions and access to material
non-public information available to them, the Individual Defendants knew that the adverse facts
specified herein had not been disclosed to, and were being concealed from, the public, and that
the positive representations which were being made were then materially false and/or
misleading. The Individual Defendants are liable for the false statements pleaded herein.
SUBSTANTIVE ALLEGATIONS
Background
16.
Verrica is a dermatology therapeutics company that develops treatments for
people living with skin diseases. Its lead product candidate, VP-102, is a drug-device
combination of a topical solution of cantharidin administered through the Company’s single-use
precision applicator. The Company is initially developing VP-102 for the treatment of
molluscum contagiosum, or molluscum, a highly contagious and primarily pediatric viral skin
disease, and common warts.
Materially False and Misleading
Statements Issued During the Class Period
17.
The Class Period begins on September 16, 2019. On that day, Verrica announced
that it had submitted its NDA with the SEC for VP-102 for the treatment of molluscum.
Specifically, the Company stated in a press release, in relevant part:
Verrica Pharmaceuticals Inc. (“Verrica”) (Nasdaq: VRCA), a medical
dermatology company committed to the development and commercialization of
novel treatments that provide meaningful benefit for people living with skin
diseases, today announced that it has submitted a New Drug Application (NDA)
to the U.S. Food and Drug Administration (FDA) for VP-102 (cantharidin 0.7%
Topical Solution), a proprietary topical therapy, for the treatment of molluscum
contagiosum (molluscum). No FDA-approved treatments are currently available
for molluscum, a common, highly contagious skin disease affecting an estimated
6 million people in the United States, primarily children. Without treatment,
molluscum can persist for an average of 13 months, with some cases remaining
unresolved for several years.
“Molluscum is a viral skin infection that is highly contagious, spreads rapidly, and
is significantly undertreated, with no FDA-approved therapeutic options,” said
Ted White, President and Chief Executive Officer, Verrica. “The NDA
submission potentially brings us one step closer to our goal of providing patients
— particularly children and their caregivers — with a safe and effective therapy
for molluscum with our proprietary single-use applicator. If approved, VP-102
has the potential to become the standard of care for this disease.”
The 505(b)(1) NDA is supported by the positive results from two double-blind
Phase 3 trials (CAMP-1 and CAMP-2) that evaluated the safety and efficacy of
VP-102 compared to placebo in patients two years of age and older diagnosed
with molluscum. The CAMP-1 and CAMP-2 studies enrolled 528 patients in total
and were conducted at 31 centers in the United States. Each trial demonstrated
superior efficacy of VP-102 compared to placebo with statistically significant
differences on the primary endpoint of complete clearance of all treatable
molluscum lesions. Specific results from CAMP-1 and CAMP-2 demonstrated
46% and 54%, respectively, of subjects treated with VP-102 achieved complete
clearance at day 84, versus 18% and 13% of subjects in the placebo groups
(p<0.0001). By the end of the trials (Day 84), VP-102 treated subjects had a 69%
and 83% mean reduction in molluscum lesions, a pre-specified endpoint, in
CAMP-1 and CAMP-2, respectively, compared to a 20% increase and 19%
reduction for subjects on placebo. VP-102 was well-tolerated in both trials, with
no serious adverse events reported in VP-102 treated subjects.
18.
On November 27, 2019, Verrica announced that the NDA for VP-102 had been
accepted for filing by the FDA. In a press release, the Company stated, in relevant part:
Verrica Pharmaceuticals Inc. (“Verrica”) (Nasdaq: VRCA), a medical
dermatology company, today announced that its New Drug Application (NDA)
for VP-102 (cantharidin 0.7% Topical Solution), a proprietary topical therapy for
the treatment of molluscum contagiosum (molluscum), has been accepted for
filing by the U.S. Food and Drug Administration (FDA). The Prescription Drug
User Fee Act (PDUFA) goal date assigned by the FDA for this NDA is July 13,
2020.
“There are no FDA-approved treatments currently available to patients diagnosed
with molluscum, the majority of whom are children, leaving caregivers to choose
between a wait-and-see approach or treatments with unproven efficacy,” said Ted
White, President and Chief Executive Officer, Verrica. “Left untreated,
molluscum is easily transmitted, with lesions persisting an average of 13 months,
and molluscum can last up to several years, as seen in our clinical trials. The
acceptance of this NDA for review is the next step toward bringing patients and
their caregivers a safe and effective topical therapy for this common, highly
contagious viral skin disease that carries a substantial social stigma. We look
forward to working closely with the FDA during this review period.”
The NDA is based on positive results from two identical Phase 3 randomized,
double-blind, multicenter clinical trials (CAMP-1 and CAMP-2) that evaluated
the safety and efficacy of VP-102 compared to placebo in patients two years of
age and older diagnosed with molluscum. CAMP-1 was conducted under a SPA
(Special Protocol Assessment) with the FDA. In both trials, a clinically and
statistically significant number of patients treated with VP-102 met the primary
endpoint of complete clearance of all treatable molluscum lesions.
VP-102 was well-tolerated in both trials, with no serious adverse events reported
in VP-102-treated subjects.
19.
On March 13, 2020, the Company filed its annual report on Form 10-K for the
period ended December 31, 2019 (the “2019 10-K”). Regarding the administration of VP-102,
Verrica stated, in relevant part:
VP-102 [is] a proprietary drug-device combination of a novel 0.7% w/v topical
solution of cantharidin administered through our single-use precision applicator. .
. . Our proprietary single-use applicator allows for precise application to each
lesion. Our applicator contains a sealed glass ampule providing long-term room
temperature stability without the changes in concentration due to evaporation
seen in compounded formulations.
*
*
*
VP-102 is designed to be administered to patients via a proprietary applicator by
a healthcare professional. In the United States, products composed of
components that would normally be regulated by different centers at the FDA are
known as combination products. Typically, the FDA’s Office of Combination
Products assigns a combination product to a specific Agency center as the lead
reviewer. The FDA determines which center will lead a product’s review based
upon the product’s primary mode of action. Depending on the type of
combination product, its approval, clearance or licensure may usually be obtained
through the submission of a single marketing application. We anticipate that VP-
102 will be regulated as a drug, and that the FDA will permit a single
regulatory submission seeking approval of VP-102 with the applicator in each
indication for which we seek approval.
20.
Regarding regulatory approval of VP-102 for molluscum, the 2019 10-K stated, in
relevant part:
Our lead product candidate, VP-102, is being developed for the treatment of
molluscum, common warts and external genital warts, for which we are
currently conducting clinical trials. If we are unable to successfully develop,
receive regulatory approval for and commercialize VP-102 for the treatment of
molluscum, common warts, external genital warts or any other indications, or
successfully develop any other product candidates, or experience significant
delays in doing so, our business will be harmed.
We currently have no products that are approved for commercial sale. We have
only one product candidate, VP-102 for which we have conducted clinical trials.
We have completed two pivotal Phase 3 clinical trials and submitted a New Drug
Application, or (NDA) for VP-102 for the treatment of molluscum in the U.S. Our
NDA is presently under review by FDA and there can be no assurance that we
will receive approval. . . . Our ability to generate revenue from our product
candidates, will depend heavily on their successful development, regulatory
approval and eventual commercialization of these product candidates. The success
of VP-102, VP-103 or any other product candidates that we develop or otherwise
may acquire will depend on several factors, including: timely and successful
completion of preclinical studies and our clinical trials;
successful development of, or making arrangements with third-party
manufacturers for, our commercial manufacturing processes for any of our
product candidates that receive regulatory approval;
receipt of timely marketing approvals from applicable regulatory
authorities;
launching commercial sales of products, if approved;
acceptance of our products, if approved, by patients, the medical
community and third-party payors, for their approved indications;
our success in educating physicians and patients about the benefits,
administration and use of VP-102 or any other product candidates, if
approved;
the prevalence and severity of adverse events experienced with VP-102 or
our other product candidates;
the availability, perceived advantages, cost, safety and efficacy of
alternative treatments for molluscum and/or common warts or any other
indications which we may pursue for VP-102 or any other product
candidates;
our ability to produce VP-102 or any other product candidates on a
commercial scale;
obtaining and maintaining patent, trademark and trade secret protection
and regulatory exclusivity for our product candidates and otherwise
protecting our rights in our intellectual property portfolio;
maintaining compliance with regulatory requirements, including current
good manufacturing practices, or cGMPs;
competing effectively with other procedures; and
maintaining a continued acceptable safety, tolerability and efficacy profile
of the products following approval.
Whether regulatory approval will be granted is unpredictable and depends upon
numerous factors, including the substantial discretion of the regulatory
authorities. Our product candidates’ success in clinical trials is not guaranteed,
and even if clinical trials are successful, it will not guarantee regulatory approval.
Following submission of an NDA, it may not be accepted for substantive review,
or even if it is accepted for substantive review, the FDA or other comparable
foreign regulatory authorities may require that we conduct additional studies or
clinical trials, provide additional data, take additional manufacturing steps, or
require other conditions before they will reconsider or approve our application.
If the FDA or other comparable foreign regulatory authorities require additional
studies, clinical trials or data, we would incur increased costs and delays in the
marketing approval process, which may require us to expend more resources than
we have available. In addition, the FDA or other comparable foreign regulatory
authorities may not consider sufficient any additional required studies, clinical
trials, data or information that we perform and complete or generate, or we may
decide to abandon the program.
It is possible that VP-102, VP-103 or any of our other product candidates we may
develop or otherwise acquire will never obtain regulatory approval, even if we
expend substantial time and resources seeking such approval. If we do not achieve
one or more of these factors in a timely manner or at all, we could experience
significant delays or an inability to successfully commercialize our product
candidates, which would harm our business.
21.
As to the applicator, which could affect regulatory approval, the 2019 10-K
stated, in relevant part:
VP-102 is a drug-device combination involving a proprietary applicator, which
may result in additional regulatory and other risks.
VP-102 is a drug-device combination product for administration of our
cantharidin formulation through our proprietary applicator. We may experience
delays in obtaining regulatory approval of VP-102 given the increased complexity
of the review process when approval of a drug and a delivery device is sought
under a single marketing application. VP-102 will be regulated as a drug-device
combination product, which requires coordination within the FDA and similar
foreign regulatory agencies for review of the product candidate’s device and drug
components. We have filed a single marketing application for the approval of a
drug-device combination product, with guidance by the FDA. Although the FDA
and similar foreign regulatory agencies have systems in place for the review and
approval of combination products such as ours, we may experience delays in the
development, approval, and commercialization of our product candidate due to
regulatory timing constraints and uncertainties in the product development and
approval process, the inherent complexities of combination products, as well as
coordination between two different centers within FDA responsible for review of
the different components of the combination product.
Failure to successfully develop or supply the device, delays in or failure of the
studies conducted by us, our collaborators, or third-party providers, or failure of
our company, our collaborators, or third-party providers to obtain or maintain
regulatory approval or clearance of the device component of VP-102 could result
in increased development costs, delays in or failure to obtain regulatory approval,
and associated delays in VP-102 reaching the market. Further, failure to
successfully develop or supply the device, or to gain or maintain its approval,
could adversely affect sales of VP-102.
22.
The above statements identified in ¶¶ 17-21 were materially false and/or
misleading, and failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that the
Company’s proprietary applicator used for VP-102 posed certain safety risks if the instructions
were not properly followed; (2) that, as a result, Verrica would incorporate certain user features
to mitigate the safety risk; (3) that the addition of the user feature would require additional
testing for stability supportive data; (4) that, as a result of the foregoing, regulatory approval for
VP-102 was reasonably likely to be delayed; and (5) that, as a result of the foregoing,
Defendants’ positive statements about the Company’s business, operations, and prospects, were
materially misleading and/or lacked a reasonable basis.
The Truth Begins to Emerge
23.
On June 29, 2020, after the market closed, Verrica disclosed receipt of a letter
from the U.S. Food and Drug Administration (“FDA”) regarding the Company’s New Drug
Application (“NDA”) for VP-102 for the treatment of molluscum contagiosum. The letter
identified certain deficiencies that preclude discussion of labeling and post-marketing
requirements. Moreover, according to the Company, the FDA's information requests have
included “specific request related to a potential safety issue with the applicator that could arise if
the instructions for use were not properly followed.” Specifically, the Company’s press release
stated, in relevant part:
Verrica Pharmaceuticals Inc. (“Verrica”) (Nasdaq: VRCA), a dermatology
therapeutics company developing medications for viral skin diseases requiring
medical interventions, today announced that, on June 24, 2020, the Company
received a letter from the U.S. Food and Drug Administration (FDA) as part of
the FDA’s ongoing review of the Company’s New Drug Application (NDA) for
VP-102 (cantharidin 0.7% topical solution), Verrica’s lead product candidate for
the treatment of molluscum contagiosum. The letter states that there are
deficiencies that preclude discussion of labeling and post-marketing
requirements/commitments at this time. The letter further states that the
notification does not reflect a final decision on the information under review. In a
letter dated November 26, 2019, the FDA had assigned a Prescription Drug User
Fee Act (“PDUFA”) goal date of July 13, 2020 for completion of its review of the
NDA.
The FDA’s letter does not identify any specific items. But, the Company notes
that information requests from the FDA during the NDA review have focused
on CMC aspects of the drug-device combination. Verrica’s ability to address
these CMC-related requests, however, was significantly impacted in large part by
the COVID-19 pandemic.
The requests include, but are not limited to, a specific request related to a
potential safety issue with the applicator that could arise if the instructions for
use were not properly followed. In response, the Company incorporated an
additional user feature into the applicator to address that issue. The addition of
that user feature, however, has affected human factors testing as well as
requiring additional supportive stability data on the fully assembled device
incorporating such feature. The Company believes that both its long-term and
registration stability data with the ampule, and the as-submitted applicator,
support significant shelf life and stability for VP-102.
The Company anticipates interactions with, and additional communication from,
the FDA and intends to work with the FDA to resolve and address any items as
quickly as possible.
Notwithstanding the pandemic or the CMC-related requests that have arisen
during the review cycle, the Company believes that the positive results from its
two double-blind Phase 3 trials (CAMP-1 and CAMP-2) that evaluated the safety
and efficacy of VP-102 compared to placebo in patients two years of age and
older diagnosed with molluscum indicates that VP-102 remains viable for FDA
approval.
24.
On this news, the Company’s share price fell $3.06, or nearly 22%, to close at
$11.01 per share on June 30, 2020, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
25.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and entities that
purchased or otherwise acquired Verrica securities between September 16, 2019 and June 29,
2020, inclusive, and who were damaged thereby (the “Class”). Excluded from the Class are
Defendants, the officers and directors of the Company, at all relevant times, members of their
immediate families and their legal representatives, heirs, successors, or assigns, and any entity in
which Defendants have or had a controlling interest.
26.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Verrica’s common shares actively traded on the
NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and
can only be ascertained through appropriate discovery, Plaintiff believes that there are at least
hundreds or thousands of members in the proposed Class. Millions of Verrica common stock
were traded publicly during the Class Period on the NASDAQ. Record owners and other
members of the Class may be identified from records maintained by Verrica or its transfer agent
and may be notified of the pendency of this action by mail, using the form of notice similar to
that customarily used in securities class actions.
27.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
28.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
29.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b)
whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of Verrica; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
30.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
31.
The market for Verrica’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, Verrica’s securities traded at artificially inflated prices during the Class Period.
Plaintiff and other members of the Class purchased or otherwise acquired Verrica’s securities
relying upon the integrity of the market price of the Company’s securities and market
information relating to Verrica, and have been damaged thereby.
32.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Verrica’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. The statements and omissions were materially
false and/or misleading because they failed to disclose material adverse information and/or
misrepresented the truth about Verrica’s business, operations, and prospects as alleged herein.
33.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Verrica’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein when the truth was
revealed.
LOSS CAUSATION
34.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
35.
During the Class Period, Plaintiff and the Class purchased Verrica’s securities at
artificially inflated prices and were damaged thereby. The price of the Company’s securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’ losses.
SCIENTER ALLEGATIONS
36.
As alleged herein, Defendants acted with scienter since Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, the Individual Defendants, by
virtue of their receipt of information reflecting the true facts regarding Verrica, their control
over, and/or receipt and/or modification of Verrica’s allegedly materially misleading
misstatements and/or their associations with the Company which made them privy to
confidential proprietary information concerning Verrica, participated in the fraudulent scheme
alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
37.
The market for Verrica’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, Verrica’s securities traded at artificially inflated prices during the Class Period. On
November 26, 2019, the Company’s share price closed at a Class Period high of $17.43 per
share. Plaintiff and other members of the Class purchased or otherwise acquired the Company’s
securities relying upon the integrity of the market price of Verrica’s securities and market
information relating to Verrica, and have been damaged thereby.
38.
During the Class Period, the artificial inflation of Verrica’s shares was caused by
the material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Verrica’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of Verrica and its
business, operations, and prospects, thus causing the price of the Company’s securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
Company shares. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
39.
At all relevant times, the market for Verrica’s securities was an efficient market
for the following reasons, among others:
(a)
Verrica shares met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b)
As a regulated issuer, Verrica filed periodic public reports with the SEC
and/or the NASDAQ;
(c)
Verrica regularly communicated with public investors via established
market communication mechanisms, including through regular dissemination of press releases
on the national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other similar reporting services;
(d)
Verrica was followed by securities analysts employed by brokerage firms
who wrote reports about the Company, and these reports were distributed to the sales force and
certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
40.
As a result of the foregoing, the market for Verrica’s securities promptly digested
current information regarding Verrica from all publicly available sources and reflected such
information in Verrica’s share price. Under these circumstances, all purchasers of Verrica’s
securities during the Class Period suffered similar injury through their purchase of Verrica’s
securities at artificially inflated prices and a presumption of reliance applies.
41.
A Class-wide presumption of reliance is also appropriate in this action under the
Supreme Court’s holding in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128
(1972), because the Class’s claims are, in large part, grounded on Defendants’ material
misstatements and/or omissions. Because this action involves Defendants’ failure to disclose
material adverse information regarding the Company’s business operations and financial
prospects—information that Defendants were obligated to disclose—positive proof of reliance is
not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the
sense that a reasonable investor might have considered them important in making investment
decisions. Given the importance of the Class Period material misstatements and omissions set
forth above, that requirement is satisfied here.
NO SAFE HARBOR
42.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of Verrica who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of The Exchange Act
and Rule 10b-5 Promulgated Thereunder
(Against All Defendants)
43.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
44.
During the Class Period, the Company and the Individual Defendants carried out
a plan, scheme and course of conduct which was intended to and, throughout the Class Period,
did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged
herein; and (ii) cause Plaintiff and other members of the Class to purchase Verrica’s securities at
artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct,
the Company and the Individual Defendants, and each of them, took the actions set forth herein.
45.
The Company and the Individual Defendants (i) employed devices, schemes, and
artifices to defraud; (ii) made untrue statements of material fact and/or omitted to state material
facts necessary to make the statements not misleading; and (iii) engaged in acts, practices, and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities in an effort to maintain artificially high market prices for Verrica’s securities in
violation of Section 10(b) of the Exchange Act and Rule 10b-5. The Company and the
Individual Defendants are sued either as primary participants in the wrongful and illegal conduct
charged herein or as controlling persons as alleged below.
46.
The Company and the Individual Defendants, individually and in concert, directly
and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to conceal adverse material
information about Verrica’s financial well-being and prospects, as specified herein.
47.
These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Verrica’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about Verrica and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
48.
Each of the Individual Defendants’ primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
49.
The Company and the Individual Defendants had actual knowledge of the
misrepresentations and/or omissions of material facts set forth herein, or acted with reckless
disregard for the truth in that they failed to ascertain and to disclose such facts, even though such
facts were available to them. Such defendants’ material misrepresentations and/or omissions
were done knowingly or recklessly and for the purpose and effect of concealing Verrica’s
financial well-being and prospects from the investing public and supporting the artificially
inflated price of its securities. As demonstrated by the Company and the Individual Defendants’
overstatements and/or misstatements of the Company’s business, operations, financial well-
being, and prospects throughout the Class Period, these defendants, if they did not have actual
knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to obtain
such knowledge by deliberately refraining from taking those steps necessary to discover whether
those statements were false or misleading.
50.
As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of
Verrica’s securities was artificially inflated during the Class Period. In ignorance of the fact that
market prices of the Company’s securities were artificially inflated, and relying directly or
indirectly on the false and misleading statements made by the Company and the Individual
Defendants, or upon the integrity of the market in which the securities trades, and/or in the
absence of material adverse information that was known to or recklessly disregarded by the
Company and the Individual Defendants, but not disclosed in public statements by these
defendants during the Class Period, Plaintiff and the other members of the Class acquired
Verrica’s securities during the Class Period at artificially high prices and were damaged thereby.
51.
At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that Verrica was experiencing, which were not disclosed by the Company and the Individual
Defendants, Plaintiff and other members of the Class would not have purchased or otherwise
acquired their Verrica securities, or, if they had acquired such securities during the Class Period,
they would not have done so at the artificially inflated prices which they paid.
52.
By virtue of the foregoing, the Company and the Individual Defendants have
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
53.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of the Exchange Act
(Against the Individual Defendants)
54.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
55.
The Individual Defendants acted as controlling persons of Verrica within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiff contends are false and misleading. The Individual Defendants were
provided with or had unlimited access to copies of the Company’s reports, press releases, public
filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
56.
In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
57.
As set forth above, Verrica and the Individual Defendants each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and other members of the Class suffered damages in connection with their purchases of
the Company’s securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: July 14, 2020
By: s/ Lee Albert
GLANCY PRONGAY & MURRAY LLP
Lee Albert (PA ID# 046852)
230 Park Avenue, Suite 530
New York, NY 10169
Telephone: (212) 682-5340
Facsimile: (212) 884-0988
lalbert@glancylaw.com
GLANCY PRONGAY & MURRAY LLP
Robert V. Prongay
Charles H. Linehan
Pavithra Rajesh
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
THE LAW OFFICES OF FRANK R. CRUZ
Frank R. Cruz
1999 Avenue of the Stars, Suite 1100
Los Angeles, CA 90067
Telephone: (310) 914-5007
Attorneys for Plaintiff Isaiah Potter
VERRICA PHARMACEUTICALS INC. SECURITIES LITIGATION
I, Isaiah Potter, certify that:
1.
I have reviewed the Complaint and authorize its filing and/or the filing of a Lead
Plaintiff motion on my behalf.
2.
I did not purchase the Verrica Pharmaceuticals Inc. securities that are the subject
of this action at the direction of plaintiff’s counsel or in order to participate in any
private action arising under this title.
3.
I am willing to serve as a representative party on behalf of a class and will testify
at deposition and trial, if necessary.
4.
My transactions in Verrica Pharmaceuticals Inc. securities during the Class Period
set forth in the Complaint are as follows:
(See attached transactions)
5.
I have not sought to serve, nor served, as a representative party on behalf of a
class under this title during the last three years, except for the following:
6.
I will not accept any payment for serving as a representative party, except to
receive my pro rata share of any recovery or as ordered or approved by the court,
including the award to a representative plaintiff of reasonable costs and expenses
(including lost wages) directly relating to the representation of the class.
I declare under penalty of perjury that the foregoing are true and correct statements.
7/8/2020
________________
_________________________________________
Date
Isaiah Potter
Isaiah Potter's Transactions in Verrica Pharmaceuticals Inc.
(VRCA)
Date
Transaction Type
Quantity
Unit Price
6/29/2020
Bought
100
$14.8700
6/29/2020
Bought
30
$14.8900
6/29/2020
Sold
-60
$10.8700
6/29/2020
Sold
-70
$10.6400
| securities |
mOtGEocBD5gMZwcz_9Oz |
IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION (AT CINCINNATI)
Civil Action No.: 1:17-cv-225
Judge:
CLASS ACTION COMPLAINT
PHYSICIANS HEALTHSOURCE, INC.,
individually, and as the representatives of a
class of similarly-situated persons,
Plaintiff,
v.
THE MASSACHUSETTS MEDICAL
SOCIETY and JOHN DOES 1-5,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
Plaintiff Physicians Healthsource, Inc. (“Physicians Healthsource”) brings this action on
behalf of itself and all others similarly situated, through its attorneys, and except as to those
allegations pertaining to Physicians Healthsource or its attorneys, which allegations are based
upon personal knowledge, alleges the following upon information and belief against Defendant
The Massachusetts Medical Society (“MMS”) and John Does 1-5:
PRELIMINARY STATEMENT
1.
The Telephone Consumer Protection Act (“TCPA”), which was modified and
renamed the Junk Fax Prevention Act (“JFPA”) in 2005, is codified at 47 U.S.C. § 227. Under
the JFPA, it is unlawful to send an unsolicited advertisement to someone’s fax machine. The
JFPA allows private rights of action and provides statutory damages of $500.00 per violation.
2.
MMS sent an unsolicited advertisement to Physicians Healthsource on March 13,
2017 (“the 3/13 Fax Ad”). A copy of the 3/13 Fax Ad is attached hereto as Exhibit A. The 3/13
Fax Ad promotes the commercial availability and/or quality of MMS’s goods or services.
3.
The receipt of an unsolicited advertisement via facsimile (or “junk fax”) causes
damage to the recipient. A junk fax uses the office supplies of the recipient such as paper, toner,
and the fax machine itself. A junk fax also ties up the phone line and the fax machine of the
recipient, thereby precluding their use for legitimate, authorized facsimiles and other business.
Finally, a junk fax wastes the recipient’s time in reviewing and discarding unwanted
solicitations.
4.
Based on information, belief, and the appearance of the 3/13 Fax Ad itself, MMS
also sent the 3/13 Fax Ad to numerous other persons via their respective fax numbers/fax
machines. MMS will likely continue to send such advertisements via facsimile absent an
injunction or other action prohibiting such conduct.
5.
The claims of Physicians Healthsource and the other recipients of the 3/13 Fax Ad
are all based on the same legal theory; i.e., violations of the JFPA. This action seeks, among
other items of damages, the following relief expressly authorized by the JFPA: (i) an injunction
prohibiting MMS (and its employees, agents, representatives, contractors, affiliates, and all
persons and entities acting in concert with MMS) from sending more advertisements to
Physicians Healthsource via facsimile; (ii) statutory damages, and (iii) treble damages.
JURISDICTION AND VENUE
6.
This Court has subject matter jurisdiction under 28 U.S.C. § 1331 as the JFPA is a
federal statute and, therefore, gives rise to federal question jurisdiction.
7.
This Court has personal jurisdiction over MMS because MMS transacted business
within this judicial district, made contracts within this judicial district, and/or committed tortious
acts within this judicial district.
8.
This Court has venue under 28 U.S.C. § 1391 because a substantial part of the
events or omissions giving rise to the claim occurred in this district.
PARTIES
9.
Physicians Healthsource is an Ohio corporation, and it operates a chiropractic
clinic located at 3328 Westbourne Drive in Cincinnati, Ohio 45248.
10.
MMS is a Massachusetts corporation, and its principal place of business is located
at 860 Winter Street, Waltham Woods Corporate Center in Waltham, Massachusetts 02451.
11.
MMS produces and sells continuing education materials for the medical
industry.
12.
John Does 1-10 assisted MMS in its facsimile advertising activities by providing a
list of fax numbers, transmitting the 3/13 Fax Ad, providing advice or assistance on the content
of the 3/13 Fax Ad, etc. The identity of the John Doe defendants is not presently known but will
be identified through discovery.
FACTS
13.
On March 13, 2017, MMS used a telephone facsimile machine, computer, or
other device to send a facsimile (“the 3/13 Fax Ad”) to Physicians Healthsource. A copy of the
3/13 Fax Ad is attached hereto as Exhibit A.
14.
The 3/13 Fax Ad touts the commercial availability and quality of NEJM
Knowledge+.
15.
NEJM Knowledge+ is a product of NEJM Group, which is a division of MMS.
16.
On information and belief, MMS receive some or all of the revenues from the sale
of NEJM Knowledge+. Likewise, MMS profits and benefits from the sale of NEJM
Knowledge+.
17.
Physicians Healthsource did not give prior express invitation or permission to
MMS to transmit the 3/13 Fax Ad to Physicians Healthsource via its office facsimile machine.
18.
On information and belief, MMS faxed the same and other unsolicited facsimiles
to Physicians Healthsource and at least forty other recipients or sent the same and other
advertisements by fax without first receiving the recipients’ express invitation or permission
and/or without having an established business relationship as defined by the JFPA and its
regulations.
19.
There is no reasonable means for Physicians Healthsource (or any other class
member) to avoid receiving unauthorized faxes. Fax machines are left on and ready to receive
the communications their owners desire to receive.
CLASS ACTION ALLEGATIONS
20.
In accordance with Fed. R. Civ. P. 23(b)(1), (b)(2) and (b)(3), Physicians
Healthsource brings this class action pursuant to the JFPA on behalf of the following classes of
persons:
All persons who (1) on or after four years prior to the filing of this
action, (2) were sent telephone facsimile messages of material
advertising the commercial availability or quality of any property,
goods, or services by or on behalf of MMS, (3) from whom MMS
did not obtain prior express invitation or permission to send
advertisements via facsimile, or (4) with whom MMS did not have
an established business relationship, or (5) where the fax
advertisements do not include an opt-out notice compliant with 47
C.F.R. § 64.1200(a)(4)(iii).
Physicians Healthsource seeks to certify a class that includes but is not limited to the 3/13 Fax
Ad and reserves the right to amend the class definition upon completion of class certification
discovery.
18.
Numerosity: Advertisements, including those transmitted via facsimile, are
typically broadcast to hundreds if not thousands of persons. Based on information, belief, and its
general appearance, the 3/13 Fax Ad was sent to over forty persons. The joinder of such a large
group of persons in a single lawsuit would be impracticable.
19.
Commonality: Common questions of law and fact apply to the claims of the
putative class members. These include the following:
(a)
Whether the 3/13 Fax Ad constitutes an “unsolicited
advertisement” within the meaning of the JFPA;
(b)
Whether the opt-out notice on the 3/13 Fax Ad complies
with the requirements of the JFPA;
(c)
Whether MMS violated the JFPA and the regulations
promulgated thereunder with regard to the 3/13 Fax Ad;
and
(d)
Whether MMS sent the 3/13 Fax Ad intentionally,
knowingly, or willfully.
20.
Typicality: Physicians Healthsource claim is typical of the claims of the putative
class members. Physicians Healthsource is asserting the same claim under the same federal
statute as the other members of the putative class. Physicians Healthsource is also seeking the
same relief for itself and the other members of the putative class.
21.
Adequacy: Physicians Healthsource will fairly and adequately represent the
interests of the putative class members. Physicians Healthsource has no interests in conflict with
the putative class members, has the resources and inclination to prosecute this action to
completion, and has retained experienced counsel to assist it in doing so.
22.
Predominance: The questions of law and fact common to the putative class
members predominate over any questions affecting only individual members because:
(a)
Physicians Healthsource’s claim depends on the same
factual and legal issues as that of the putative class
members;
(b)
the evidence supporting MMS’s likely defenses will come
solely from MMS’s own records and will not require any
information or inquiries from individual class members;
(c)
the damages for all putative class members are set by
statute and will, therefore, be the same for each and every
member of the putative class; and
(d)
the identity of the putative class members can be readily
ascertained from MMS or its agents’ computer records,
phone records, or other business records.
23.
Superiority: A class action would be superior to individual actions by the
putative class members for the following reasons:
(a)
the damages suffered by any one class member are too low
to justify a stand-alone lawsuit;
(b)
the JFPA contains no provision for awarding attorney fees.
As such, individual claimants would, as a practical matter,
have to proceed pro se against a large, sophisticated
defendant;
(c)
many of the putative class members are legal entities that
would not be permitted to proceed in court pro se; and
(d)
the evidence concerning each of putative class member’s
claims is so similar that the adjudication of each on an
individual basis would be repetitive, inefficient, and
wasteful.
VIOLATION OF THE JUNK FAX PREVENTION ACT
24.
Under the JFPA, it is “unlawful for any person to . . . use any telephone facsimile
machine, computer or other device to send, to a telephone facsimile machine, an unsolicited
advertisement . . . .“ 47 U.S.C. 227(b)(1)(C).
25.
Under the JFPA, “the term “unsolicited advertisement’ means any material
advertising the commercial availability or quality of any property, goods, or services which is
transmitted to any person without that person’s prior express invitation or permission, in writing
or otherwise.” 47 U.S.C. § 227(a)(5).
26.
Opt-Out Notice Requirements. The JFPA strengthened the prohibitions against
the sending of unsolicited advertisements by requiring, in § (b)(1)(C)(iii) of the JFPA, that
senders of faxed advertisements place a clear and conspicuous notice on the first page of the
transmission that contains the following among other things (hereinafter collectively the “Opt-
Out Notice Requirements”):
(a)
A statement that the recipient is legally entitled to opt-out
of receiving future faxed advertisements – knowing that he
or she has the legal right to request an opt-out gives
impetus for recipients to make such a request, if desired;
(b)
A statement that the sender must honor a recipient’s opt-out
request within 30 days and the sender’s failure to do so is
unlawful – thereby encouraging recipients to opt-out, if
they did not want future faxes, by advising them that their
opt-out requests will have legal “teeth”;
(c)
A statement advising the recipient that he or she may opt-
out with respect to all of his or her facsimile telephone
numbers and not just the ones that receive a faxed
advertisement from the sender – thereby instructing a
recipient on how to make a valid opt-out request for all of
his or her fax machines;
(d)
The opt-out language must be conspicuous.
The requirement of (a) above is incorporated from § (b)(D)(ii) of the JFPA. The
requirement of (b) above is incorporated from § (b)(D)(ii) of the JFPA and the rules and
regulations of the Federal Communications Commission (the “FCC”) in ¶ 31 of its 2006 Report
and Order (In the Matter of Rules and Regulations Implementing the Telephone Consumer
Protection Act, Junk Prevention Act of 2005, 21 F.C.C.R. 3787, 2006 WL 901720, which rules
and regulations took effect on August 1, 2006). The requirements of (c) above are contained in
§ (b)(2)(E) of the JFPA and incorporated into the Opt-Out Notice Requirements via §
(b)(2)(D)(ii). Compliance with the Opt-Out Notice Requirements is neither difficult nor costly.
The Opt-Out Notice Requirements are important consumer protections bestowed by Congress
upon the owners of the telephone lines and fax machines giving them the right, and means, to
stop unwanted faxed advertisements.
27.
The Fax. On March 13, 2017, MMS sent an advertisement via facsimile
transmission from telephone facsimile machines, computers, or other devices to the telephone
lines and facsimile machines of Physicians Healthsource and members of the proposed class.
These faxes constituted advertisements under the JFPA. MMS failed to comply with the Opt-
Out Requirements in connection with these faxes. These faxes were transmitted to persons or
entities without their prior express invitation or permission. By virtue thereof, MMS violated the
JFPA and the regulations promulgated thereunder by sending these faxes via facsimile
transmission to Physicians Healthsource and members of the Class. Physicians Healthsource
seeks to certify a class which includes these faxes and all others sent during the four years prior
to the filing of this case through the present.
28.
MMS’ Other Violations. Physicians Healthsource is informed and believes, and
upon such information and belief avers, that during the period preceding four years of the filing
of this Complaint and repeatedly thereafter, MMS has sent via facsimile transmission from
telephone facsimile machines, computers, or other devices to telephone facsimile machines of
members of the proposed class other faxes that constitute advertisements under the JFPA that
were transmitted to persons or entities without their prior express invitation or permission. By
virtue thereof, MMS violated the JFPA. Physicians Healthsource is informed and believes, and
upon such information and belief avers, that MMS may be continuing to send unsolicited
advertisements via facsimile transmission in violation of the JFPA and the regulations
promulgated thereunder, and absent intervention by this Court, will do so in the future.
29.
The JFPA provides a private right of action to bring this action on behalf of
Physicians Healthsource and the proposed class to redress MMS’ violations of the JFPA. The
JFPA also provides for statutory damages. 47 U.S.C. § 227(b)(3). The JFPA also provides for
injunctive relief. Id.
30.
The JFPA is a strict liability statute, so MMS are liable to Physicians
Healthsource and the other class members even if their actions were only negligent.
31.
The MMS knew or should have known that (a) Physicians Healthsource and the
other class members had not given prior express invitation or permission for MMS or anybody
else to fax advertisements about MMS’ products, goods, or services; (b) Physicians Healthsource
and the other class members did not have an established business relationship with MMS; (c)
MMS transmitted advertisements; (d) MMS’ faxes did not contain the required Opt-Out Notice;
and (e) MMS’ transmission of advertisements that did not contain the required opt-out notice or
were sent without prior express invitation or permission was unlawful.
32.
MMS’ actions caused damage to Physicians Healthsource and the other class
members. Receiving MMS’ junk faxes caused Physicians Healthsource and the other recipients
to lose paper and toner consumed in the printing of these faxes. Moreover, MMS faxes used
Physicians Healthsource’s and the other class members’ telephone lines and fax machines.
MMS’ faxes cost Physicians Healthsource and the other class members time, as Physicians
Healthsource and the other class members and their employees wasted their time receiving,
reviewing, and routing MMS’ unauthorized faxes. That time otherwise would have been spent
on Physicians Healthsource's and the other class members’ business activities. MMS’ faxes
unlawfully interrupted Physicians Healthsource's and other class members’ privacy interests in
being left alone.
WHEREFORE, Plaintiff Physicians Healthsource, Inc., individually and on behalf of all
others similarly situated, demands judgment in its favor and against Defendant The
Massachusetts Medical Society and John Does 1-5 as follows:
(1)
that the Court adjudge and decree that the present case may be properly
maintained as a class action, appoint Physicians Healthsource as the
representative of the class, and appoint Physicians Healthsource’s counsel
as counsel for the class;
(2)
that the Court award actual or statutory damages to Physicians
Healthsource and the other class members for each violation of the JFPA
by MMS;
(3)
that the Court enjoin MMS from additional violations of the JFPA; and
(4)
that the Court award pre-judgment interest, post-judgment interest,
attorney fees, treble damages, costs, and such other relief as may be just
and proper.
Respectfully submitted,
PHYSICIANS HEALTHSOURCE, INC.,
individually and as the representative of a class of
similarly-situated persons,
/s/ Matthew E. Stubbs
GEORGE D. JONSON (0027124)
MATTHEW E. STUBBS (0066722)
MONTGOMERY, RENNIE & JONSON
36 E. Seventh Street, Suite 2100
Cincinnati, Ohio 45202
(513) 241-4722
(513) 241-8775 (fax)
Email: gjonson@mrjlaw.com
mstubbs@mrjlaw.com
Counsel for Physicians Healthsource, Inc.
| privacy |
lfoNFIcBD5gMZwczzR33 | DAPEER ROSENBLIT LITVAK, LLP
William Litvak, Esq.
(CA Bar No. 90533)
11500 W. Olympic Blvd. Suite 550
Los Angeles, California 90064
T: (310) 477-5575
F: (310) 477-7090
E: wlitvak@drllaw.com
IJH LAW
Ignacio J. Hiraldo, Esq. (pro hac vice forthcoming)
FL Bar No. 0056031
1200 Brickell Avenue, Suite 1950
Miami, FL 33131
T: 786-496-4469
E: ijhiraldo@ijhlaw.com
SHAMIS & GENTILE, P.A.
Mariam Grigorian, Esq. (pro hac vice forthcoming)
FL Bar No. 1010510
14 NE 1st Avenue, Suite 400
Miami, Florida 33132
T: 305-479-2299
E: mgrigorian@shamisgentile.com
Counsel for Plaintiff and Proposed Class
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
No.
KELLI ROTH, individually and on behalf
of all others similarly situated,
Plaintiff,
v.
PTGMB LLC D/B/A MERCEDES-BENZ
OF FRESNO, a California limited liability
company,
CLASS ACTION
COMPLAINT FOR VIOLATIONS OF THE
TELEPHONE CONSUMER PROTECTION
ACT, 47 U.S.C. §§ 227, ET SEQ. (TCPA)
JURY TRIAL DEMANDED
Defendant.
CLASS ACTION COMPLAINT
1.
Plaintiff, Kelli Roth, brings this action against Defendant, PTGMB LLC d/b/a
Mercedes-Benz Of Fresno, to secure redress for violations of the Telephone Consumer Protection
Act (“TCPA”), 47 U.S.C. § 227.
NATURE OF THE ACTION
2.
This is a putative class action pursuant to the Telephone Consumer Protection Act,
47 U.S.C. §§ 227, et seq. (the “TCPA”).
3.
Defendant is a Mercedes-Benz dealership that sells vehicles for individuals and
businesses. To promote its services, Defendant engages in aggressive unsolicited marketing,
harming thousands of consumers in the process.
4.
Through this action, Plaintiff seeks injunctive relief to halt Defendant’s illegal
conduct, which has resulted in the invasion of privacy, harassment, aggravation, and disruption of
the daily life of thousands of individuals. Plaintiff also seeks statutory damages on behalf of
herself and members of the Class, and any other available legal or equitable remedies.
JURISDICTION AND VENUE
5.
This Court has federal question subject matter jurisdiction over this action
pursuant to 28 U.S.C. § 1331, as the action arises under the Telephone Consumer Protection Act,
47 U.S.C. §§ 227, et seq. (“TCPA”).
6.
The Court has personal jurisdiction over Defendant and venue is proper in this
District because Defendant directs, markets, and provides its business activities to this District,
and because Defendant’s unauthorized marketing scheme was directed by Defendant to
consumers in this District, including Plaintiff.
PARTIES
7.
Plaintiff is a natural person who, at all times relevant to this action, was a resident
of Fresno County, California.
8.
Defendant is a California limited liability company whose principal office is
located at 7055 North Palm Avenue, Fresno CA 93650. Defendant directs, markets, and provides
its business activities throughout the United States, including throughout the state of California.
9.
Unless otherwise indicated, the use of Defendant’s name in this Complaint
includes all agents, employees, officers, members, directors, heirs, successors, assigns, principals,
trustees, sureties, subrogees, representatives, vendors, and insurers of Defendant.
THE TCPA
10.
The TCPA prohibits: (1) any person from calling a cellular telephone number; (2)
using an automatic telephone dialing system; (3) without the recipient’s prior express consent. 47
U.S.C. § 227(b)(1)(A).
11.
The TCPA defines an “automatic telephone dialing system” (“ATDS”) as
“equipment that has the capacity - (A) to store or produce telephone numbers to be called, using a
random or sequential number generator; and (B) to dial such numbers.” 47 U.S.C. § 227(a)(1).
12.
In an action under the TCPA, a plaintiff must only show that the defendant “called
a number assigned to a cellular telephone service using an automatic dialing system or
prerecorded voice.” Breslow v. Wells Fargo Bank, N.A., 857 F. Supp. 2d 1316, 1319 (S.D. Fla.
2012), aff'd, 755 F.3d 1265 (11th Cir. 2014).
13.
The Federal Communications Commission (“FCC”) is empowered to issue rules
and regulations implementing the TCPA. According to the FCC’s findings, calls in violation of
the TCPA are prohibited because, as Congress found, automated or prerecorded telephone calls
are a greater nuisance and invasion of privacy than live solicitation calls, and such calls can be
costly and inconvenient. The FCC also recognized that wireless customers are charged for
incoming calls whether they pay in advance or after the minutes are used. Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278, Report
and Order, 18 FCC Rcd 14014 (2003).
14.
In 2012, the FCC issued an order tightening the restrictions for automated
telemarketing calls, requiring “prior express written consent” for such calls to wireless numbers.
See In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27
F.C.C.R. 1830, 1838 ¶ 20 (Feb. 15, 2012) (emphasis supplied).
15.
To obtain express written consent for telemarketing calls, a defendant must
establish that it secured the plaintiff’s signature in a form that gives the plaintiff a “‘clear and
conspicuous disclosure’ of the consequences of providing the requested consent….and having
received this information, agrees unambiguously to receive such calls at a telephone number the
[plaintiff] designates.” In re Rules & Regulations Implementing the Tel. Consumer Prot. Act of
1991, 27 F.C.C.R. 1830, 1837 ¶ 18, 1838 ¶ 20, 1844 ¶ 33, 1857 ¶ 66, 1858 ¶ 71 (F.C.C. Feb. 15,
2012).
16.
The TCPA regulations promulgated by the FCC define “telemarketing” as “the
initiation of a telephone call or message for the purpose of encouraging the purchase or rental of,
or investment in, property, goods, or services.” 47 C.F.R. § 64.1200(f)(12). In determining
whether a communication constitutes telemarketing, a court must evaluate the ultimate purpose of
the communication. See Golan v. Veritas Entm't, LLC, 788 F.3d 814, 820 (8th Cir. 2015).
17.
“Neither the TCPA nor its implementing regulations ‘require an explicit mention
of a good, product, or service’ where the implication of an improper purpose is ‘clear from the
context.’” Id. (citing Chesbro v. Best Buy Stores, L.P., 705 F.3d 913, 918 (9th Cir. 2012)).
18.
“‘Telemarketing’ occurs when the context of a call indicates that it was initiated
and transmitted to a person for the purpose of promoting property, goods, or services.” Golan,
788 F.3d at 820 (citing 47 C.F.R. § 64.1200(a)(2)(iii); 47 C.F.R. § 64.1200(f)(12); In re Rules
and Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 F.C.C. Rcd at
14098 ¶ 141, 2003 WL 21517853, at *49).
19.
The FCC has explained that calls motivated in part by the intent to sell property,
goods, or services are considered telemarketing under the TCPA. See In re Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014,
¶¶ 139-142 (2003). This is true whether call recipients are encouraged to purchase, rent, or invest
in property, goods, or services during the call or in the future. Id.
20.
In other words, offers “that are part of an overall marketing campaign to sell
property, goods, or services constitute” telemarketing under the TCPA. See In re Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014,
¶ 136 (2003).
21.
If a call is not deemed telemarketing, a defendant must nevertheless demonstrate
that it obtained the plaintiff’s prior express consent. See In the Matter of Rules and Regulations
Implementing the Tel. Consumer Prot. Act of 1991, 30 FCC Rcd. 7961, 7991-92 (2015) (requiring
express consent “for non-telemarketing and non-advertising calls”).
22.
As recently held by the United States Court of Appeals for the Ninth Circuit:
“Unsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and
disturb the solitude of their recipients. A plaintiff alleging a violation under the TCPA ‘need not
allege any additional harm beyond the one Congress has identified.’” Van Patten v. Vertical
Fitness Grp., No. 14-55980, 2017 U.S. App. LEXIS 1591, at *12 (9th Cir. May 4, 2016) (quoting
Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016) (emphasis original)).
FACTUAL ALLEGATIONS
23.
Beginning on or about August 6, 2019, Defendant caused multiple calls with
prerecorded messages to be transmitted to Plaintiff’s cellular telephone number ending in 8410
(the “8410 Number”):
24.
Because Plaintiff did not answer her telephone after it rang, voicemails containing
prerecorded messages were left on Plaintiff’s phone.
25.
The following are transcripts of the voicemails that were left in Plaintiff’s
voicemail box:
Hey this is Rebecca. I’m the customer relations supervisor at Mercedes-Benz of
Fresno. I’m giving you a call today because we’re in need of vehicles for our pre-
owned inventory. Regardless of your year, make, model or mileage I’m interested
in your vehicle and will give you an all cash offer. If you’re thinking about
upgrading I’ve got some huge discounts to help you get into a newer vechile as
well. Please give me a call back at this number to review your all cash offer for
your current vehicle or to discuss your upgrade options to get into a newer vehicle.
Again this is Rebecca, I’m the customer relations supervisor at Mercedes-Benz of
Fresno. Thank you for your time and I look forward to speaking with you soon.
Have a great day.
Hey this is Rebecca. I’m the client care manager at Mercedes-Benz of Fresno. I’m
giving you a call today because our records indicate you’re driving an exact make
and model we really need for our pre-owned inventory. I wanted to see if we could
buy it back from your for an all cash offer or offer you a vehicle upgrade to get
into something newer. Right now you’re eligible for a Mercedes upgrade bonus
cash and we’ve got some huge discounts to help you get into a newer vehicle.
There’s never been a better time to upgrade but this offer is only for a limited time.
Please give me a call back at this number to schedule an appointment to review
your all cash offer for your current vehicle or to discuss your upgrade options to
get into a newer vehicle. Again this is Rebecca, I’m the client care manager at
Mercedes-Benz of Fresno. Thank you for your time and I look forward to speaking
with you soon. Have a great day.
26.
The prerecorded calls at issue, which were left as voicemails, were transmitted to
Plaintiff’s cellular telephone, and within the time frame relevant to this action.
27.
When Plaintiff listened to the voicemails, she was easily able to determine that
they were prerecorded messages. Rahn v. Bank of Am., No. 1:15-CV-4485-ODE-JSA, 2016 U.S.
Dist. LEXIS 186171, at *10-11 (N.D. Ga. June 23, 2016) (“When one receives a call, it is a clear-
cut fact, easily discernible to any lay person, whether or not the recipient is speaking to a live
human being, or is instead being subjected to a prerecorded message.”).
28.
Defendant’s prerecorded calls constitute telemarketing because they encourage the
future purchase or investment in property, goods, and/or services, i.e., selling Plaintiff an
automobile.
29.
The prerecorded calls Plaintiff received originated from a telephone number
owned and/or operated by or on behalf of Defendant.
30.
Plaintiff received the subject calls with a prerecorded voice within this judicial
district and, therefore, Defendant’s violation of the TCPA occurred within this district. Upon
information and belief, Defendant caused other prerecorded messages to be sent to individuals
residing within this judicial district.
31.
At no point in time did Plaintiff provide Defendant with her express consent to be
contacted with a prerecorded call.
32.
Plaintiff is the subscriber and sole user of the 8410 Number and is financially
responsible for phone service to the 8410 Number.
33.
Defendant’s prerecorded calls were sent to a cellular telephone with a 559 area
code, which means Defendant knew, or should have known, that it was making calls into this
District. The 559 area code serves the counties of Fresno, Madera, Kings, and Tulare—an area
largely coextensive with the Fresno and Visalia-Porterville metropolitan areas.
34.
Defendant’s prerecorded calls caused Plaintiff actual harm, including invasion of
her privacy, aggravation, annoyance, intrusion on seclusion, trespass, and conversion.
Defendant’s prerecorded calls also inconvenienced Plaintiff and caused disruption to her daily
life.
35.
Defendant’s prerecorded calls caused Plaintiff actual harm. Specifically, Plaintiff
estimates that she spent approximately fifteen minutes investigating the unwanted prerecorded
calls including how they obtained her number and who the Defendant was.
CLASS ALLEGATIONS
PROPOSED CLASS
36.
Plaintiff brings this case as a class action pursuant to Fed. R. Civ. P. 23, on behalf
of herself and all others similarly situated.
37.
Plaintiff brings this case on behalf of the Class defined as follows:
All persons in the United States who, within four years
prior to the filing of this Complaint, were sent a
prerecorded message, from Defendant or anyone on
Defendant’s behalf, to said person’s cellular telephone
number, without emergency purpose and without the
recipient’s prior express written consent.
38.
Defendant and its employees or agents are excluded from the Class. Plaintiff does
not know the number of members in the Class but believes the Class members number in the
several thousands, if not more.
NUMEROSITY
39.
Upon information and belief, Defendant has placed automated calls to cellular
telephone numbers belonging to thousands of consumers throughout the United States without
their prior express consent. The members of the Class, therefore, are believed to be so numerous
that joinder of all members is impracticable.
40.
The exact number and identities of the members of the Class are unknown at this
time and can only be ascertained through discovery. Identification of the Class members is a
matter capable of ministerial determination from Defendant’s call records.
COMMON QUESTIONS OF LAW AND FACT
41.
There are numerous questions of law and fact common to members of the Class
which predominate over any questions affecting only individual members of the Class. Among
the questions of law and fact common to the members of the Class are:
a) Whether Defendant made non-emergency calls to Plaintiff’s and Class
members’ cellular telephones using an ATDS;
b) Whether Defendant can meet its burden of showing that it obtained prior
express written consent to make such calls;
c) Whether Defendant’s conduct was knowing and willful;
d) Whether Defendant is liable for damages, and the amount of such damages;
and
e) Whether Defendant should be enjoined from such conduct in the future.
42.
The common questions in this case are capable of having common answers. If
Plaintiff’s claim that Defendant routinely transmits prerecorded calls to telephone numbers
assigned to cellular telephone services is accurate, Plaintiff and the Class members will have
identical claims capable of being efficiently adjudicated and administered in this case.
TYPICALITY
43.
Plaintiff’s claims are typical of the claims of the Class members, as they are all
based on the same factual and legal theories.
PROTECTING THE INTERESTS OF THE CLASS MEMBERS
44.
Plaintiff is a representative who will fully and adequately assert and protect the
interests of the Class, and has retained competent counsel. Accordingly, Plaintiff is an adequate
representative and will fairly and adequately protect the interests of the Class.
PROCEEDING VIA CLASS ACTION IS SUPERIOR AND ADVISABLE
45.
A class action is superior to all other available methods for the fair and efficient
adjudication of this lawsuit, because individual litigation of the claims of all members of the
Class is economically unfeasible and procedurally impracticable. While the aggregate damages
sustained by the Class are in the millions of dollars, the individual damages incurred by each
member of the Class resulting from Defendant’s wrongful conduct are too small to warrant the
expense of individual lawsuits. The likelihood of individual Class members prosecuting their own
separate claims is remote, and, even if every member of the Class could afford individual
litigation, the court system would be unduly burdened by individual litigation of such cases.
46.
The prosecution of separate actions by members of the Class would create a risk of
establishing inconsistent rulings and/or incompatible standards of conduct for Defendant. For
example, one court might enjoin Defendant from performing the challenged acts, whereas another
may not. Additionally, individual actions may be dispositive of the interests of the Class,
although certain class members are not parties to such actions.
COUNT I
Violations of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiff and the Class)
47.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
herein.
48.
It is a violation of the TCPA to make “any call (other than a call made for
emergency purposes or made with the prior express consent of the called party) using any
automatic telephone dialing system … to any telephone number assigned to a … cellular
telephone service ….” 47 U.S.C. § 227(b)(1)(A)(iii).
49.
Defendant – or third parties directed by Defendant – transmitted calls using an
artificial or prerecorded voice to the cellular telephone numbers of Plaintiff and members of the
putative class.
50.
These calls were made without regard to whether or not Defendant had first
obtained express permission from the called party to make such calls. In fact, Defendant did not
have prior express consent to call the cell phones of Plaintiff and the other members of the
putative Class when its calls were made.
51.
Defendant has, therefore, violated § 227(b)(1)(A)(iii) of the TCPA by using an
artificial or prerecorded voice to make non-emergency telephone calls to the cell phones of
Plaintiff and the other members of the putative Class without their prior express consent.
52.
Defendant knew that it did not have prior express consent to make these calls, and
knew or should have known that it was using equipment that at constituted an automatic
telephone dialing system. The violations were therefore willful or knowing.
53.
As a result of Defendant’s conduct and pursuant to § 227(b)(3) of the TCPA,
Plaintiff and the other members of the putative Class were harmed and are each entitled to a
minimum of $500.00 in damages for each violation. Plaintiff and the members of the Class are
also entitled to an injunction against future calls. Id.
COUNT II
Knowing and/or Willful Violation of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiff and the Class)
54.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
herein.
55.
At all times relevant, Defendant knew or should have known that its conduct as
alleged herein violated the TCPA.
56.
Defendant knew that it did not have prior express consent to make these calls, and
knew or should have known that its conduct was a violation of the TCPA.
57.
Because Defendant knew or should have known that Plaintiff and Class Members
had not given prior express consent to receive its autodialed calls, the Court should treble the
amount of statutory damages available to Plaintiff and the other members of the putative Class
pursuant to § 227(b)(3) of the TCPA.
58.
As a result of Defendant’s violations, Plaintiff and the Class Members are entitled
to an award of $1,500.00 in statutory damages, for each and every violation, pursuant to 47
U.S.C. § 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Class, prays for the following
relief:
a. A declaration that Defendant’s practices described herein violate the Telephone
Consumer Protection Act, 47 U.S.C. § 227;
b. An injunction prohibiting Defendant from using an artificial or prerecorded voice to
contact telephone numbers assigned to cellular telephones without the prior express permission of
the called party;
c. An award of actual and statutory damages; and
d. Such further and other relief the Court deems reasonable and just.
JURY DEMAND
Plaintiff hereby demand a trial by jury.
Dated: February 11, 2020
Respectfully submitted,
By: /s/ William Litvak, Esquire
William Litvak
DAPEER ROSENBLIT LITVAK, LLP
CA Bar No. 90533
11500 W. Olympic Blvd. Suite 550
Los Angeles, California 90064
T: (310) 477-5575
E: wlitvak@drllaw.com
Ignacio J. Hiraldo, Esq. (pro hac vice forthcoming)
IJH LAW
Florida Bar No. 0056031
1200 Brickell Avenue, Suite 1950
Miami, FL 33131
T: 786-496-4469
E: ijhiraldo@ijhlaw.com
Mariam Grigorian, Esq. (pro hac vice forthcoming)
SHAMIS & GENTILE, P.A.
FL Bar No. 1010510
14 NE 1st Avenue, Suite 1205
Miami, FL 33132
T: 305-479-2299
E: mgrigorian@shamisgentile.com
Counsel for Plaintiff and the Proposed Class
| privacy |
SOoOEocBD5gMZwczZwwh | BLUMENTHAL, NORDREHAUG & BHOWMIK
Norman B. Blumenthal (State Bar #068687)
Kyle R. Nordrehaug (State Bar #205975)
Aparajit Bhowmik (State Bar #248066)
2255 Calle Clara
La Jolla, CA 92037
Telephone: (858)551-1223
Facsimile: (858) 551-1232
Email: Norm@bamlawca.com
Website: www.bamlawca.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'15CV0565
WVG
BEN
Case No. _______________________
MATTHEW EASTERBROOK, an
individual, on behalf of himself, and
on behalf of all persons similarly
situated,
CLASS ACTION COMPLAINT
FOR:
Plaintiff,
vs.
1. VIOLATION OF THE FAIR
CREDIT REPORTING ACT FOR
FAILURE TO MAKE PROPER
DISCLOSURES [15 U.S.C. § 1681, et
seq.]; and,
INTER-CON SECURITY
SYSTEMS, INC., a California
Corporation,
2. VIOLATION OF THE FAIR
CREDIT REPORTING ACT FOR
FAILURE TO OBTAIN PROPER
AUTHORIZATION [15 U.S.C. § 1681,
et seq.].
Defendant.
DEMAND FOR A JURY TRIAL
Plaintiff Matthew Easterbrook ("PLAINTIFF"), on behalf of himself and all others
similarly situated, alleges on information and belief, except for his own acts and
knowledge, the following:
THE PARTIES
1.
Defendant Inter-Con Security Systems, Inc. (“INTER-CON” or
“DEFENDANT”) at all relevant times mentioned herein conducted and continues to
conduct substantial and regular business throughout California.
2.
Inter-Con Security Systems Inc. is a security company that provides
physical security services to government, commercial, and Fortune 100 customers in the
United States and internationally. Its services include security personnel, security
management, security program design and development, training of security personnel,
security program management and administration, security data development and
analysis, classified information safeguarding, investigations, and representation of clients
before regulatory authorities. Inter-Con Security Systems Inc. was founded in 1973 and
is headquartered in Pasadena, California.
3.
Plaintiff Matthew Easterbrook has been employed by INTER-CON in
California since June of 2012. Plaintiff applied for work at in the summer of 2012. In
connection with his employment application, PLAINTIFF completed INTER-CON’s
standard application materials. Among other things, these application materials included
a background investigation information and consent form.
4.
During the application process PLAINTIFF executed the background check
disclosure and release authorization form permitting INTER-CON to obtain a consumer
report, which form included, among other things, a liability release provision.
5.
PLAINTIFF brings this Class Action on behalf of himself and a nationwide
class, defined as all employees or prospective employees of DEFENDANT in the United
States who were the subject of a consumer report that was used by DEFENDANT and
who executed DEFENDANT’s standard FCRA disclosure form that included a liability
release clause (the “CLASS”) at any time during the period beginning five (5) years
prior to the filing of this Complaint and ending on the date as determined by the Court
(the “CLASS PERIOD”).
NATURE OF THE ACTION
6.
The Fair Credit Reporting Act 15 U.S.C. § 1681, et seq. (“FCRA”) provides
individuals with a number of rights. Specifically, pertaining to employment-related
background checks, the FCRA provides that a prospective employee must give valid
consent to the background check. The FCRA requires a signed authorization and
disclosure from the applicant, sometimes referred to as a “consent” form. The
authorization and disclosure form most be executed and signed by the applicant prior to
an employer requesting or conducting a background check. Importantly, no extraneous
information can be attached or included on the consent form. The authorization and
disclosure must stand alone.
7.
In violation of 15 U.S.C. § 1681b(b)(2)(A)(I), DEFENDANT has
unlawfully inserted a liability release provision into forms purporting to grant
DEFENDANT the authority to obtain and use consumer report information for
employment purposes. The FCRA prohibits this practice and requires that forms
granting the authority to access and use consumer report information for employment
purposes be stand alone forms, and not include any additional information or
agreements. DEFENDANT’s decision to include liability release provisions in its
authorization forms is contrary to the plain language of the statute and unambiguous
regulatory guidance from the Federal Trade Commission (“FTC”). See Exhibit #1 and
incorporated by this reference herein (“The inclusion of such a [liability] waiver in a
disclosure form will violate . . . the FCRA, which requires that a disclosure consist
‘solely’ of the disclosure that a consumer report may be obtained for employment
purposes.”
8.
In violation of 15 U.S.C. § 1681b(b)(2)(A)(ii) DEFENDANT has obtained
consumer reports without proper authorization because the authorization and disclosure
form signed by PLAINTIFF failed to comply with the requirements of the FCRA. The
inclusion of the liability release clause and release of claims provision in
DEFENDANT’s authorization forms invalidates the purported consent and also triggers
statutory damages under the FCRA in the amount of up to $1,000 for each applicant that
DEFENDANT obtained a consumer report without a facially valid authorization, as well
as punitive damages, equitable relief, and attorneys’ fees and costs.
FACTUAL ALLEGATIONS
9.
PLAINTIFF sought employment with DEFENDANT in the summer of
2012. In connection with his employment application, PLAINTIFF completed
DEFENDANT’s standard application materials. These application materials included
a background check disclosure and authorization form and included on the form was
extraneous information, including but not limited to, a liability release clause and a
provision purporting to a release of all of PLAINTIFF’s claims. Following his
submission of the employment application materials DEFENDANT conducted a
background check on PLAINTIFF and PLAINTIFF was hired to work for
DEFENDANT as a security guard.
10.
The background check disclosure and authorization form disclosed that
DEFENDANT intended to conduct a background investigation on the applicant that
would involve investigating the applicant’s work record, references and education. The
background check disclosure and authorization form also included a liability release
provision.
11.
The inclusion of this liability release provision in the background check
disclosure and authorization form violates the FCRA, 15 U.S.C. § 1681, et seq.
12.
Under the FCRA, it is unlawful to procure a consumer report or cause a
consumer report to be procured for employment purposes, unless:
(i)
a clear and conspicuous disclosure has been made in writing to the
consumer at any time before the report is procured or caused to be
procured, in a document that consists solely of the disclosure, that a
consumer report may be obtained for employment purposes; and
(ii)
the consumer has authorized in writing (which authorization may be made
on the document referred to in clause(I)) the procurement of the report.
15 U.S.C. §§ 1681b(b)(2)(A)(I)-(ii) (emphasis added).
13.
After PLAINTIFF executed the background check disclosure and
authorization form in the summer of 2012, DEFENDANT obtained a consumer report
on the PLAINTIFF notwithstanding the fact that the background check disclosure and
authorization form was invalid under the requirements of the FCRA.
14.
Although the disclosure required by clause (i) and the authorization required
by clause (ii) may be combined in a single document, the FTC has warned that “the form
should not include any extraneous information.” See Exhibit #1. Further, the FTC has
also specifically warned that “[t]he inclusion of such a waiver in a disclosure form will
violate Section 604(b)(2)(A) of the FCRA [15 U.S.C. §§ 1681b(b)(2)(A)], which
requires that a disclosure consist ‘solely’ of the disclosure that a consumer report may
be obtained for employment purposes.”
15.
By including a liability release clause in its background check disclosure
and authorization form, DEFENDANT willfully disregarded the FTC’s regulatory
guidance and violated 15 U.S.C. §§ 1681b(b)(2)(A).
THE CLASS
16.
PLAINTIFF brings the First and Second Cause of Action pursuant to Fed.
R. Civ. Proc. 23(b)(2) and/or (3), on behalf of a nationwide Class, defined as all
employees or prospective employees of DEFENDANT in the United States who were
the subject of a consumer report that was used by DEFENDANT and who executed
DEFENDANT’s standard FCRA disclosure form that included a liability release clause
(the “CLASS”) at any time during the period beginning five (5) years prior to the filing
of this Complaint and ending on the date as determined by the Court (the “CLASS
PERIOD”).
17.
To the extent equitable tolling operates to toll claims by the CLASS against
DEFENDANT, the CLASS PERIOD should be adjusted accordingly.
18.
DEFENDANT, as a matter of corporate policy, practice and procedure, and
in violation of The Fair Credit Reporting Act 15 U.S.C. § 1681, et seq., intentionally,
knowingly, and wilfully, engaged in a practice whereby DEFENDANT uniformly,
unfairly, unlawfully, and deceptively instituted a practice of obtaining consumer reports
without valid authorization to do so.
19.
The CLASS is so numerous that joinder of all CLASS Members is
impracticable.
20.
DEFENDANT uniformly violated the rights of the CLASS by:
(a)
Violating The Fair Credit Reporting Act 15 U.S.C. § 1681, et seq.,
by unlawfully, unfairly and/or deceptively having in place company
policies, practices and procedures that uniformly obtained credit
reports on prospective employees without first obtaining valid
authorization consent forms.
21.
Common questions of law and fact exist as to members of the CLASS,
including, but not limited, to the following:
(a)
Whether DEFENDANT required the CLASS Members to sign an
background check disclosure and authorization form;
(b)
Whether DEFENDANT’s background check disclosure and
authorization form complies with the Fair Credit Reporting Act 15
U.S.C. § 1681, et seq. (“FCRA”);
(c)
Whether DEFENDANT violated the FCRA by including a liability
release in its background check disclosure and authorization form;
(d)
Whether DEFENDANT violated the FCRA by including a waiver of
all rights clause in its background check disclosure and authorization
form;
(e)
Whether DEFENDANT violated the FCRA by procuring consumer
report information based on invalid authorizations;
(f)
Whether DEFENDANT’s violations of the FCRA were willful;
(g)
The proper measure of statutory damages and punitive damages; and,
(h)
The proper form of injunctive and declaratory relief.
22.
This Class Action meets the statutory prerequisites for the maintenance of
a Class Action as set forth in Fed. R. Civ. Proc. 23(b)(2) and/or (3), in that:
(a)
The persons who comprise the CLASS are so numerous that the
joinder of all such persons is impracticable and the disposition of
their claims as a class will benefit the parties and the Court;
(b)
Nearly all factual, legal, statutory, and declaratory relief issues that
are raised in this Complaint are common to the CLASS will apply
uniformly to every member of the CLASS;
(c)
The claims of the representative PLAINTIFF are typical of the
claims of each member of the CLASS. PLAINTIFF, like all the
other members of the CLASS, had a credit report obtained on his
behalf by DEFENDANT prior to obtaining valid authorization to do
so in violation of the FCRA as described herein. PLAINTIFF and
the members of the CLASS were and are similarly or identically
harmed by the same unlawful, deceptive, unfair and pervasive
pattern of misconduct engaged in by DEFENDANT; and,
(d)
The representative PLAINTIFF will fairly and adequately represent
and protect the interest of the CLASS, and has retained counsel who
are competent and experienced in Class Action litigation. There are
no material conflicts between the claims of the representative
PLAINTIFF and the members of the CLASS that would make class
certification inappropriate. Counsel for the CLASS will vigorously
assert the claims of all employees in the CLASS.
23.
In addition to meeting the statutory prerequisites to a Class Action, this
Action is properly maintained as a Class Action pursuant to Fed. R. Civ. Proc. 23(b)(2)
and/or (3), in that:
(a)
Without class certification and determination of declaratory,
statutory and other legal questions within the class format,
prosecution of separate actions by individual members of the CLASS
will create the risk of:
1)
Inconsistent or varying adjudications with respect to
individual members of the CLASS which would establish
incompatible standards of conduct for the parties opposing the
CLASS; and/or,
2)
Adjudication with respect to individual members of the
CLASS which would as a practical matter be dispositive of
interests of the other members not party to the adjudication or
substantially impair or impede their ability to protect their
interests.
(b)
The parties opposing the CLASS have acted or refused to act on
grounds generally applicable to the CLASS, making appropriate
class-wide relief with respect to the CLASS as a whole;
(c)
Common questions of law and fact exist as to the members of the
CLASS, with respect to the practices and violations of the FCRA as
listed above, and predominate over any question affecting only
individual CLASS Members, and a Class Action is superior to other
available methods for the fair and efficient adjudication of the
controversy, including consideration of:
1)
The interests of the members of the CLASS in individually
controlling the prosecution or defense of separate actions in
that the substantial expense of individual actions will be
avoided to recover the relatively small amount of economic
losses sustained by the individual CLASS Members when
compared to the substantial expense and burden of individual
prosecution of this litigation;
2)
Class certification will obviate the need for unduly duplicative
litigation that would create the risk of:
A.
Inconsistent or varying adjudications with respect to
individual members of the CLASS, which would
establish incompatible standards of conduct for
DEFENDANT; and/or,
B.
Adjudications with respect to individual members of
the CLASS would as a practical matter be dispositive
of the interests of the other members not parties to the
adjudication or substantially impair or impede their
ability to protect their interests;
3)
In the context of employment litigation because as a practical
matter a substantial number of individual CLASS Members
will avoid asserting their legal rights out of fear of retaliation
by DEFENDANT, which may adversely affect an individual’s
job with DEFENDANT or with a subsequent employer, the
Class Action is the only means to assert their claims through
a representative; and,
4)
A Class Action is superior to other available methods for the
fair and efficient adjudication of this litigation because class
treatment will obviate the need for unduly and unnecessary
duplicative litigation that is likely to result in the absence of
certification of this Action pursuant to Fed. R. Civ. Proc.
23(b)(2) and/or (3).
24.
This Court should permit this Action to be maintained as a Class Action
pursuant to Fed. R. Civ. Proc. 23(b)(2) and/or (3), because:
(a)
The questions of law and fact common to the CLASS predominate
over any question affecting only individual CLASS Members
because DEFENDANT’s employment practices were uniform and
systematically applied with respect to the CLASS;
(b)
A Class Action is superior to any other available method for the fair
and efficient adjudication of the claims of the members of the
CLASS because in the context of employment litigation a substantial
number of individual CLASS Members will avoid asserting their
rights individually out of fear of retaliation or adverse impact on
their employment;
(c)
The members of the CLASS are so numerous that it is impractical to
bring all members of the CLASS before the Court;
(d)
PLAINTIFF, and the other CLASS Members, will not be able to
obtain effective and economic legal redress unless the action is
maintained as a Class Action;
(e)
There is a community of interest in obtaining appropriate legal and
equitable relief for the acts of statutory violations and other
improprieties, and in obtaining adequate compensation for the
injuries which DEFENDANT’s actions have inflicted upon the
CLASS;
(f)
There is a community of interest in ensuring that the combined assets
of DEFENDANT are sufficient to adequately compensate the
members of the CLASS for the injuries sustained;
(g)
DEFENDANT has acted or refused to act on grounds generally
applicable to the CLASS, thereby making final class-wide relief
appropriate with respect to the CLASS as a whole;
(h) The members of the CLASS are readily ascertainable from the
business records of DEFENDANT. The CLASS consists of all
employees or prospective employees of DEFENDANT in the United
States who completed DEFENDANT’s background check disclosure
and authorization forms that included a liability release allowing
DEFENDANT to obtain a consumer report during the CLASS
PERIOD; and,
(i)
Class treatment provides manageable judicial treatment calculated to
bring an efficient and rapid conclusion to all litigation of all FCRA
claims arising out of the conduct of DEFENDANT as to the
members of the CLASS.
25.
DEFENDANT maintains records from which the Court can ascertain and
identify by name and job title, each of DEFENDANT’s employees who have been
systematically, intentionally and uniformly subjected to DEFENDANT’s corporate
policy, practices and procedures as herein alleged. PLAINTIFF will seek leave to amend
the Complaint to include any additional job titles of similarly situated employees when
they have been identified.
JURISDICTION AND VENUE
26.
This Court has jurisdiction over the PLAINTIFF’s federal claims pursuant
to 28 U.S.C. § 1331(a) and 15 U.S.C. 1681p of the FCRA, codified at 15 U.S.C. § 1681,
et seq.
27.
Venue is proper in this District pursuant to 28 U.S.C. § 1391 because: (I)
DEFENDANT is subject to personal jurisdiction in this District and therefore resides in
this District; (ii) DEFENDANT maintains offices and facilities in this District; and, (iii)
DEFENDANT committed the wrongful conduct against members of the CLASS,
including the PLAINTIFF in this District.
FIRST CAUSE OF ACTION
For Failure to Make Proper Disclosure in Violation of the FCRA
[15 U.S.C. § 1681b(b)(2)(A)(I), et seq.]
(By PLAINTIFF and the CLASS and Against All Defendants)
28.
PLAINTIFF, and the other members of the CLASS, reallege and
incorporate by this reference, as though fully set forth herein, paragraphs 1 through 27
of this Complaint.
29.
DEFENDANT violated 15 U.S.C. § 1681b(b)(2)(A)(I) of the FCRA by
including a liability release clause in the background check disclosure and authorization
and disclosure form that PLAINTIFF and other CLASS Members were required to
execute as a condition of employment with DEFENDANT.
30.
The violations of the FCRA were willful. DEFENDANT knew that its
background check disclosure and authorization form should not include extraneous
information that is prohibited by the FCRA, and acted in deliberate disregard of its
obligations and the rights of PLAINTIFF and other CLASS Members under 15 U.S.C.
§ 1681b(b)(2)(A)(I).
31.
PLAINTIFF and the CLASS Members are entitled to statutory damages of
not less than $100 and not more than $1,000 for every violation of the FCRA, pursuant
to 15 U.S.C. § 1681n(a)(1)(A).
32.
PLAINTIFF and CLASS Members are also entitled to punitive damages for
these violations, pursuant to 15 U.S.C. § 1681n(a)(2).
33.
PLAINTIFF and CLASS Members are further entitled to recover their costs
and attorneys’ fees, pursuant to 15 U.S.C. § 1681n(a)(3).
SECOND CAUSE OF ACTION
For Failure to Obtain Proper Authorization in Violations of the FCRA
[15 U.S.C. § 1681b(b)(2)(A)(ii)]
(By PLAINTIFF and the CLASS and Against All Defendants)
34.
PLAINTIFF, and the other members of the CLASS, reallege and
incorporate by this reference, as though fully set forth herein, paragraphs 1 through 33
of this Complaint.
35.
DEFENDANT violated the FCRA by procuring consumer reports relating
to PLAINTIFF and other CLASS Members without proper authorization as alleged
herein. See 15 U.S.C. § 1681b(b)(2)(A)(ii).
36.
The violations of the FCRA were willful. DEFENDANT acted in deliberate
disregard of its obligations and the rights of PLAINTIFF and other CLASS Members
under 15 U.S.C. § 1681b(b)(2)(A)(ii).
37.
PLAINTIFF and the CLASS Members are entitled to statutory damages of
not less than $100 and not more than $1,000 for every violation of the FCRA, pursuant
to 15 U.S.C. § 1681n(a)(1)(A).
38.
PLAINTIFF and CLASS Members are also entitled to punitive damages for
these violations, pursuant to 15 U.S.C. § 1681n(a)(2).
39.
PLAINTIFF and CLASS Members are further entitled to recover their costs
and attorneys’ fees, pursuant to 15 U.S.C. § 1681n(a)(3).
PRAYER FOR RELIEF
WHEREFORE, the PLAINTIFF prays for judgment against each Defendant,
jointly and severally, as follows:
1.
On behalf of the CLASS:
A)
That the Court certify the First and Second Cause of Action asserted by the
CLASS as a Class Action pursuant to Fed. R. Civ. Proc. 23(b)(2) and/or
(3);
B)
A determination and judgment that DEFENDANT willfully violated the 15
U.S.C. § 1681(b)(2)(A)(I) and(ii) of the FCRA by failing improperly
including liability release language in its background check disclosure and
authorization form and by obtaining consumer reports on PLAINTIFF and
CLASS Members without having proper authorization to do so;
C)
Pursuant to 15 U.S.C. § 1681n(a)(1)(A), an award of statutory damages to
PLAINTIFF and the members of the CLASS in an amount equal to $1,000
for PLAINTIFF and each CLASS Member for DEFENDANT’s willful
violation of the FCRA:
D)
Pursuant to 15 U.S.C. § 1681n(a)(2), an award of punitive damages to
PLAINTIFF and other CLASS Members;
E)
An award for costs of suit and reasonable attorneys’ fees pursuant to 15
U.S.C. § 1681n(a)(3); and,
F)
Such other and further relief as the Court deems just and equitable.
Dated: March 12, 2015
BLUMENTHAL, NORDREHAUG & BHOWMIK
By: /s/Norman B. Blumenthal
Norman B. Blumenthal
Attorneys for Plaintiff
DEMAND FOR A JURY TRIAL
PLAINTIFF demands a jury trial on issues triable to a jury.
Dated: March 12, 2015
BLUMENTHAL, NORDREHAUG & BHOWMIK
By: /s/Norman B. Blumenthal
Norman B. Blumenthal
Attorneys for Plaintiff
G:\D\Dropbox\Pending Litigation\Intercon Security- Easterbrook\p-Complaint-Final.wpd
EXHIBIT #1
| securities |
f_DQEocBD5gMZwczGyJP | Case No.:
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ELLIOT SOMMER, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
COMSCORE, INC., SERGE MATTA, and
MELVIN WESLEY III,
Defendants.
Plaintiff Elliot Sommer (“Plaintiff”), by and through his attorneys, alleges the following
upon information and belief, except as to those allegations concerning Plaintiff, which are
alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other
things, his counsel’s investigation, which includes without limitation: (a) review and analysis of
regulatory filings made by comScore, Inc. (“comScore” or the “Company”), with the United
States (“U.S.”) Securities and Exchange Commission (“SEC”); (b) review and analysis of press
releases and media reports issued by and disseminated by comScore; and (c) review of other
publicly available information concerning comScore.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons or entities that acquired comScore
securities between May 5, 2015 and March 7, 2016, inclusive (the “Class Period”), seeking to
pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).
2.
comScore provides data, metrics, products, and services to clients in the media,
advertising, and marketing industries. The Company delivers digital media analytics that help
content owners and advertisers understand and value the composition of consumer media
audiences, and help marketers understand the performance and effectiveness of advertising
targeted at these audiences. The Company’s technology measures consumer interactions with
digital media, including Web sites, apps, video programming, and advertising.
3.
On February 29, 2016, the Company filed a Notification of Late Filing on Form
12b-25 with the SEC, disclosing that the Company would be unable to file its Annual Report on
Form 10-K for the fiscal year ended December 31, 2015 on time because the Company
“require[d] additional time to prepare its financial statements and complete the external audit of
those statements included in the Form 10-K.” Elaborating, the Company disclosed that on
February 19, 2016, “the Audit Committee of the Company’s Board of Directors (the “Audit
Committee”) received a message regarding certain potential accounting matters” and that, in
response, “the Audit Committee immediately commenced a review of the matters with the
assistance of independent counsel and advisors.” comScore also announced that the Company
would not file its Form 10-K until after the completion of the Audit Committee’s review, and
that comScore expected to file the 10-K by March 15, 2016.
4.
On this news, shares of comScore fell $1.15 per share, or 2.8%, to close at $40.00
on March 1, 2016, on unusually heavy trading volume.
5.
On March 7, 2016, the Company filed an amendment to the Notice of Late Filing
previously filed on February 29, 2016. Therein, the Company disclosed that on March 5, 2016,
the Audit Committee advised the Company’s Board of Directors that it did not expect to finalize
its review before March 15, 2016. The Company also disclosed that, as a result, “the Company
is not in a position to file its Form 10-K until after the Audit Committee completes its review and
the Company’s independent public accountants assess the conclusions of the Audit Committee in
connection with their audit of the Company’s annual financial statements included in the Form
10-K.” The Company also stated that it does not expect to make further comment regarding the
Audit Committee’s review until its conclusion. Finally, in a press release issued the same day,
the Company announced that “out of an abundance of caution” it was suspending the Company’s
previously announced share repurchase program.”
6.
On this news, shares of comScore fell $13.67 per share, or 33.5%, to close at
$27.04 on March 7, 2016, on unusually heavy trading volume.
7.
Throughout the Class Period, Defendants made false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that the Company’s accounting practices were not in compliance
with applicable SEC regulations; (2) that the Company lacked adequate internal controls over
accounting; (3) that, as such, the Company would be unable to file its Form 10-K for the fiscal
year ended December 31, 2015 in a timely manner; and (4) that, as a result of the foregoing, the
Company’s financial statements, as well as Defendants’ statements about comScore’s business,
operations, and prospects, were false and misleading and/or lacked a reasonable basis.
8.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
9.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
10.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
11.
Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and
Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the dissemination of materially false and/or misleading information,
occurred in substantial part in this Judicial District. In addition, the Company’s shares are
actively traded within this Judicial District.
12.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
13.
Plaintiff Elliot Sommer, as set forth in the accompanying certification,
incorporated by reference herein, acquired comScore common stock during the Class Period, and
suffered damages as a result of the federal securities law violations and false and/or misleading
statements and/or material omissions alleged herein.
14.
Defendant comScore is a Delaware corporation with its principal executive
offices located at 11950 Democracy Drive, Suite 600, Reston, Virginia 20190.
15.
Defendant Serge Matta (“Matta”) was, at all relevant times, Chief Executive
Officer (“CEO”) of comScore.
16.
Defendant Melvin Wesley III (“Wesley”) was, at all relevant times, Chief
Financial Officer (“CFO”) of comScore.
17.
Defendants Matta and Wesley are collectively referred to hereinafter as the
“Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of comScore’s reports to the
SEC, press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the
Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading. The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
SUBSTANTIVE ALLEGATIONS
Background
18.
comScore provides data, metrics, products, and services to clients in the media,
advertising, and marketing industries. The Company delivers digital media analytics that help
content owners and advertisers understand and value the composition of consumer media
audiences, and help marketers understand the performance and effectiveness of advertising
targeted at these audiences. The Company’s technology measures consumer interactions with
digital media, including Web sites, apps, video programming, and advertising.
Materially False and Misleading
Statements Issued During the Class Period
19.
The Class Period began on May 5, 2015. On that day, comScore issued a press
release entitled, “comScore, Inc. Reports First Quarter 2015 Results.” Therein, the Company, in
relevant part, stated:
RESTON, VA - May 5, 2015 - comScore, Inc. (NASDAQ: SCOR), a leader in
measuring the digital world, today announced financial results for the first
quarter 2015.
First Quarter 2015
comScore achieved record first quarter revenue of $87.3 million, an increase of
14% compared to the first quarter of 2014. GAAP loss before income taxes
was $9.7 million. GAAP net loss was $7.3 million, or $0.22 per basic and diluted
share.
First quarter 2015 results and metrics compared to first quarter 2014 on a
proforma basis* were as follows:
Revenue of $87.1 million, up 15% from a year ago.
Adjusted EBITDA of $21.3 million, up 25% from a year ago.
Adjusted EBITDA margin was 24% of revenue, up 200 basis points from
a year ago.
“I’m pleased that comScore delivered another quarter of strong revenues and
financial performance,” said Serge Matta, Chief Executive Officer of comScore.
“Immediately following the end of the first quarter on April 1, we closed the WPP
transaction that we announced on our last earnings call. I am also happy to
announce that our board of directors recently authorized the increase of our share
buy-back program to $150 million, demonstrating our continued commitment to
return capital to our investors.”
“As a company, we continue to pursue our mission of making audiences and
advertising more valuable, and are doing so during a time of rapid change in the
digital media, television and advertising ecosystems,” continued Matta. “Today,
one of the toughest challenges for our industry is understanding how, when and
where consumers engage with video content across screens. We are solving this
challenge. Cross-media is no longer an aspiration at comScore - we are
increasingly making it a reality. We will be formally launching our first
syndicated Xmedia product later this quarter.”
20.
On the same day, May 5, 2015, comScore filed its Quarterly Report with the SEC
on Form 10-Q for the 2015 fiscal first quarter. The Company’s Form 10-Q was signed by
Defendant Wesley, and reaffirmed the Company’s statements previously announced earlier that
day. The Form 10-Q contained certifications pursuant to the Sarbanes-Oxley Act of 2002
(“SOX”), signed by Defendants Matta and Wesley, who certified the following:
1. I have reviewed this quarterly report on Form 10-Q of comScore, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
21.
On August 4, 2015 comScore issued a press release entitled, “comScore, Inc.
Reports Second Quarter 2015 Results.” Therein, the Company, in relevant part, stated:
RESTON, VA - August 4, 2015 - comScore, Inc. (NASDAQ: SCOR), a global
media measurement and analytics company, today announced financial results for
the second quarter 2015.
Second Quarter 2015
comScore achieved record second quarter GAAP revenue of $91.4 million, an
increase of 14% compared to the second quarter of 2014. GAAP loss before
income taxes was $2.7 million. GAAP net loss was $4.8 million, or $0.12 per
basic and diluted share.
Second quarter 2015 results and metrics compared to second quarter 2014 on a
proforma basis* were as follows:
Revenue of $91.3 million, up 16%.
Adjusted EBITDA of $22.9 million, up 30%.
Adjusted EBITDA margin was 25% of revenue, up 300 basis points.
Year to date 2015 results and metrics compared to the six months ended June
30, 2014 on a proforma basis* were as follows:
Revenue of $178.3 million, up 15%.
Adjusted EBITDA of $44.2 million, up 28%.
Adjusted EBITDA margin was 25% of revenue, up 300 basis points.
“I’m pleased to share that comScore delivered a quarter of record revenues and
strong profitability,” said Serge Matta, President and Chief Executive Officer of
comScore. “Because of our continued positive momentum across our business
and the strength of our partnerships, which continue to grow in number and
impact, we are raising full year revenue and adjusted EBITDA guidance. I’m also
delighted that comScore vCE in DoubleClick is now widely available to Google
DoubleClick customers. comScore vCE is the first independent audience delivery
evaluation solution that is integrated directly into the DoubleClick platform.”
“Beyond our work with Google and our innovation in advertising measurement,
we continue to focus on solving the challenges that come with the rapid rise of
cross-platform television and video audiences. In May, we launched our
syndicated cross-media product, comScore XMedia. At comScore, cross-media
measurement is no longer an aspiration.”
22.
On August 7, 2015, comScore filed its Quarterly Report with the SEC on Form
10-Q for the 2015 fiscal second quarter. The Company’s Form 10-Q was signed by Defendant
Wesley, and reaffirmed the Company’s statements previously announced on August 4, 2015.
The Form 10-Q contained certifications pursuant to SOX, signed by Defendants Matta and
Wesley, substantially similar to the certification described in ¶20, supra.
23.
On November 5, 2015 comScore issued a press release entitled, “comScore, Inc.
Reports Third Quarter 2015 Results.” Therein, the Company, in relevant part, stated:
RESTON, VA - November 5, 2015 - comScore, Inc. (NASDAQ: SCOR), a
global media measurement and analytics company, today announced financial
results for the third quarter 2015.
Third Quarter 2015
comScore achieved record third quarter GAAP revenue of $92.4 million, an
increase of 13% compared to the third quarter of 2014. GAAP income before
income taxes was $0.9 million. GAAP net income was $1.0 million, or $0.02 per
basic and diluted share.
Third quarter 2015 results and metrics compared to third quarter 2014 on a
proforma basis* were as follows:
Revenue of $92.4 million, up 14%.
Adjusted EBITDA of $23.4 million, up 16%.
Adjusted EBITDA margin was 25% of revenue, up 50 basis points.
Year to date 2015 results and metrics compared to the nine months ended
September 30, 2014 on a proforma basis* were as follows:
Revenue of $270.7 million, up 15%.
Adjusted EBITDA of $67.6 million, up 23%.
Adjusted EBITDA margin was 25% of revenue, up 200 basis points.
“I’m very pleased to announce that comScore delivered a solid quarter of record
revenues, strong profitability and net income from operations.” said Serge Matta,
President and Chief Executive Officer of comScore. “We continue to see
momentum in our advertising solutions, including vCE and new partnerships to
bring comScore Bid Ratings to programmatic platforms. We’re incredibly focused
on innovation and execution for cross-platform measurement, introducing our
new Total Home PanelTM, and working through the details of our planned merger
with Rentrak.”
“In addition, we are announcing today that Adobe is acquiring our enterprise
analytics technology, Digital Analytix. This divesture improves our competitive
position, allowing complete focus on our mission to make audiences and
advertising more valuable across all the screens that matter.”
24.
On November 6, 2015, comScore filed its Quarterly Report with the SEC on
Form 10-Q for the 2015 fiscal third quarter. The Company’s Form 10-Q was signed by
Defendant Wesley, and reaffirmed the Company’s statements previously announced on
November 5, 2015. The Form 10-Q contained certifications pursuant to SOX, signed by
Defendants Matta and Wesley, substantially similar to the certification described in ¶20, supra.
25.
The above statements contained in ¶¶ 19–24 were false and/or misleading, as well
as failed to disclose material adverse facts about the Company’s business, operations, and
prospects. Specifically, these statements were false and/or misleading statements and/or failed to
disclose: (1) that the Company’s accounting practices were not in compliance with applicable
SEC regulations; (2) that the Company lacked adequate internal controls over accounting; (3)
that, as such, the Company would be unable to file its Form 10-K for the fiscal year ended
December 31, 2015 in a timely manner; and (4) that, as a result of the foregoing, the Company’s
financial statements, as well as Defendants’ statements about comScore’s business, operations,
and prospects, were false and misleading and/or lacked a reasonable basis.
Disclosures at the End of the Class Period
26.
On February 29, 2016, the Company filed a Notification of Late Filing on Form
12b-25 with the SEC, disclosing that the Company would be unable to file its Annual Report on
Form 10-K for the fiscal year ended December 31, 2015 on time because the Company
“require[d] additional time to prepare its financial statements and complete the external audit of
those statements included in the Form 10-K.” Elaborating, the Company disclosed that on
February 19, 2016, “the Audit Committee of the Company’s Board of Directors (the “Audit
Committee”) received a message regarding certain potential accounting matters” and that, in
response, “the Audit Committee immediately commenced a review of the matters with the
assistance of independent counsel and advisors.” comScore also announced that the Company
would not file its Form 10-K until after the completion of the Audit Committee’s review, and
that comScore expected to file the 10-K by March 15, 2016.
27.
On this news, shares of comScore fell $1.15 per share, or 2.8%, to close at $40.00
on March 1, 2016, on unusually heavy trading volume.
28.
On March 7, 2016, the Company filed an amendment to the Notice of Late Filing
previously filed on February 29, 2016. Therein, the Company disclosed that on March 5, 2016,
the Audit Committee advised the Company’s Board of Directors that it did not expect to finalize
its review before March 15, 2016. The Company also disclosed that, as a result, “the Company
is not in a position to file its Form 10-K until after the Audit Committee completes its review and
the Company’s independent public accountants assess the conclusions of the Audit Committee in
connection with their audit of the Company’s annual financial statements included in the Form
10-K.” The Company also stated that it does not expect to make further comment regarding the
Audit Committee’s review until its conclusion. Finally, in a press release issued the same day,
the Company announced that “out of an abundance of caution” it was suspending the Company’s
previously announced share repurchase program.”
29.
On this news, shares of comScore fell $13.67 per share, or 33.5%, to close at
$27.04 on March 7, 2016, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
30.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased or
otherwise acquired comScore’s securities between May 5, 2015 and March 7, 2016, inclusive
(the “Class Period”) and who were damaged thereby (the “Class”). Excluded from the Class are
Defendants, the officers and directors of the Company, at all relevant times, members of their
immediate families and their legal representatives, heirs, successors or assigns and any entity in
which Defendants have or had a controlling interest.
31.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, comScore’s securities were actively traded on the
NASDAQ Stock Market (the “NASDAQ”). While the exact number of Class members is
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
Plaintiff believes that there are hundreds or thousands of members in the proposed Class.
Millions of comScore shares were traded publicly during the Class Period on the NASDAQ. As
of May 4, 2015, comScore had 40,483,660 shares of common stock outstanding. Record owners
and other members of the Class may be identified from records maintained by comScore or its
transfer agent and may be notified of the pendency of this action by mail, using the form of
notice similar to that customarily used in securities class actions.
32.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
33.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
34.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b)
whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of comScore; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
35.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
36.
The market for comScore’s securities was open, well-developed and efficient at
all relevant times. As a result of these materially false and/or misleading statements, and/or
failures to disclose, comScore’s securities traded at artificially inflated prices during the Class
Period. Plaintiff and other members of the Class purchased or otherwise acquired comScore’s
securities relying upon the integrity of the market price of the Company’s securities and market
information relating to comScore, and have been damaged thereby.
37.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of comScore’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. Said statements and omissions were materially
false and/or misleading in that they failed to disclose material adverse information and/or
misrepresented the truth about comScore’s business, operations, and prospects as alleged herein.
38.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about comScore’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
39.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
40.
During the Class Period, Plaintiff and the Class purchased or otherwise acquired
comScore’s securities at artificially inflated prices and were damaged thereby. The price of the
Company’s securities significantly declined when the misrepresentations made to the market,
and/or the information alleged herein to have been concealed from the market, and/or the effects
thereof, were revealed, causing investors’ losses.
SCIENTER ALLEGATIONS
41.
As alleged herein, Defendants acted with scienter in that Defendants knew that
the public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding comScore, his/her control over, and/or
receipt and/or modification of comScore’s allegedly materially misleading misstatements and/or
their associations with the Company which made them privy to confidential proprietary
information concerning comScore, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
42.
The market for comScore’s securities was open, well-developed and efficient at
all relevant times. As a result of the materially false and/or misleading statements and/or failures
to disclose, comScore’s securities traded at artificially inflated prices during the Class Period.
On August 17, 2015, the Company’s stock closed at a Class Period high of $64.64 per share.
Plaintiff and other members of the Class purchased or otherwise acquired the Company’s
securities relying upon the integrity of the market price of comScore’s securities and market
information relating to comScore, and have been damaged thereby.
43.
During the Class Period, the artificial inflation of comScore’s stock was caused
by the material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about comScore’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of comScore and
its business, operations, and prospects, thus causing the price of the Company’s securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
Company stock. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
44.
At all relevant times, the market for comScore’s securities was an efficient market
for the following reasons, among others:
(a)
comScore stock met the requirements for listing, and was listed and
actively traded on the NASDAQ, a highly efficient and automated market;
(b)
As a regulated issuer, comScore filed periodic public reports with the SEC
and/or the NASDAQ;
(c)
comScore regularly communicated with public investors via established
market communication mechanisms, including through regular dissemination of press releases
on the national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other similar reporting services;
(d)
comScore was followed by securities analysts employed by brokerage
firms who wrote reports about the Company, and these reports were distributed to the sales force
and certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
45.
As a result of the foregoing, the market for comScore’s securities promptly
digested current information regarding comScore from all publicly available sources and
reflected such information in comScore’s stock price. Under these circumstances, all purchasers
of comScore’s securities during the Class Period suffered similar injury through their purchase of
comScore’s securities at artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
46.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of comScore who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of
The Exchange Act and Rule 10b-5
Promulgated Thereunder Against All Defendants
47.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
48.
During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase or otherwise acquire comScore’s securities at artificially
inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants,
and each of them, took the actions set forth herein.
49.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the acquirers of the Company’s securities in an effort to
maintain artificially high market prices for comScore’s securities in violation of Section 10(b) of
the Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the
wrongful and illegal conduct charged herein or as controlling persons as alleged below.
50.
Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about comScore’s
financial well-being and prospects, as specified herein.
51.
These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of comScore’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about comScore and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the acquirers of the Company’s
securities during the Class Period.
52.
Each of the Individual Defendants’ primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
53.
The Defendants had actual knowledge of the misrepresentations and/or omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they failed
to ascertain and to disclose such facts, even though such facts were available to them. Such
defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing comScore’s financial well-being and prospects from the
investing public and supporting the artificially inflated price of its securities. As demonstrated
by Defendants’ overstatements and/or misstatements of the Company’s business, operations,
financial well-being, and prospects throughout the Class Period, Defendants, if they did not have
actual knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to
obtain such knowledge by deliberately refraining from taking those steps necessary to discover
whether those statements were false or misleading.
54.
As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of
comScore’s securities was artificially inflated during the Class Period. In ignorance of the fact
that market prices of the Company’s securities were artificially inflated, and relying directly or
indirectly on the false and misleading statements made by Defendants, or upon the integrity of
the market in which the securities trades, and/or in the absence of material adverse information
that was known to or recklessly disregarded by Defendants, but not disclosed in public
statements by Defendants during the Class Period, Plaintiff and the other members of the Class
acquired comScore’s securities during the Class Period at artificially high prices and were
damaged thereby.
55.
At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that comScore was experiencing, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired their comScore securities,
or, if they had acquired such securities during the Class Period, they would not have done so at
the artificially inflated prices which they paid.
56.
By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
57.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases,
acquisitions, and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of
The Exchange Act Against the Individual Defendants
58.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
59.
The Individual Defendants acted as controlling persons of comScore within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiff contends are false and misleading. The Individual Defendants were
provided with or had unlimited access to copies of the Company’s reports, press releases, public
filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
60.
In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
61.
As set forth above, comScore and the Individual Defendants each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and other members of the Class suffered damages in connection with their purchases
and acquisitions of the Company’s securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: March 10, 2016
GLANCY PRONGAY & MURRAY LLP
By: s/ Lesley F. Portnoy
Lesley F. Portnoy (LP-1941)
122 East 42nd Street, Suite 2920
New York, New York 10168
Telephone: (212) 682-5340
Facsimile: (212) 884-0988
lportnoy@glancylaw.com
GLANCY PRONGAY & MURRAY LLP
Lionel Z. Glancy
Robert V. Prongay
Casey E. Sadler
Charles H. Linehan
1925 Century Park East, Suite 2100
Los Angeles, California 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
info@glancylaw.com
Attorneys for Plaintiff Elliot Sommer
3/8/2016
Elliot Sommer's Transactions in
comScore, Inc. (SCOR)
Date
Transaction Type
Quantity
2/1/2016
Acquired*
2,760
*Acquired as a result of the merger of comScore, Inc. and Rentrak Corporation,
whereby each share of Rentrak Corporation common stock was converted into the
right to receive 1.15 shares of comScore, Inc. common stock.
| securities |
JajdCYcBD5gMZwczpRBE | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
JOSELINE DOTEL, on behalf of herself and all
others similarly situated,
Plaintiff,
v.
No.
ANTITRUST CLASS ACTION
COMPLAINT
JURY TRIAL DEMANDED
COOPERVISION, INC.; ALCON
LABORATORIES, INC; BAUSCH & LOMB
INCORPORATED; JOHNSON & JOHNSON
VISION CARE, INC.; and ABB/CON-CISE
OPTICAL GROUP LLC (a/k/a ABB OPTICAL
GROUP),
Defendants.
Plaintiff, by her attorneys, on behalf of herself and all others similarly situated on behalf
of himself and all others similarly situated, makes the following allegations based on the
investigation of counsel and based upon information and belief, except as to those allegations
specifically pertaining to himself and her counsel, which are based on personal knowledge.
NATURE OF ACTION
1.
This lawsuit arises from a scheme among four manufacturers of Contact Lenses
and the largest distributor of Contact Lenses in the United States whereby they eliminate
discounts among retailers of Contact Lenses and artificially fix, raise, maintain and/or stabilize
the prices charged to consumers for Contact Lenses.
2.
Plaintiff seeks to represent herself and all others similarly situated (the “Classes”).
The Class consists of all persons in the United States who indirectly purchased Contact Lenses
sold by Defendants CooperVision, Inc. (“CooperVision”), Alcon Laboratories, Inc. (“Alcon”),
Bausch & Lomb Incorporated (“B&L”), and Johnson & Johnson Vision Care, Inc. (“J&J”)
(collectively referred to as the “Manufacturer Defendants”), or any current or former subsidiary
or affiliate thereof, or any co-conspirator, that was subject to Price Floor Policies1 during the
period from and including June 1, 2013 through such time as the anticompetitive effects of
Defendants’ unlawful conduct cease (the “Class Period”).
3.
Plaintiff asserts that the Manufacturer Defendants, along with Defendant
ABB/Con-Cise Optical Group LLC (a/k/a ABB Optical Group) (“ABB”) (together with the
Manufacturer Defendants, the “Defendants”), and unnamed co-conspirators, engaged in a
scheme to fix, raise, maintain and/or stabilize prices of Contact Lenses by imposing Price Floor
Policies (“PFPs”).
4.
As of mid-2014, nearly 40 million Americans wore Contact Lenses, costing a
total of $4.2 billion annually.2 Today, the Manufacturer Defendants dominate and collectively
control over 97% of the Contact Lens market in the United States. As an example, Defendant
ABB is the largest distributor of Contact Lenses in the United States and services more than two-
thirds of independent eye care professionals (“ECPs”).
5.
The PFPs set a minimum price for which a reseller can advertise or sell a
particular line of Contact Lenses. Although retailers may offer discounts pursuant to the PFPs,
the price of lenses after any such discount must not fall below the established price floor. If
retailers violate a PFP by advertising or selling Contact Lenses below the set floor price,
Defendants have cautioned that they “will cease to supply” the retailer with those lenses. In an
1 Price Floor Policies set a minimum price for which a reseller can advertise or sell a particular
line of Contact Lenses.
2 American Antitrust Institute, Letter to the FTC and DOJ (Oct. 24, 2014) at 2 (citing Statement
of R. Joe Zeidner, General Counsel, 1-800 CONTACTS, Hearing Before the S. Comm. on the
Judiciary Subcomm. on Antitrust, Competition Policy and Consumer Rights 1 (July 30, 2014)).
attempt to evade antitrust scrutiny, the Manufacturing Defendants nicknamed the PFPs
“Unilateral Pricing Policies.”
6.
In June 2013, Alcon implemented the first PFP. Shortly thereafter, the other
Manufacturer Defendants followed suit, implementing nearly identical PFPs.
7.
The Manufacturer Defendants’ objective in implementing their PFPs was to stifle
price competition between independent eye care professional retailers and big-box stores (i.e.,
Wal-Mart), internet retailers (i.e., 1-800 CONTACTS), and warehouse clubs (i.e., Costco), that,
on average, charge approximately 30% less for the same Contact Lenses sold by independent eye
care professional retailers. (See Figure 3 below).
8.
Acting on behalf of ECPs, ABB was instrumental in facilitating the conspiracy
among the Manufacturer Defendants. ABB acted as the “hub” of a “hub-and-spoke” conspiracy3
to shift the entire industry to PFP contracts for the benefit of its eye care professional customers.
Before the first PFP was put into effect, ABB itself admitted that it was working with the
Manufacturer Defendants to shift industry practices. In February 2013, ABB’s founder and
CEO, Angel Alvarez, stated that ABB focused on being “aligned with manufacturers.”
Subsequently, Alvarez confirmed ABB’s participation in the conspiracy to create PFPs:
ABB has been working closely with manufacturers to develop
[PFPs], which we believe enable a better overall patient experience
by supporting competitiveness of prescribing practitioners . . .
Contact Lens fitters have always been and will always be a focus
of our organization. We do everything possible to help them
succeed.
3 In a “hub-and-spoke conspiracy”, a central mastermind, or “hub”, controls numerous “spokes”,
or secondary co-conspirators. These co-conspirators participate in independent transactions with
the individual or group of individuals at the “hub” that collectively further a single, illegal
enterprise. United States v. Newton, 326 F.3d 253, 255, n.2 (1st Cir. 2003).
9.
Before the Manufacturer Defendants implemented their PFPs beginning in June
2013, Contact Lens purchasers enjoyed significant benefits from intrabrand price competition
among Contact Lens retailers.4
10.
Since Defendants orchestrated an industry shift to PFPs, prices for Contact Lenses
have increased dramatically. For example, the price increases in some of J&J’s lines of Contact
Lenses range from approximately 75 to nearly 200%. (See Figure 4 below). J&J estimated that
its PFPs would impact roughly 9.66 million Contact Lens consumers, approximately 69% of J&J
Contact Lens consumers.
11.
On July 30, 2014, a hearing was held before the Subcommittee on Antitrust,
Competition Policy and Consumer Rights of the U.S. Senate’s Judiciary Committee, which was
investigating the Defendants’ business practices (“Senate Hearing”). At the Senate Hearing,
testimony was given by numerous witnesses concerning the anticompetitive effects of the PFPs.
12.
More recently, consumers and industry participants have made numerous
complaints to the Federal Trade Commission (“FTC”) concerning the negative impact of PFPs.
It has also been reported that other government antitrust enforcement authorities are investigating
the PFPs. In an October 2014 letter, the American Antitrust Institute urged the FTC and the
Department of Justice to investigate the imposition of the PFPs in light of the “evident harm to
consumers.”
13.
Anticompetitive policies that restrict price competition in the Contact Lens
industry is not a new occurrence. In the 1990s, a conspiracy existed between Contact Lens
manufacturers and ECPs to curb the supply of Contact Lenses from moving through alternative
sources of distribution (i.e., mail-order houses). In 1996, Attorneys General of 32 states, along
with consumers, brought antitrust lawsuits against B&L, J&J, CIBA Vision (Alcon’s
predecessor), and the American Optometric Association (“AOA”) (a trade association of ECPs)
to challenge this anticompetitive conduct. Following the denial of summary judgment to the
defendants, the cases settled after several weeks of trial and the challenged practices ceased.
14.
In addition to U.S. investigations and litigation, Contact Lens manufacturers,
including J&J, have been accused of restricting competition and stabilizing prices in other
countries, including Germany and China.
15.
Defendants and their co-conspirators participated in a conspiracy to suppress and
eliminate competition in the Contact Lens market by agreeing to eliminate discounting among
Contact Lens retailers through the implementation of PFPs, as well as fixing, raising, stabilizing
and/or maintaining the prices of Contact Lenses sold in the United States. The conspiracy
engaged in by the Defendants and their co-conspirators constitutes an unreasonable restraint of
trade in violation of the Sherman Antitrust Act (15 U.S.C. § 1), state antitrust, unfair
competition, and consumer protection laws and the common law of unjust enrichment.
16.
As a direct result of the anticompetitive and unlawful conduct alleged herein,
Plaintiff and the Classes paid artificially inflated prices for Contact Lenses during the Class
Period. Plaintiff and the Classes have thereby suffered antitrust injury to their business or
property.
JURISDICTION AND VENUE
17.
Plaintiff brings this action under Section 16 of the Clayton Act (15 U.S.C. § 26) to
secure equitable and injunctive relief against Defendants for violating Section 1 of the Sherman
Act (15 U.S.C. § 1). Plaintiff also alleges claims for actual and exemplary damages pursuant to
state antitrust, unfair competition, and consumer protection laws, as well as unjust enrichment.
Furthermore, Plaintiff seeks to obtain restitution, recover damages and secure other relief against
the Defendants for violations of those state laws and common law. Plaintiff and the Classes also
seek attorneys’ fees, costs, and other expenses under federal and state law.
18.
This Court has jurisdiction over the subject matter of this action pursuant to
Section 16 of the Clayton Act (15 U.S.C. § 26), Section 1 of the Sherman Act (15 U.S.C. § 1),
and Title 28, United States Code, Sections 1331 and 1337. This Court has subject matter
jurisdiction of the state law claims pursuant to 28 U.S.C. §§ 1332(d) and 1367, in that (i) this is a
class action in which the matter or controversy exceeds the sum of $5,000,000, exclusive of
interests and costs, and in which some members of the proposed Classes are citizens of a state
different from some of the Defendants; and (ii) Plaintiff’s state law claims form part of the same
case or controversy as their federal claims under Article III of the United States Constitution.
19.
Venue is proper in this District pursuant to Section 12 of the Clayton Act (15
U.S.C. § 22), and 28 U.S.C. §§ 1391 (b), (c), and (d), because a substantial part of the events
giving rise to Plaintiff’s claims occurred in this District, a substantial portion of the affected
interstate trade and commerce discussed below has been carried out in this District, and one or
more of the Defendants reside, are licensed to do business in, are doing business in, had agents
in, or are found or transact business in this District.
20.
This Court has in personam jurisdiction over the Defendants because each, either
directly or through the ownership and/or control of its subsidiaries, inter alia: (a) transacted
business in the United States, including in this District; (b) directly or indirectly sold or marketed
Contact Lenses throughout the United States, including in this District; (c) had substantial
aggregate contacts with the United States as a whole, including in this District; or (d) were
engaged in an illegal price-fixing conspiracy that was directed at, and had a direct, substantial,
reasonably foreseeable and intended effect of causing injury to, the business or property of
persons and entities residing in, located in, or doing business throughout the United States,
including in this District. The Defendants also conduct business throughout the United States,
including in this District, and they have purposefully availed themselves of the laws of the
United States.
21.
By reason of the unlawful activities hereinafter alleged, Defendants substantially
affected commerce throughout the United States, causing injury to Plaintiff and members of the
Classes. The Defendants, directly and through their agents, engaged in activities affecting all
states, to fix, raise, maintain and/or stabilize prices in the United States for Contact Lenses,
which conspiracy unreasonably restrained trade and adversely affected the market for Contact
Lenses.
22.
The Defendants’ conspiracy and unlawful conduct described herein adversely
affected persons in the United States who indirectly purchased Contact Lenses manufactured by
the Manufacturer Defendants, including Plaintiff and the members of the Classes.
PARTIES
A.
Plaintiff
23.
Plaintiff Joseline Dotel is a New York resident who purchased Contact Lenses
indirectly from one or more Defendants.
B.
Defendants
24.
Defendant Alcon is a Delaware corporation with its headquarters in Fort Worth,
Texas and is owned by Novartis International AG, a Swiss multinational pharmaceutical
company based in Basel, Switzerland. Alcon is in the business of making eye care products,
including Contact Lenses.
25.
Defendant J&J is a Florida corporation with its headquarters in Jacksonville,
Florida. J&J is in the business of making eye care products, including Contact Lenses.
26.
Defendant B&L is a New York corporation with its headquarters in Bridgewater,
New Jersey and is now owned by Valeant Pharmaceuticals International, Inc. B&L is in the
business of making eye care products, including Contact Lenses.
27.
Defendant CooperVision is a United States company incorporated in New York
and headquartered in Pleasanton, California. CooperVision is in the business of making eye care
products, including Contact Lenses.
28.
Defendant ABB is a Delaware Corporation headquartered in Coral Springs,
Florida. ABB states on its website that it “is the nation’s largest distributor of soft Contact
Lenses,” and that it “suppl[ies] more than two-thirds of [ECPs] in America with brand name
Contact Lenses, high grade ophthalmic and fully customizable Gas Permeable Lenses.” ABB is
a wholesale seller of Contact Lenses it purchases from the Manufacturer Defendants and services
over 19,000 ECPs nationwide.
29.
Various persons that are not named as Defendants herein have participated in the
violations alleged herein and have performed acts and made statements in furtherance thereof.
Plaintiff reserves the right to name some or all of these persons as Defendants at a later date.
There are a finite number of co-conspirators and, upon information in belief their identities can
be ascertained through Defendants’ own records.
AGENTS AND CO-CONSPIRATORS
30.
Each Defendant acted as the principal of or agent for the other Defendants with
respect to the acts, violations, and common course of conduct alleged herein.
31.
Various persons, partnerships, sole proprietors, firms, corporations and
individuals not named as Defendants in this lawsuit, and individuals, the identities of which are
presently unknown, have participated as co-conspirators with Defendants in the offenses alleged
in this Complaint, and have performed acts and made statements in furtherance of the conspiracy
or in furtherance of the anticompetitive conduct.
32.
Whenever in this Complaint reference is made to any act, deed or transaction of
any corporation or limited liability entity, the allegation means that the corporation or limited
liability entity engaged in the act, deed or transaction by or through its officers, directors, agents,
employees or representatives while they were actively engaged in the management, direction,
control or transaction of the corporation’s or limited liability entity’s business or affairs.
FACTUAL ALLEGATIONS
A.
The Contact Lens Industry
1. Background of the Industry
33.
Contact Lenses were first introduced in the United States in 1987. Today, they
constitute approximately 90% of all eye ware sold in the United States.
34.
There are various types of Contact Lenses. Contact Lenses may be worn and then
disposed of daily, weekly or monthly. Additionally, Contact Lenses may be spherical, which
contain a single refractive power, or specialty. A “specialty” refers to Contact Lenses that are
crafted to address specific issues such as toric lenses (for people diagnosed with astigmatism),
and bifocal and multifocal Contact Lenses (for people diagnosed with presbyopia). For purposes
of this Complaint, “Contact Lenses” refer to disposable contact lenses.
35.
Under FDA regulations, Contact Lenses are classified as Class II and Class III
pharmaceutical devices. As such, consumers must obtain a prescription from an eye care
professional to purchase Contact Lenses. Typically, after performing an eye exam and a Contact
Lens fitting, an eye care professional will issue a prescription to the patient for a specific brand
and type of Contact Lens.
36.
After obtaining a prescription, consumers can choose where to purchase the
specified Contact Lenses (i.e., through their eye care professional, another independent eye care
professional, or through other channels such as Wal-Mart, Costco, 1-800-CONTACTS or
LensCrafters).
37.
Contact Lenses are a commoditized product, as publicly admitted by Jim Murphy
(“Murphy”), Vice-President of Defendant Alcon. Thus, according to a 2005 Report by the FTC,
“the replacement lens a consumer purchases pursuant to a prescription that specifies a brand will
be identical, regardless of where it is purchased.” The Strength of Competition In The Sale of Rx
Contact Lenses: An FTC Study (the “2005 FTC Report”).
38.
Consumers’ ability to freely choose their preferred retail channel was secured by
the enactment of the Fairness to Contact Lens Consumers Act (“FCLCA”) (15 U.S.C. §§ 7601 et
seq.) in December 2003. The FCLCA was enacted in response to complaints of prescriptions
being withheld from patients. It requires ECPs to immediately provide patients with copies of
their Contact Lens prescriptions so their method of purchase is uninhibited.
39.
Congress recognized that the consumers’ ability to benefit from the FCLCA
depended on intrabrand price competition by alternative retail options. The purpose of the
FCLCA, according to legislative history, was to:
[P]romote[] competition, consumer choice, and lower prices by
extending to Contact Lens wearers the same automatic right to
copies of their own prescriptions and allows consumers to
purchase Contact Lenses from the provider of their choice.
H.R. Rep. No. 108-318 (2003) (emphases added).
40.
In 2004, the Contact Lens Rule (16 C.F.R. Parts 315 and 456), issued by the FTC,
further clarified the requirements under the FCLCA to allow patients control over their Contact
Lens prescriptions, thereby “increas[ing] consumers’ ability to shop around when buying Contact
Lenses.”
2.
Contact Lens Pricing and Retail Channels
41.
According to the 2005 FTC Report, Contact Lens manufacturers “distribute the
largest share of lenses through independent ECPs and the smallest through the online/mail-order
channel” and this remains the case today. Figure 1 below illustrates Contact Lens sales to ECPs
compared to other retail channels.
Figure 1
42.
Furthermore, as illustrated by Figure 2 below, a majority of prescriptions for
Contact Lenses are filled by ECPs.
Figure 2
43.
The plethora of data unambiguously demonstrates that Contact Lenses were more
expensive when purchased through ECPs prior to the implementation of the PFPs (as opposed to
internet or big-box retailers).
44.
A March 2004 study by 1-800 CONTACTS, which was also published in a 2004
FTC report entitled Possible Anticompetitive Barriers to E-Commerce: Contact Lenses (the
“2004 FTC Report”), shows that ECPs charged approximately 25 to over 28 percent more than
mass merchants and internet retailers for the same exact Contact Lenses. The results of the study
are illustrated in Figure 3 below.
Figure 3
45.
Similarly, a 2005 FTC study found that, on average, Contact Lenses are least
expensive when purchased through wholesale clubs.5 The study also found that Contact Lenses
were approximately $15 less when purchased through internet retailers as opposed to offline
retailers.
46.
The 2005 FTC study commended the success of the FCLCA’s requirements,
which have resulted in increased competition for Contact Lenses and lowered prices across the
United States.
5 On average, prices were approximately $30 less than ECPs.
47.
ECPs took notice of the price competition from other retail channels. According
to a July 2014 Reuters article, “[t]he online channel is beginning to garner considerable attention
from [ECPs]. Many are seeing this channel as a threat to traditional stores . . . The pricing
strategies on the Internet usually mean a much cheaper price than that found in physical stores.”
Diane Bartz, U.S. Senate panel to look into price setting for contact lenses, Reuters, Jul. 29, 2014
(internal quotations and citation omitted).
3.
Defendants Unlawfully Stifled Competition by Colluding to Implement and
Enforce Their Anticompetitive Price Floor Policies
48.
In response to price competition from alternative retailers to ECPs, the
Manufacturer Defendants implemented PFPs almost simultaneously.
49.
Alcon announced its PFP in June 2013, initially applying it to its FAILIES
TOTAL1® line of Contact Lenses. Alcon then expanded its PFP in January 2014 to its
DAILIES® AquaComfort Plus® Multifocal and DAILIES® AquaComfort Plus® Toric Contact
Lenses. Again, in June of 2014, Alcon extended its PFP policy to include AIR OPTIX®
COLORS Contact Lenses.
50.
In January 2014, a PFP was announced by Sauflon Pharmaceuticals (“Sauflon”),
which was later acquired by CooperVision in August 2014, for its CLARITI family of Contact
Lenses. In September 2014, CooperVision announced it would continue Souflon’s PFPs.
51.
Soon after Sauflon and Alcon’s PFP announcements, in February of 2014, B&L
implemented its PFP for its ULTRA™ brand of lenses.
52.
Thereafter, in June of 2014, J&J implemented PFPs for all of its major Contact
Lens brands, and simultaneously announced that it planned to discontinue all Contact Lens lines
that were not subject to PFPs. J&J estimated that its PFPs would impact approximately 9.66
million Contact Lens wearers—roughly 69% of J&J Contact Lens consumers.
53.
J&J’s Contact Lens brands subject to PFPs include: 1-Day ACUVUE®
MOIST®, 1-DAY ACUVUE® MOIST® for ASTIGMATISM, 1-Day ACUVUE® TruEye®,
ACUVUE® OASYS® with HYDRACLEAR®, ACUVUE® OASYS® for ASTIGMATISM,
and ACUVUE® OASYS® for PRESBYOPIA.
54.
In a June 24, 2014 letter, J&J acknowledged the coordinated effort to implement
its PFPs and thanked ECPs for their “open and candid responses,” which allowed J&J “to define
our strategy and implement the changes and actions you told us were needed.” Additionally, J&J
has already made repeated anticompetitive changes to its PFPs based on input from ECPs. See
Costco Wholesale Corp. v. Johnson & Johnson Vision Care, Inc., No. 3:15-cv-00941 (N.D. Cal.)
(Dkt. No. 1) at ¶¶ 52 and 58 (hereinafter, the “Costco Complaint”).
55.
The Manufacturer Defendants needed the agreement of their distributors, which it
knows represent many retailers, to implement and enforce the PFPs and to avoid the PFPs being
undercut by interbrand competition at the wholesale level.
56.
The coordinated effort between the Manufacturer Defendants and their
distributors, including ABB, is clear from the face of J&J’s PFPs:
Under this policy, [J&J] and its authorized distributors [such as
ABB] will cease to supply [PFP] products to any reseller who
advertises or sells [PFP] products to patients at a price below the
[PFP] price . . . .”
57.
ABB is actively encouraging retailers to utilize PFPs as a way to maximize
revenue. ABB Concise’s “Profit Advisor” publication directs and informs ECPs on how to
increase revenues and charge above PFP prices.
58.
The
Defendants’
conspiracy
was
successful.
After
the
coordinated
implementation of the PFPs, prices for Contact Lenses increased dramatically. For example, as
demonstrated in Figure 4 below, the price increases for some of J&J’s lines of Contact Lenses
range from approximately 75 to nearly 200%.
Figure 4
59.
The Manufacturer Defendants and ABB therefore share a conscious commitment
to a common scheme designed to achieve an unlawful objective.
B.
The United States Contact Lens Market Structure and Characteristics Support the
Existence of a Conspiracy
60.
The relevant product market for purposes of this Complaint is the Contact Lens
market. The relevant geographical market is the United States. This is the market analyzed in
the 2004 and 2005 FTC Reports.
61.
The structure and other characteristics of the market for Contact Lenses in the
United States are conducive to a price-fixing agreement among market participants and have
made collusion particularly attractive.
62.
Specifically, the Contact Lens market: (1) is highly concentrated; (2) has high
barriers to entry; (3) has inelasticity of demand; (4) is highly homogenized; (5) has abundant
opportunities for Defendants to meet and conspire; and (6) is comprised of participants who have
motives to conspire. In addition, Defendants are each engaging in conduct that is against each of
their individual economic self-interest and have implemented PFPs that represent a drastic shift
in the way Contact Lenses are priced and sold.
1.
The Market for Contact Lenses is Highly Concentrated
63.
The Contact Lens market is highly concentrated. Collectively, the four
Manufacturer Defendants control 97% of the United States Contact Lens market, as illustrated in
Figure 5 below.
Figure 5
64.
The Manufacturer Defendants’ collective market share is broken down as follows:
J&J controls 35.3% market share; Alcon controls 30.6% market share; CooperVision controls
23.9% market share; and B&L controls 7.2% market share. The Manufacturer Defendants’
market share is depicted in Figure 6 below.
Figure 6
2.
The Market for Contact Lenses Has High Barriers to Entry
65.
Under basic economic principles, a collusive arrangement that raises product
prices above competitive levels would attract new entrants seeking to benefit from the supra-
competitive pricing. When, however, there are significant barriers to entry, new entrants are
much less likely to enter the market. Thus, barriers to entry foster the formation and
maintenance of a monopoly.6
66.
Significant barriers preclude, reduce, and/or make it more difficult for competitors
to enter the Contact Lens market. To develop and manufacture Contact Lenses takes years and
requires complex technology, industry expertise, and skilled labor. Designing Contact Lenses
also requires substantial research and development costs.
6 The exclusive possession or control of the supply or trade in a commodity or service.
67.
Ultimately marketing lenses to consumers requires a manufacturer to obtain
patents and necessary regulatory approvals.
68.
Furthermore, regulations governing the sale of Contact Lenses require that
patients obtain a prescription from an eye care professional for a particular line of Contact
Lenses. A potential Contact Lens manufacturer would incur substantial costs marketing its
product to ECPs and establishing a sophisticated distribution network to reach the professionals
and consumers.
3.
The Demand for Contact Lenses is Inelastic
69.
“Elasticity” is an economics term used to describe the sensitivity of supply and
demand relative to changes in one or the other. For example, demand is said to be “inelastic” if
an increase in the price of a product results in only a small decline in the quantity sold of that
product, if any. In other words, customers have nowhere to turn for alternative, cheaper products
of similar quality, and are forced to continue to purchase the product at an increased price.
70.
For a cartel to profit from raising prices above competitive levels, demand must
be relatively inelastic at competitive prices. Otherwise, increased prices would result in declining
sales, revenues, and profits as customers purchase substitute products or decline to buy
altogether. Inelastic demand is a market characteristic that fosters collusion, allowing producers
to raise their prices without triggering customer substitution and lost sales revenue.
71.
Demand for Contact Lenses is highly inelastic. The requirement that ECPs must
prescribe the brand and type of Contact Lens a consumer can wear causes there to be no cross
elasticity of demand7 with other Contact Lenses and leaves consumers unable to constrain
market abuses.
72.
A small, non-transitory increase in the price for a prescribed Contact Lens would
not cause Contact Lens consumers to switch to glasses or another product or service to correct
their vision in significant enough numbers to overcome the price increase. Similarly, a small,
non-transitory price increase would not cause Contact Lens distributors or retailers to change
their activities sufficiently to make such a price increase unprofitable to a manufacturer with
market power.
73.
There are no substitutes for a Contact Lens consumer’s prescribed brand of
Contact Lenses. As indicated by the American Antitrust Institute, “[t]he law does not permit the
consumer to substitute another brand for the prescribed brand . . . generic equivalents cannot be
obtained for branded contact lenses.”8 There is simply no alternative for consumers other than
branded Contact Lenses, such as those sold by the Manufacturer Defendants.
4.
Contact Lenses Are Highly Homogeneous
74.
As admitted by Murphy of Alcon, Contact Lenses are a commodity-like product.
When products or services offered by various suppliers are viewed as interchangeable by
purchasers, it is easier for suppliers to unlawfully agree on the price for the product or service in
7 In economics, the cross elasticity of demand (or cross-price elasticity of demand) measures the
responsiveness of the demand for a good to a change in the price of another good. It is measured
as the percentage change in demand for the first good that occurs in response to a percentage
change in price of the second good.
8 American Antitrust Institute, Letter to the FTC and DOJ (Oct. 24, 2014) at 2.
question, making it easier to effectively police the collusively set prices. This allows for the
formation and sustainability of an unlawful cartel.
75.
Given the unique regulatory nature of the Contact Lens industry, a consumer may
only purchase the brand of Contact Lens prescribed by his or her eye care professional.
76.
Where different types of retailers (i.e.., independent eye care professional
retailers, big-box stores, or internet retailers) offer the particular brand prescribed to a consumer,
the consumer will make his or her purchase decision based primarily on price. The core
considerations for a purchaser are where, when, and how much.9
77.
Quite simply, this commoditization and interchangeability of Contact Lenses
facilitated Defendants’ conspiracy by making price coordination much simpler. That is,
consumers are not able to choose from numerous distinct Contact Lenses with varying
characteristics.
5.
Defendants Had Ample Opportunities to Meet and Conspire
78.
Defendants attended industry events where they had the opportunity to meet, have
improper discussions under the guise of legitimate business contacts, and perform acts necessary
for the operation and furtherance of the conspiracy.
79.
For example, some Manufacturer Defendants were members of the Contact Lens
Manufacturers’ Association (“CLMA”). The CLMA hosts an annual meeting, publishes bi-
weekly presidential updates to its members, and regularly publishes a newsletter.
9 http://www-rohan.sdsu.edu/~renglish/370/notes/chapt05/.
80.
Additionally, the Manufacturer Defendants are the only members of the Contact
Lens Institute (“CLI”). According to the CLI’s website, it was created to “represent[] the
interests of its members . . . .”
81.
CLI has no members other than the Manufacturer Defendants. Its board of
directors consists of one executive from each of the Manufacturer Defendants: Angelini of J&J is
the Chair; Andrew Sedgwick, Vice-President of Global Commercial Strategy & Business
Development for CooperVision, is the Vice Chair; Richard Weisbarth, Vice-President of
Professional Affairs for Alcon, is the Treasurer; and Joseph Barr, Vice-President of Clinical and
Medical Affairs for B&L, is the Director.
82.
Through CLI, the Manufacturer Defendants exchanged information. According to
CLI’s website:
The members of the CLI, together with other participating
companies participate in a quarterly statistical program to track
manufacturer shipment data of Contact Lens and Lens Care
products which is managed by Veris Consulting [‘Veris’]. The
program’s objective is to provide participants with accurate and
timely consolidated market data. . . . . Each participating company
in the CLI Statistical Program has a representative on the CLI
Global Statistical Task Force.
83.
According to Veris’ website, the program established by it for the CLI “track[s]
sales at a detailed level worldwide” and “is more valuable than other sources of market data
because sales are reported directly from manufacturers.” Veris states that its work for the CLI
“is the only program where the data is reviewed annually by Veris to ensure accuracy. Veris
implemented this internal review process to reassure participants that they could be confident in
the data.” Indeed, Veris requests that “the finance department at each manufacturer’s
headquarters . . . . [pull sales information and revenue data] directly from their internal system at
the model, or SKU level.” The resulting low margin of error “is extremely important to
participants since they use this data for strategic planning” and is reported to the Manufacturer
Defendants on a quarterly and annual basis. According to its website, Karen Eftekari, the person
at Veris who is the Senior Manager for this work, “also works with member companies [of CLI]
such as Johnson & Johnson and Bausch & Lomb performing high-level data analysis and
designing custom reporting tools and dashboards.”
84.
As members of these industry associations, the Manufacturer Defendants had
regular opportunities to meet, exchange information, and signal marketing intentions to one
another.
6.
Defendants Had Motives to Conspire
85.
Each Manufacturer Defendant had a motive to maintain high retail prices for
Contact Lenses. The Manufacturer Defendants shared the concern that if retailers charged low
prices, it would put pressure on them to lower their wholesale prices.
86.
Additionally, Manufacturer Defendants were motivated to keep their ECPs – the
largest retail channel – satisfied so they would prescribe the Manufacturer Defendants’ Contact
Lenses. Keeping the ECPs satisfied meant keeping retail prices high.
87.
ABB, which is the largest distributor of the Manufacturer Defendants’ Contact
Lenses in the United States and sells their Contact Lenses to two-thirds of ECPs, has stated that it
“worked with” the Manufacturer Defendants to develop and implement the PFPs. ABB served
as the “hub” in a “hub-and-spoke” conspiracy and communicated with each Manufacturer
Defendant to facilitate the industry shift to implement PFPs.
7.
Defendants’ Actions Are Against Each of Their Independent Economic Self-
Interest
88.
Manufacturer Defendants’ acts in implementing their PFPs were contrary to their
independent economic self-interest.
89.
Notably, during an analyst presentation on September 11, 2014, CooperVision
admitted that the “Potential Downsides/Challenges” of adopting PFPs policies included: (a)
“Enforcement can be challenging”; (b) “Consumer activism may generate legislative backlash
and negative public perceptions”; and (c) “May alienate larger customers who want greater
pricing freedom and cross marketing.” Despite these concerns, CooperVision went forward with
implementing a new PFP on its Clariti line of Contact Lenses.
90.
The Manufacturer Defendants also implemented the PFPs despite the
consequential declining sales growth for 2014. According to an industry analyst, U.S. Contact
Lens sales grew a mere 2% through the third quarter of 2014.
91.
Additionally, given the significant buying power in the Contact Lens Market
possessed by discount retailers, it would have been against each Manufacturer Defendant’s
economic self-interest to unilaterally implement PFPs without assurance that its competitors
would follow suit. Thus, if only some Manufacturer Defendants implemented PFPs, discount
retailers likely would have switched their purchases to another Manufacturer Defendant without
PFPs in place.
92.
As a case in point, after three of the four Manufacturer Defendants implemented
their PFPs, Costco notified its customers of the PFPs and urged them to switch Contact Lens
brands to the remaining Manufacturer Defendant, CooperVision. But, soon thereafter,
CooperVision followed suit and implemented its PFPs on its Clariti line.
8.
The Manufacturer Defendants’ PFPs Were a Sudden and Drastic Shift in the
Way Contact Lenses Are Priced and Sold
93.
Before June of 2013, none of the Manufacturer Defendants had price floors in
place such as those implemented through the PFPs. Subsequent to Alcon’s implementation of its
first PFP, all of its major competitors followed suit over the next 15 months.
94.
Alvarez of ABB acknowledged the “Fundamental Shift” the PFPs represented in
the market for Contact Lenses.
C.
There is No Legitimate Business Justification for Defendants’ Concerted
Price Floor Policies
95.
Defendants cannot justify their PFPs as legitimate business decisions and any
purported pro-competitive justification is pretextual.
96.
Free-riding10 by retailers is not at issue since PFPs do not impact fitting fees
charged by ECPs that are necessary for patients to receive their contact lens prescriptions. Even
if patients attempt to have their prescriptions filled by a different retailer, the eye care
professional has already been compensated through its fitting fee.
97.
Additionally, the PFPs do not require investment by retailers by way of services
or promotional efforts to improve care to patients or aid the manufacturer’s position versus
rivals. Retailers who are not ECPs are unable to influence the brand of contact lens prescribed to
consumers, and thus have no incentive to participate in promotional programs. PFPs, however,
do incentivize ECPs to prescribe certain lenses based on financial motivations.
98.
The Manufacturer Defendants have also attempted to justify the PFPs as a way to
protect consumers from injury by buying Contact Lenses from substandard retailers. However,
representatives of the Manufacturer Defendants, such as Carol Alexander, a Director of
Professional Affairs at J&J, stated during a Utah Senate Business & Labor Committee hearing
10 Free-riding is an economic term used to describe the occurrence when those who benefit from
resources, goods, or services do not pay for them, which results in either an under-provision of
those goods or services, or in an overuse or degradation of a common property resource.
that she could not identify any instance of this type of harm occurring. She then admitted that
the adoption of J&J’s PFPs was not motivated by concerns about harm to patients.
D.
The Defendants Are Recidivist Violators of the Antitrust Laws
99.
This is not the first time the Manufacturer Defendants have been accused of
conspiring to unlawfully suppress competition in the market for Contact Lenses.
100.
In 1996, Attorneys General of 32 states, along with consumers, brought antitrust
lawsuits against B&L, J&J, CIBA Vision (Alcon’s predecessor). Disposable Contact Lens
Antitrust Litig., 170 F.R.D. 524 (M.D. Fla. 1996). These lawsuits alleged that the Contact Lens
manufacturers and the AOA (a trade association of ECPs) “conspired among themselves . . . to
restrict the supply of replacement contact lenses to alternative channels of distribution.” The
plaintiffs also alleged that the manufacturers engaged in an unlawful group boycott by restricting
wholesale sales to “alternative suppliers” (e.g., mail order houses and pharmacies), and that but-
for this conspiracy, the plaintiffs would have paid lower prices for Contact Lenses. In re
Disposable Contact Lens Antitrust Litig., MDL No. 1030, 2001 WL 493244 (M.D. Fla. Feb. 8,
2001).
101.
Following the denial of summary judgment to the defendants, the cases settled
after several weeks of trial and the challenged practices ceased. Under the settlement, B&L
agreed to pay $8 million and guaranteed it would distribute at least $9.5 million worth of
benefits, and agreed to sell their Contact Lenses through alternative channels of distribution on a
non-discriminatory basis. J&J agreed to pay $25 million into the settlement fund, guaranteed it
would distribute $30 million in benefits, agreed to pay up to $5 million to former J&J Contact
Lens wearers, and agreed to sell its Contact Lenses through alternative channels of distribution
on a non-discriminatory basis. AOA agreed to pay $750,000 and agreed to not: (i) restrict where
consumers could obtain their replacement Contact Lenses; (ii) oppose the release of Contact
Lens prescriptions; and (iii) make claims that eye health was impacted by the retailer from which
the Contact Lenses were purchased.
102.
While the settlement resolved issues of discriminatory conduct by B&L, J&J, and
Alcon’s predecessor, other manufactures continued these anticompetitive practices. This
conduct led to an investigation by the U.S. government. On September 15, 2006, a hearing was
held by the Commerce, Trade and Consumer Protection Subcommittee of the House Energy and
Commerce Committee entitled Contact Lens Sales: Is Market Regulation the Prescription? After
this hearing, the manufacturer who most visibly engaged in restrictive distribution practices
abandoned its policies, effectively mooting the need for legislative action.
103.
In addition to U.S. investigations and litigation, J&J, along with other Contact
Lens manufacturers, have been accused of restricting competition and stabilizing prices in other
countries.
104.
In 2009, Germany’s Federal Cartel Office fined Contact Lens manufacturers,
including CIBA Vision (Alcon’s predecessor), for pressuring resellers to follow recommended
resale prices, among other practices.
105.
In May 2014, China’s National Development and Reform Commission (“NDRC”)
found that Manufacturer Defendants J&J and B&L’s PFPs, among other practices, violated
China’s Anti-Monopoly Law and fined them 3.6 million Yuan and 3.7 million Yuan,
respectively.
CLASS ACTION ALLEGATIONS
106.
Plaintiff brings this action on behalf of herself and as a class action under Rule
23(a) and (b)(2) of the Federal Rules of Civil Procedure, seeking equitable and injunctive relief
on behalf of the following class (the “Nationwide Class”):
All persons in the United States who indirectly purchased Contact
Lenses sold by any of the Manufacturer Defendants, or any current
or former subsidiary or affiliate thereof, or any co-conspirator,
during the period from and including June 1, 2013 through such
time as the anticompetitive effects of Defendants’ conduct cease.
107.
Plaintiff also brings this action on behalf of himself and as a class action under
Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure seeking damages pursuant to the
common law of unjust enrichment and the state antitrust, unfair competition, and consumer
protection laws of the states listed below (the “Indirect Purchaser States”)11 on behalf of the
following class (the “Damages Class”):
All persons and entities in the Indirect Purchaser States who
indirectly purchased Contact Lenses sold by any of the
Manufacturer Defendants, or any current or former subsidiary or
affiliate thereof, or any co-conspirator, during the Class Period.
108.
The Nationwide Class and the Damages Class are referred to herein as the
“Classes.” Excluded from the Classes are Defendants, their parent companies, subsidiaries and
affiliates, any co-conspirators, federal governmental entities and instrumentalities of the federal
government, states and their subdivisions, agencies and instrumentalities, and persons who
purchased Contact Lenses directly.
109.
While Plaintiff does not know the exact number of the members of the Classes,
Plaintiff believes there are (at least) thousands of members in each Class.
11 The Indirect Purchaser States include Arkansas, Arizona, California, District of Columbia,
Florida, Hawaii, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri,
Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North
Carolina, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Utah,
Vermont, West Virginia and Wisconsin.
110.
Common questions of law and fact exist as to all members of the Classes. This is
particularly true given the nature of Defendants’ conspiracy, which was generally applicable to
all the members of both Classes, thereby making appropriate relief with respect to the Classes as
a whole. Such questions of law and fact common to the Classes include, but are not limited to:
(a)
Whether the Defendants and their co-conspirators engaged in a combination and
conspiracy among themselves to fix, raise, maintain or stabilize the prices of Contact
Lenses;
(b)
The identity of the participants of the alleged conspiracy;
(c)
The duration of the alleged conspiracy and the acts carried out by Defendants and
their co-conspirators in furtherance of the conspiracy;
(d)
Whether the alleged conspiracy violated the Sherman Act, as alleged in the First
Count;
(e)
Whether the alleged conspiracy violated state antitrust and unfair competition
law, and/or state consumer protection law, as alleged in the Second and Third Counts;
(f)
Whether the Defendants unjustly enriched themselves to the detriment of the
Plaintiff and the members of the Classes, thereby entitling Plaintiff and the members of
the Classes to disgorgement of all benefits derived by Defendants, as alleged in the
Fourth Count;
(g)
Whether the conduct of the Defendants and their co-conspirators, as alleged in
this Complaint, caused injury to the business or property of Plaintiff and the members of
the Classes;
(h)
The effect of the alleged conspiracy on the prices of Contact Lenses sold in the
United States during the Class Period;
(i)
The appropriate injunctive and related equitable relief for the Nationwide Class;
and
(j)
The appropriate class-wide measure of damages for the Damages Class.
111.
Plaintiff’s claims are typical of the claims of the members of the Classes, and
Plaintiff will fairly and adequately protect the interests of the Classes. Plaintiff and all members
of the Classes are similarly affected by Defendants’ wrongful conduct in that they paid
artificially inflated prices for Contact Lenses purchased indirectly from the Defendants and/or
their co-conspirators.
112.
Plaintiff’s claims arise out of the same common course of conduct giving rise to
the claims of the other members of the Classes. Plaintiff’s interests are coincident with, and not
antagonistic to, those of the other members of the Classes. Plaintiff is represented by counsel
who are competent and experienced in the prosecution of antitrust and class action litigation.
113.
The questions of law and fact common to the members of the Classes
predominate over any questions affecting only individual members, including legal and factual
issues relating to liability and damages.
114.
Class action treatment is a superior method for the fair and efficient adjudication
of the controversy, in that, among other things, such treatment will permit a large number of
similarly situated persons to prosecute their common claims in a single forum simultaneously,
efficiently and without the unnecessary duplication of evidence, effort and expense that
numerous individual actions would engender. The benefits of proceeding through the class
mechanism, including providing injured persons or entities with a method for obtaining redress
for claims that it might not be practicable to pursue individually, substantially outweigh any
difficulties that may arise in management of this class action.
115.
The prosecution of separate actions by individual members of the Classes would
create a risk of inconsistent or varying adjudications, establishing incompatible standards of
conduct for Defendants.
PLAINTIFF AND THE CLASSES SUFFERED ANTITRUST INJURY
116.
Defendants’ price-fixing conspiracy had the following effects, among others:
(a)
Price competition has been restrained or eliminated with respect to
Contact Lenses;
(b)
The prices of Contact Lenses have been fixed, raised, maintained, or
stabilized at artificially inflated levels;
(c)
Indirect purchasers of Contact Lenses have been deprived of free and open
competition; and
(d)
Indirect purchasers of Contact Lenses paid artificially inflated prices.
117.
During the Class Period, Plaintiff and the members of the Classes paid supra-
competitive prices for Contact Lenses. Those overcharges have unjustly enriched Defendants.
118.
The purpose of the conspiratorial conduct of the Defendants and their co-
conspirators was to set a price floor to thereby raise, fix, or stabilize the price of Contact Lenses
and, as a direct and foreseeable result, the price of Contact Lenses.
119.
The precise amount of the overcharge impacting the prices of Contact Lenses paid
by consumers can be measured and quantified. Commonly used and well-accepted economic
models can be used to measure both the extent and the amount of the supra-competitive charge
passed-through the chain of distribution. Thus, the economic harm to Plaintiff and the members
of the Classes can be quantified.
120.
By reason of the alleged violations of the antitrust laws and other laws alleged
herein, Plaintiff and the members of the Classes have sustained injury to their businesses or
property, having paid higher prices for Contact Lenses than they would have paid in the absence
of the Defendants’ illegal contract, combination, or conspiracy, and, as a result, have suffered
damages in an amount presently undetermined. This is an antitrust injury of the type that the
antitrust laws were meant to punish and prevent.
FIRST COUNT
Violation of Section 1 of the Sherman Act
(on behalf of Plaintiff and the Nationwide Class)
121.
Plaintiff repeats the allegations set forth above as if fully set forth herein.
122.
Defendants and unnamed conspirators entered into and engaged in a contract,
combination, or conspiracy in unreasonable restraint of trade in violation of Section 1 of the
Sherman Act (15 U.S.C. § 1).
123.
The acts done by each of the Defendants as part of, and in furtherance of, their
contract, combination, or conspiracy were authorized, ordered, or done by their officers, agents,
employees, or representatives while actively engaged in the management of Defendants’ affairs.
124.
During the Class Period, Defendants and their co-conspirators entered into a
continuing agreement, understanding and conspiracy in restraint of trade to establish a price floor
and artificially fix, raise, stabilize, and control prices for Contact Lenses, thereby creating
anticompetitive effects.
125.
The conspiratorial acts and combinations have caused unreasonable restraints in
the market for Contact Lenses.
126.
As a result of Defendants’ unlawful conduct, Plaintiff and other similarly situated
indirect purchasers in the Nationwide Class who purchased Contact Lenses have been harmed by
being forced to pay inflated, supra-competitive prices for Contact Lenses.
127.
In formulating and carrying out the alleged agreement, understanding and
conspiracy, Defendants and their co-conspirators did those things that they combined and
conspired to do, including but not limited to the acts, practices and course of conduct set forth
herein.
128.
Defendants’ conspiracy had the following effects, among others:
(a)
Price competition in the market for Contact Lenses has been restrained,
suppressed, and/or eliminated in the United States;
(b)
Prices for Contact Lenses provided by Defendants and their co-conspirators have
been fixed, raised, maintained, and stabilized at artificially high, non-competitive levels
throughout the United States; and
(c)
Plaintiff and members of the Nationwide Class who purchased Contact Lenses
indirectly from Defendants and their co-conspirators have been deprived of the benefits
of free and open competition.
129.
Plaintiff and members of the Nationwide Class have been injured and will
continue to be injured in their business and property by paying more for Contact Lenses
purchased indirectly from Defendants and the co-conspirators than they would have paid and
will pay in the absence of the conspiracy.
130.
The alleged contract, combination, or conspiracy is a per se violation of the
federal antitrust laws.
131.
Plaintiff and members of the Nationwide Class are entitled to an injunction
against Defendants, preventing and restraining the violations alleged herein.
SECOND COUNT
Violation of State Antitrust Statutes
(on behalf of Plaintiff and the Damages Class)
132.
Plaintiff repeats the allegations set forth above as if fully set forth herein.
133.
During the Class Period, Defendants and their co-conspirators engaged in a
continuing contract, combination or conspiracy with respect to the sale of Contact Lenses in
unreasonable restraint of trade and commerce and in violation of the various state antitrust and
other statutes set forth below.
134.
The contract, combination, or conspiracy consisted of an agreement among the
Defendants and their co-conspirators to fix, raise, inflate, stabilize, and/or maintain at artificially
supra-competitive prices for Contact Lenses and to allocate customers for Contact Lenses in the
United States.
135.
In formulating and effectuating this conspiracy, Defendants and their co-
conspirators performed acts in furtherance of the combination and conspiracy, including:
(a)
participating in meetings and conversations among themselves in the United
States and elsewhere during which they agreed to price Contact Lenses at certain levels,
and otherwise to fix, increase, inflate, maintain, or stabilize effective prices paid by
Plaintiff and members of the Damages Class with respect to Contact Lenses provided in
the United States; and
(b)
participating in meetings and conversations among themselves in the United
States and elsewhere to implement, adhere to, and police the unlawful agreements they
reached.
136.
Defendants and their co-conspirators engaged in the actions described above for
the purpose of carrying out their unlawful agreements to fix, increase, maintain, or stabilize
prices of Contact Lenses.
137.
Defendants’ anticompetitive acts described above were knowing, willful and
constitute violations or flagrant violations of the following state antitrust statutes.
138.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Arizona Revised Statutes, §§ 44-1401, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) price
competition for Contact Lenses was restrained, suppressed, and eliminated throughout
Arizona; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout Arizona; (3) Plaintiff and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiff and members of the
Damages Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Arizona commerce.
(c)
As a direct and proximate result of defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants entered into agreements in restraint of
trade in violation of Ariz. Rev. Stat. §§ 44-1401, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all forms of relief available under Ariz. Rev. Stat. §§
44-1401, et seq.
139.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the California Business and Professions Code, §§ 16700, et seq.
(a)
During the Class Period, Defendants and their co-conspirators entered into and
engaged in a continuing unlawful trust in restraint of the trade and commerce described
above in violation of Section 16720, California Business and Professions Code.
Defendants, and each of them, have acted in violation of Section 16720 to fix, raise,
stabilize, and maintain prices of Contact Lenses at supra-competitive levels.
(b)
The aforesaid violations of Section 16720, California Business and Professions
Code, consisted, without limitation, of a continuing unlawful trust and concert of action
among the Defendants and their co-conspirators, the substantial terms of which were to
fix, raise, maintain, and stabilize the prices of Contact Lenses.
(c)
For the purpose of forming and effectuating the unlawful trust, the Defendants
and their co-conspirators have done those things which they combined and conspired to
do, including but not limited to the acts, practices and course of conduct set forth above
and creating a price floor, fixing, raising, and stabilizing the price of Contact Lenses.
(d)
The combination and conspiracy alleged herein has had, inter alia, the following
effects: (1) price competition for Contact Lenses has been restrained, suppressed, and/or
eliminated in the State of California; (2) prices for Contact Lenses provided by
Defendants and their co-conspirators have been fixed, raised, stabilized, and pegged at
artificially high, non-competitive levels in the State of California and throughout the
United States; and (3) those who purchased Contact Lenses directly or indirectly from
Defendants and their co-conspirators have been deprived of the benefit of free and open
competition.
(e)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property in that
they paid more for Contact Lenses than they otherwise would have paid in the absence of
Defendants’ unlawful conduct. As a result of Defendants’ violation of Section 16720 of
the California Business and Professions Code, Plaintiff and members of the Damages
Class seek treble damages and their cost of suit, including a reasonable attorney’s fee,
pursuant to Section 16750(a) of the California Business and Professions Code.
140.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the District of Columbia Code Annotated §§ 28-4501, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout the District
of Columbia; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout the District of Columbia; (3) Plaintiff and members of
the Damages Class, including those who resided in the District of Columbia and/or
purchased Contact Lenses that were shipped by Defendants or their co-conspirators, were
deprived of free and open competition, including in the District of Columbia; and (4)
Plaintiff and members of the Damages Class, including those who resided in the District
of Columbia and/or purchased Contact Lenses in the District of Columbia that were
shipped by Defendants or their co-conspirators, paid supra-competitive, artificially
inflated prices for Contact Lenses, including in the District of Columbia.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
District of Columbia commerce.
(c)
As a direct and proximate result of defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of District of Columbia Code Ann. §§ 28-4501, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all forms of relief available under
District of Columbia Code Ann. §§ 28-4501, et seq.
141.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Hawaii Revised Statutes Annotated §§ 480-1, et seq.
142.
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Hawaii; (2) Contact Lens
prices were raised, fixed, maintained, and stabilized at artificially high levels throughout Hawaii;
(3) Plaintiff and members of the Damages Class were deprived of free and open competition; and
(4) Plaintiff and members of the Damages Class paid supracompetitive, artificially inflated prices
for Contact Lenses.
143.
During the Class Period, Defendants’ illegal conduct substantially affected
Hawaii commerce.
144.
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
145.
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Hawaii Revised Statutes Annotated §§ 480-4, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all forms of relief available under Hawaii
Revised Statutes Annotated §§ 480-4, et seq.
146.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Illinois Antitrust Act, 740 Illinois Compiled Statutes 10/1, et seq.
147.
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Illinois; (2)
Contact Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Illinois; (3) Plaintiff and members of the Damages Class were deprived of free and
open competition; and (4) Plaintiff and members of the Damages Class paid supracompetitive,
artificially inflated prices for Contact Lenses.
148.
During the Class Period, Defendants’ illegal conduct substantially affected Illinois
commerce.
149.
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
150.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Iowa Code §§ 553.1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Iowa; (2)
Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Iowa; (3) Plaintiff and members of the Damages Class were deprived
of free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected Iowa
commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Iowa Code §§ 553.1, et seq. Accordingly, Plaintiff and members
of the Damages Class seek all forms of relief available under Iowa Code §§ 553.1, et seq.
151.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Kansas Statutes Annotated, §§ 50-101, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Kansas; (2)
Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Kansas; (3) Plaintiff and members of the Damages Class were deprived
of free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Kansas commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Kansas Stat. Ann. §§ 50-101, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all forms of relief available under Kansas Stat. Ann.
§§ 50-101, et seq.
152.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Maine Revised Statutes, Maine Rev. Stat. Ann. 10, §§ 1101, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Maine; (2)
Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Maine; (3) Plaintiff and members of the Damages Class were deprived
of free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected Maine
commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Maine Rev. Stat. Ann. 10, §§ 1101, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Maine Rev. Stat. Ann.
10, §§ 1101, et seq.
153.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Michigan Compiled Laws Annotated §§ 445.771, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Michigan;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Michigan; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Michigan commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Michigan Comp. Laws Ann. §§ 445.771, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under Michigan
Comp. Laws Ann. §§ 445.771, et seq.
154.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Minnesota Annotated Statutes §§ 325D.49, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Minnesota;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Minnesota; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Minnesota commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Minnesota Stat. §§ 325D.49, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all relief available under Minnesota Stat. §§
325D.49, et seq.
155.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Mississippi Code Annotated §§ 75-21-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout
Mississippi; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout Mississippi; (3) Plaintiff and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiff and members of the
Damages Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Mississippi commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Mississippi Code Ann. § 75-21-1, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Mississippi Code Ann.
§ 75-21-1, et seq.
156.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Nebraska Revised Statutes §§ 59-801, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Nebraska;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Nebraska; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Nebraska commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Nebraska Revised Statutes §§ 59-801, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under Nebraska
Revised Statutes §§ 59-801, et seq.
157.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Nevada Revised Statutes Annotated §§ 598A.010, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Nevada;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Nevada; (3) Plaintiff and members of the Damages Class were deprived
of free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Nevada commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Nevada Rev. Stat. Ann. §§ 598A, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Nevada Rev. Stat.
Ann. §§ 598A, et seq.
158.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the New Hampshire Revised Statutes §§ 356:1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout New
Hampshire; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout New Hampshire; (3) Plaintiff and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiff and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected New
Hampshire commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of New Hampshire Revised Statutes §§ 356:1, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under New
Hampshire Revised Statutes §§ 356:1, et seq.
159.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the New Mexico Statutes Annotated §§ 57-1-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout New
Mexico; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout New Mexico; (3) Plaintiff and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiff and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected New
Mexico commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of New Mexico Stat. Ann. §§ 57-1-1, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under New Mexico Stat.
Ann. §§ 57-1-1, et seq.
160.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the New York General Business Laws §§ 340, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout New York;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout New York; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses that were
higher than they would have been absent the Defendants’ illegal acts.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected New
York commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of the New York Donnelly Act, §§ 340, et seq. The conduct set forth
above is a per se violation of the Act. Accordingly, Plaintiff and members of the
Damages Class seek all relief available under New York Gen. Bus. Law §§ 340, et seq.
161.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the North Carolina General Statutes §§ 75-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout North
Carolina; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout North Carolina; (3) Plaintiff and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiff and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected North
Carolina commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of North Carolina Gen. Stat. §§ 75-1, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under North Carolina Gen.
Stat. §§ 75-1, et. seq.
162.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the North Dakota Century Code §§ 51-08.1-01, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout North
Dakota; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout North Dakota; (3) Plaintiff and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiff and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
North Dakota commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of North Dakota Cent. Code §§ 51-08.1-01, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under North Dakota
Cent. Code §§ 51-08.1-01, et seq.
163.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Oregon Revised Statutes §§ 646.705, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Oregon;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Oregon; (3) Plaintiff and members of the Damages Class were deprived
of free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Oregon commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Oregon Revised Statutes §§ 646.705, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under Oregon
Revised Statutes §§ 646.705, et seq.
164.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the South Dakota Codified Laws §§ 37-1-3.1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout South
Dakota; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout South Dakota; (3) Plaintiff and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiff and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
South Dakota commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of South Dakota Codified Laws Ann. §§ 37-1, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under South Dakota
Codified Laws Ann. §§ 37-1, et seq.
165.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Tennessee Code Annotated §§ 47-25-101, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Tennessee;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Tennessee; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Tennessee commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Tennessee Code Ann. §§ 47-25-101, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Tennessee Code Ann.
§§ 47-25-101, et seq.
166.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Utah Code Annotated §§ 76-10-911, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Utah; (2)
Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Utah; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Utah commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Utah Code Annotated §§ 76-10-911, et seq. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Utah Code Annotated
§§ 76-10-911, et seq.
167.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Vermont Stat. Ann. 9 §§ 2453, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Vermont;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Vermont; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Vermont commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Vermont Stat. Ann. 9 §§ 2453, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all relief available under Vermont Stat. Ann. 9 §§
2453, et seq.
168.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the West Virginia Code §§ 47-18-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout West
Virginia; (2) Contact Lens prices were raised, fixed, maintained and stabilized at
artificially high levels throughout West Virginia; (3) Plaintiff and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiff and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
West Virginia commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of West Virginia Code §§ 47-18-1, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all relief available under West Virginia Code §§ 47-
18-1, et seq.
169.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Wisconsin Statutes §§ 133.01, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout Wisconsin;
(2) Contact Lens prices were raised, fixed, maintained and stabilized at artificially high
levels throughout Wisconsin; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Wisconsin commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Wisconsin Stat. §§ 133.01, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all relief available under Wisconsin Stat. §§ 133.01,
et seq.
170.
Plaintiff and members of the Damages Class in each of the above states have been
injured in their business and property by reason of Defendants’ unlawful combination, contract,
conspiracy and agreement. Plaintiff and members of the Damages Class have paid more for
Contact Lenses than they otherwise would have paid in the absence of Defendants’ unlawful
conduct. This injury is of the type the antitrust laws of the above states were designed to prevent
and flows from that which makes Defendants’ conduct unlawful.
171.
In addition, Defendants have profited significantly from the aforesaid conspiracy.
Defendants’ profits derived from their anticompetitive conduct come at the expense and
detriment of members of the Plaintiff and the members of the Damages Class.
172.
Accordingly, Plaintiff and the members of the Damages Class in each of the
above jurisdictions seek damages (including statutory damages where applicable), to be trebled
or otherwise increased as permitted by a particular jurisdiction’s antitrust law, and costs of suit,
including reasonable attorneys’ fees, to the extent permitted by the above state laws.
THIRD COUNT
Violation of State Consumer Protection Statutes
(on behalf of Plaintiff and the Damages Class)
173.
Plaintiff repeats the allegations set forth above as if fully set forth herein.
174.
Defendants engaged in unfair competition or unfair, unconscionable, deceptive or
fraudulent acts or practices in violation of the state consumer protection and unfair competition
statutes listed below.
175.
Defendants have knowingly entered into an unlawful agreement in restraint of
trade in violation of the Arkansas Code Annotated, § 4-88-101, et. seq.
176.
Defendants knowingly agreed to, and did in fact, act in restraint of trade or
commerce by affecting, fixing, controlling, and/or maintaining at non-competitive and artificially
inflated levels, the prices at which Contact Lenses were sold, distributed, or obtained in Arkansas
and took efforts to conceal their agreements from Plaintiff and members of the Damages Class.
177.
The aforementioned conduct on the part of the Defendants constituted
“unconscionable” and “deceptive” acts or practices in violation of Arkansas Code Annotated, §
4-88-107(a)(10).
178.
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Arkansas; (2) Contact Lens
prices were raised, fixed, maintained, and stabilized at artificially high levels throughout
Arkansas; (3) Plaintiff and the members of the Damages Class were deprived of free and open
competition; and (4) Plaintiff and the members of the Damages Class paid supra-competitive,
artificially inflated prices for Contact Lenses.
179.
During the Class Period, Defendants’ illegal conduct substantially affected
Arkansas commerce and consumers.
180.
As a direct and proximate result of the unlawful conduct of the Defendants,
Plaintiff and the members of the Damages Class have been injured in their business and property
and are threatened with further injury.
181.
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Arkansas Code Annotated, § 4-88-107(a)(10) and, accordingly, Plaintiff
and the members of the Damages Class seek all relief available under that statute.
182.
Defendants have engaged in unfair competition or unfair, unconscionable,
deceptive or fraudulent acts or practices in violation of California Business and Professions Code
§ 17200, et seq.
(a)
During the Class Period, Defendants manufactured, marketed, sold, or distributed
Contact Lenses in California, and committed and continue to commit acts of unfair
competition, as defined by Sections 17200, et seq. of the California Business and
Professions Code, by engaging in the acts and practices specified above.
(b)
This claim is instituted pursuant to Sections 17203 and 17204 of the California
Business and Professions Code, to obtain restitution from these Defendants for acts, as
alleged herein, that violated Section 17200 of the California Business and Professions
Code, commonly known as the Unfair Competition Law.
(c)
The Defendants’ conduct as alleged herein violated Section 17200. The acts,
omissions, misrepresentations, practices and non-disclosures of Defendants, as alleged
herein, constituted a common, continuous, and continuing course of conduct of unfair
competition by means of unfair, unlawful, and/or fraudulent business acts or practices
within the meaning of California Business and Professions Code, Section 17200, et seq.,
including, but not limited to, the following: (1) the violations of Section 1 of the
Sherman Act, as set forth above; (2) the violations of Section 16720, et seq., of the
California Business and Professions Code, set forth above;
(d)
Defendants’ acts, omissions, misrepresentations, practices, and non-disclosures,
as described above, whether or not in violation of Section 16720, et seq., of the California
Business and Professions Code, and whether or not concerted or independent acts, are
otherwise unfair, unconscionable, unlawful or fraudulent;
(e)
Defendants’ acts or practices are unfair to purchasers of Contact Lenses in the
State of California within the meaning of Section 17200, California Business and
Professions Code; and
(f)
Defendants’ acts and practices are fraudulent or deceptive within the meaning of
Section 17200 of the California Business and Professions Code.
(g)
Plaintiff and members of the Damages Class are entitled to full restitution and/or
disgorgement of all revenues, earnings, profits, compensation, and benefits that may have
been obtained by Defendants as a result of such business acts or practices.
(h)
The illegal conduct alleged herein is continuing and there is no indication that
Defendants will not continue such activity into the future.
(i)
The unlawful and unfair business practices of Defendants, and each of them, as
described above, have caused and continue to cause Plaintiff and the members of the
Damages Class to pay supra-competitive and artificially-inflated prices for Contact
Lenses. Plaintiff and the members of the Damages Class suffered injury in fact and lost
money or property as a result of such unfair competition.
(j)
The conduct of Defendants as alleged in this Complaint violates Section 17200 of
the California Business and Professions Code.
(k)
As alleged in this Complaint, Defendants and their co-conspirators have been
unjustly enriched as a result of their wrongful conduct and by Defendants’ unfair
competition. Plaintiff and the members of the Damages Class are accordingly entitled to
equitable relief including restitution and/or disgorgement of all revenues, earnings,
profits, compensation, and benefits that may have been obtained by Defendants as a
result of such business practices, pursuant to the California Business and Professions
Code, Sections 17203 and 17204.
183.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of District of Columbia Code § 28-3901, et seq.
(a)
Defendants agreed to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining, at artificial and/or non-competitive
levels, the prices at which Contact Lenses were sold, distributed or obtained in the
District of Columbia
(b)
The foregoing conduct constitutes “unlawful trade practices,” within the meaning
of D.C. Code § 28-3904. Plaintiff was not aware of Defendants’ price-fixing conspiracy
and has therefore unaware that he was being unfairly and illegally overcharged. There
was a gross disparity of bargaining power between the parties with respect to the price
charged by Defendants for Contact Lenses. Defendants had the sole power to set that
price and Plaintiff had no power to negotiate a lower price. Moreover, Plaintiff lacked
any meaningful choice in purchasing Contact Lenses because he was unaware of the
unlawful overcharge and there was no alternative source of supply through which
Plaintiff could avoid the overcharges. Defendants’ conduct with regard to sales of
Contact Lenses, including their illegal conspiracy to secretly fix the price of Contact
Lenses at supra-competitive levels and overcharge consumers, was substantively
unconscionable because it was one-sided and unfairly benefited Defendants at the
expense of Plaintiff and the public. Defendants took grossly unfair advantage of
Plaintiff. The suppression of competition that has resulted from Defendants’ conspiracy
has ultimately resulted in unconscionably higher prices for purchasers so that there was a
gross disparity between the price paid and the value received for Contact Lenses.
(c)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout the District of
Columbia; (2) Contact Lens prices were raised, fixed, maintained, and stabilized at
artificially high levels throughout the District of Columbia; (3) Plaintiff and the Damages
Class were deprived of free and open competition; and (4) Plaintiff and the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(d)
As a direct and proximate result of the Defendants’ conduct, Plaintiff and
members of the Damages Class have been injured and are threatened with further injury.
Defendants have engaged in unfair competition or unfair or deceptive acts or practices in
violation of District of Columbia Code § 28-3901, et seq., and, accordingly, Plaintiff and
members of the Damages Class seek all relief available under that statute.
184.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Florida Deceptive and Unfair Trade Practices Act,
Fla. Stat. §§ 501.201, et seq.
(a)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Florida; (2) Contact
Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Florida; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Florida commerce and consumers.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured and are threatened with further injury.
(d)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Florida Stat. § 501.201, et seq., and, accordingly, Plaintiff and
members of the Damages Class seek all relief available under that statute.
185.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Hawaii Revised Statutes Annotated §§ 480-1, et
(a)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Hawaii; (2) Contact
Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Hawaii; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Hawaii commerce and consumers.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured and are threatened with further injury.
(d)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Hawaii Rev. Stat. § 480, et seq., and, accordingly, Plaintiff and
members of the Damages Class seek all relief available under that statute.
186.
Defendants have engaged in unfair competition or unlawful, unfair,
unconscionable, or deceptive acts or practices in violation of the Massachusetts Gen. Laws, Ch
93A, § 1 et seq.
187.
Defendants were engaged in trade or commerce as defined by G.L. 93A.
Defendants, in a market that includes Massachusetts, agreed to, and did in fact, act in restraint of
trade or commerce by affecting, fixing, controlling, and/or maintaining at non-competitive and
artificially inflated levels, the prices at which Contact Lens were sold, distributed, or obtained in
Massachusetts and took efforts to conceal their agreements from Plaintiff and members of the
Damages Class.
188.
The aforementioned conduct on the part of the Defendants constituted “unfair
methods of competition and unfair or deceptive acts or practices in the conduct of any trade or
commerce,” in violation of Massachusetts Gen. Laws, Ch 93A, § 2, 11.
189.
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Massachusetts; (2) Contact
Lens prices were raised, fixed, maintained, and stabilized at artificially high levels throughout
Massachusetts; (3) Plaintiff and the members of the Damages Class were deprived of free and
open competition; and (4) Plaintiff and the members of the Damages Class paid supra-
competitive, artificially inflated prices for Contact Lenses.
190.
During the Class Period, Defendants’ illegal conduct substantially affected
Massachusetts commerce and consumers.
191.
As a direct and proximate result of the unlawful conduct of the Defendants,
Plaintiff and the members of the Damages Class have been injured in their business and property
and are threatened with further injury.
192.
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Massachusetts Gen. Laws, Ch 93A, §§ 2, 11, that were knowing or
willful, and, accordingly, Plaintiff and the members of the Damages Class seek all relief
available under that statute, including multiple damages.
193.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Missouri Merchandising Practices Act, Mo. Rev.
Stat. § 407.010, et. seq.
(a)
Missouri Plaintiff and members of the Damages Class purchased Contact Lenses
for personal or family purposes.
(b)
Defendants engaged in the conduct described herein in connection with the sale of
Contact Lenses in trade or commerce in a market that includes Missouri.
(c)
Defendants agreed to, and did in fact affect, fix, control, and/or maintain, at
artificial and non-competitive levels, the prices at which Contact Lenses were sold,
distributed, or obtained in Missouri, which conduct constituted unfair practices in that it
was unlawful under federal and state law, violated public policy, was unethical,
oppressive and unscrupulous, and caused substantial injury to Plaintiff and members of
the Damages Class.
(d)
Defendants concealed, suppressed, and omitted to disclose material facts to
Plaintiff and members of the Damages Class concerning Defendants’ unlawful activities
and artificially inflated prices for Contact Lenses. The concealed, suppressed, and
omitted facts would have been important to Plaintiff and members of the Damages Class
as they related to the cost of Contact Lenses they purchased.
(e)
Defendants misrepresented the real cause of price increases and/or the absence of
price reductions in Contact Lenses by making public statements that were not in accord
with the facts.
(f)
Defendants’ statements and conduct concerning the price of Contact Lenses were
deceptive as they had the tendency or capacity to mislead Plaintiff and members of the
Damages Class to believe that they were purchasing Contact Lenses at prices established
by a free and fair market.
(g)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Missouri; (2) Contact
Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Missouri; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(h)
The foregoing acts and practices constituted unlawful practices in violation of the
Missouri Merchandising Practices Act.
(i)
As a direct and proximate result of the above-described unlawful practices,
Plaintiff and members of the Damages Class suffered ascertainable loss of money or
property.
(j)
Accordingly, Plaintiff and members of the Damages Class seek all relief available
under Missouri’s Merchandising Practices Act, specifically Mo. Rev. Stat. § 407.020,
which prohibits “the act, use or employment by any person of any deception, fraud, false
pretense, false promise, misrepresentation, unfair practice or the concealment,
suppression, or omission of any material fact in connection with the sale or advertisement
of any merchandise in trade or commerce…,” as further interpreted by the Missouri Code
of State Regulations, 15 CSR 60-7.010, et seq., 15 CSR 60-8.010, et seq., and 15 CSR
60-9.010, et seq., and Mo. Rev. Stat. § 407.025, which provides for the relief sought in
this count.
194.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Montana Unfair Trade Practices and Consumer
Protection Act of 1970, Mont. Code, §§ 30-14-103, et seq., and §§ 30-14-201, et. seq.
(a)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Montana; (2) Contact
Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Montana; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(b)
During the Class Period, Defendants marketed, sold, or distributed Contact
Lenses in Montana, and Defendants’ illegal conduct substantially affected Montana
commerce and consumers.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured and are threatened with further injury.
(d)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Mont. Code, §§ 30-14-103, et seq., and §§ 30-14-201, et. seq.,
and, accordingly, Plaintiff and members of the Damages Class seek all relief available
under that statute.
195.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the New Mexico Stat. § 57-12-1, et seq.
(a)
Defendants agreed to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining at non-competitive and artificially
inflated levels, the prices at which Contact Lenses were sold, distributed or obtained in
New Mexico and took efforts to conceal their agreements from Plaintiff and members of
the Damages Class.
(b)
The aforementioned conduct on the part of the Defendants constituted
“unconscionable trade practices,” in violation of N.M.S.A. Stat. § 57-12-3, in that such
conduct, inter alia, resulted in a gross disparity between the value received by Plaintiff
and the members of the Damages Class and the prices paid by them for Contact Lenses as
set forth in N.M.S.A., § 57-12-2E. Plaintiff were not aware of Defendants’ price-fixing
conspiracy and were therefore unaware that they were being unfairly and illegally
overcharged. There was a gross disparity of bargaining power between the parties with
respect to the price charged by Defendants for Contact Lenses. Defendants had the sole
power to set that price and Plaintiff had no power to negotiate a lower price. Moreover,
Plaintiff lacked any meaningful choice in purchasing Contact Lenses because they were
unaware of the unlawful overcharge and there was no alternative source of supply
through which Plaintiff could avoid the overcharges. Defendants’ conduct with regard to
sales of Contact Lenses, including their illegal conspiracy to secretly fix the price of
Contact Lenses at supra-competitive levels and overcharge consumers, was substantively
unconscionable because it was one-sided and unfairly benefited Defendants at the
expense of Plaintiff and the public. Defendants took grossly unfair advantage of
Plaintiff. The suppression of competition that has resulted from Defendants’ conspiracy
has ultimately resulted in unconscionably higher prices for consumers so that there was a
gross disparity between the price paid and the value received for Contact Lenses.
(c)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout New Mexico; (2)
Contact Lens prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout New Mexico; (3) Plaintiff and the members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and the members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(d)
During the Class Period, Defendants’ illegal conduct substantially affected New
Mexico commerce and consumers.
(e)
As a direct and proximate result of the unlawful conduct of the Defendants,
Plaintiff and the members of the Damages Class have been injured and are threatened
with further injury.
(f)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of New Mexico Stat. § 57-12-1, et seq., and, accordingly, Plaintiff
and the members of the Damages Class seek all relief available under that statute.
196.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of N.Y. Gen. Bus. Law § 349, et seq.
(a)
Defendants agree to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining, at artificial and non-competitive levels,
the prices at which Contact Lenses were sold, distributed or obtained in New York and
took efforts to conceal their agreements from Plaintiff and members of the Damages
Class.
(b)
Defendants and their co-conspirators made public statements about the prices of
Contact Lenses that either omitted material information that rendered the statements that
they made materially misleading or affirmatively misrepresented the real cause of price
increases for Contact Lenses; and Defendants alone possessed material information that
was relevant to consumers, but failed to provide the information.
(c)
Because of Defendants’ unlawful trade practices in the State of New York, New
York consumer class members who indirectly purchased Contact Lenses were misled to
believe that they were paying a fair price for Contact Lenses or the price increases for
Contact Lenses were for valid business reasons; and similarly situated consumers were
potentially affected by Defendants’ conspiracy.
(d)
Defendants knew that their unlawful trade practices with respect to pricing
Contact Lenses would have an impact on New York consumers and not just the
Defendants’ direct customers.
(e)
Defendants knew that their unlawful trade practices with respect to pricing
Contact Lenses would have a broad impact, causing consumer class members who
indirectly purchased Contact Lenses to be injured by paying more for Contact Lenses
than they would have paid in the absence of Defendants’ unlawful trade acts and
practices.
(f)
The conduct of the Defendants described herein constitutes consumer-oriented
deceptive acts or practices within the meaning of N.Y. Gen. Bus. Law § 349, which
resulted in consumer injury and broad adverse impact on the public at large, and harmed
the public interest of New York State in an honest marketplace in which economic
activity is conducted in a competitive manner.
(g)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout New York; (2)
Contact Lens prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout New York; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(h)
During the Class Period, Defendants marketed, sold, or distributed Contact
Lenses in New York, and Defendants’ illegal conduct substantially affected New York
commerce and consumers.
(i)
During the Class Period, each of the Defendants named herein, directly, or
indirectly and through affiliates they dominated and controlled, manufactured, sold
and/or distributed Contact Lenses in New York.
(j)
Plaintiff and members of the Damages Class seek all relief available pursuant to
N.Y. Gen. Bus. Law § 349 (h).
197.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of North Carolina Gen. Stat. § 75-1.1, et seq.
(a)
Defendants agree to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining, at artificial and non-competitive levels,
the prices at which Contact Lenses were sold, distributed or obtained in North Carolina
and took efforts to conceal their agreements from Plaintiff and members of the Damages
Class.
(b)
Defendants’ price-fixing conspiracy could not have succeeded absent deceptive
conduct by Defendants to cover up their illegal acts. Secrecy was integral to the
formation, implementation and maintenance of Defendants’ price-fixing conspiracy.
Defendants committed inherently deceptive and self-concealing actions, of which
Plaintiff could not possibly have been aware. Defendants and their co-conspirators
publicly provided pre-textual and false justifications regarding their price increases.
Defendants’ public statements concerning the price of Contact Lenses created the illusion
of competitive pricing controlled by market forces rather than supra-competitive pricing
driven by Defendants’ illegal conspiracy. Moreover, Defendants deceptively concealed
their unlawful activities by mutually agreeing not to divulge the existence of the
conspiracy to outsiders.
(c)
The conduct of the Defendants described herein constitutes consumer-oriented
deceptive acts or practices within the meaning of North Carolina law, which resulted in
consumer injury and broad adverse impact on the public at large, and harmed the public
interest of North Carolina consumers in an honest marketplace in which economic
activity is conducted in a competitive manner.
(d)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout North Carolina; (2)
Contact Lens prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout North Carolina; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(e)
During the Class Period, Defendants marketed, sold, or distributed Contact
Lenses in North Carolina, and Defendants’ illegal conduct substantially affected North
Carolina commerce and consumers.
(f)
During the Class Period, each of the Defendants named herein, directly, or
indirectly and through affiliates they dominated and controlled, manufactured, sold
and/or distributed Contact Lenses in North Carolina.
(g)
Plaintiff and members of the Damages Class seek actual damages for their injuries
caused by these violations in an amount to be determined at trial and are threatened with
further injury. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of North Carolina Gen. Stat. § 75-1.1, et seq., and, accordingly,
Plaintiff and members of the Damages Class seek all relief available under that statute.
198.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Rhode Island Unfair Trade Practice and Consumer
Protection Act, R.I. Gen. Laws §§ 6-13.1-1, et seq.
(a)
Members of this Damages Class purchased Contact Lenses for personal, family,
or household purposes.
(b)
Defendants agreed to, and did in fact, act in restraint of trade or commerce in a
market that includes Rhode Island, by affecting, fixing, controlling, and/or maintaining,
at artificial and non-competitive levels, the prices at which Contact Lenses were sold,
distributed, or obtained in Rhode Island.
(c)
Defendants deliberately failed to disclose material facts to Plaintiff and members
of the Damages Class concerning Defendants’ unlawful activities and artificially inflated
prices for Contact Lenses. Defendants owed a duty to disclose such facts, and considering
the relative lack of sophistication of the average, non-business purchaser, Defendants
breached that duty by their silence. Defendants misrepresented to all purchasers during
the Class Period that Defendants’ Contact Lens prices were competitive and fair.
(d)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Rhode Island; (2)
Contact Lens prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout Rhode Island; (3) Plaintiff and members of the Damages Class were
deprived of free and open competition; and (4) Plaintiff and members of the Damages
Class paid supra-competitive, artificially inflated prices for Contact Lenses.
(e)
As a direct and proximate result of the Defendants’ violations of law, Plaintiff and
members of the Damages Class suffered an ascertainable loss of money or property as a
result of Defendants’ use or employment of unconscionable and deceptive commercial
practices as set forth above. That loss was caused by Defendants’ willful and deceptive
conduct, as described herein.
(f)
Defendants’ deception, including their affirmative misrepresentations and
omissions concerning the price of Contact Lenses, likely misled all purchasers acting
reasonably under the circumstances to believe that they were purchasing Contact Lenses
at prices set by a free and fair market. Defendants’ affirmative misrepresentations and
omissions constitute information important to Plaintiff and members of the Damages
Class as they related to the cost of Contact Lenses they purchased.
(g)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Rhode Island Gen. Laws. § 6-13.1-1, et seq., and, accordingly,
Plaintiff and members of the Damages Class seek all relief available under that statute.
199.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of South Carolina Unfair Trade Practices Act, S.C. Code
Ann. §§ 39-5-10, et seq.
200.
Defendants’ combinations or conspiracies had the following effects: (1) Contact
Lens price competition was restrained, suppressed, and eliminated throughout South Carolina;
(2) Contact Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout South Carolina; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid supra-
competitive, artificially inflated prices for Contact Lenses.
201.
During the Class Period, Defendants’ illegal conduct had a substantial effect on
South Carolina commerce.
202.
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiff and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
203.
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of S.C. Code Ann. §§ 39-5-10, et seq., and, accordingly, Plaintiff and the
members of the Damages Class seek all relief available under that statute.
204.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of 9 Vermont § 2451, et seq.
(a)
Defendants agreed to, and did in fact, act in restraint of trade or commerce in a
market that includes Vermont, by affecting, fixing, controlling, and/or maintaining, at
artificial and non-competitive levels, the prices at which Contact Lenses were sold,
distributed, or obtained in Vermont.
(b)
Defendants deliberately failed to disclose material facts to Plaintiff and members
of the Damages Class concerning Defendants’ unlawful activities and artificially inflated
prices for Contact Lenses. Defendants owed a duty to disclose such facts, and
considering the relative lack of sophistication of the average, non-business purchaser,
Defendants breached that duty by their silence. Defendants misrepresented to all
purchasers during the Class Period that Defendants’ Contact Lens prices were
competitive and fair.
(c)
Defendants’ unlawful conduct had the following effects: (1) Contact Lens price
competition was restrained, suppressed, and eliminated throughout Vermont; (2) Contact
Lens prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Vermont; (3) Plaintiff and members of the Damages Class were deprived of
free and open competition; and (4) Plaintiff and members of the Damages Class paid
supra-competitive, artificially inflated prices for Contact Lenses.
(d)
As a direct and proximate result of the Defendants’ violations of law, Plaintiff and
members of the Damages Class suffered an ascertainable loss of money or property as a
result of Defendants’ use or employment of unconscionable and deceptive commercial
practices as set forth above. That loss was caused by Defendants’ willful and deceptive
conduct, as described herein.
(e)
Defendants’ deception, including their affirmative misrepresentations and
omissions concerning the price of Contact Lenses, likely misled all purchasers acting
reasonably under the circumstances to believe that they were purchasing Contact Lenses
at prices set by a free and fair market. Defendants’ misleading conduct and
unconscionable activities constitutes unfair competition or unfair or deceptive acts or
practices in violation of 9 Vermont § 2451, et seq., and, accordingly, Plaintiff and
members of the Damages Class seek all relief available under that statute.
FOURTH COUNT
Unjust Enrichment
(on behalf of Plaintiff and the Damages Class)
205.
Plaintiff repeats the allegations set forth above as if fully set forth herein.
206.
As a result of their unlawful conduct described above, Defendants have and will
continue to be unjustly enriched. Defendants have been unjustly enriched by the receipt of, at a
minimum, unlawfully inflated prices and unlawful profits on Contact Lenses.
207.
Defendants have benefited from their unlawful acts and it would be inequitable
for Defendants to be permitted to retain any of the ill-gotten gains resulting from the
overpayments made by Plaintiff and the members of the Damages Class for Contact Lenses.
208.
Plaintiff and the members of the Damages Class are entitled to the amount of
Defendants’ ill-gotten gains resulting from their unlawful, unjust, and inequitable conduct.
Plaintiff and the members of the Damages Class are entitled to the establishment of a
constructive trust consisting of all ill-gotten gains from which Plaintiff and the members of the
Damages Class may make claims on a pro rata basis
WHEREFORE, Plaintiff demands judgment that:
1.
The Court determine that this action may be maintained as a class action under
Rule 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure, and direct that reasonable
notice of this action, as provided by Rule 23(c)(2) of the Federal Rules of Civil Procedure, be
given to each and every member of the Class;
2.
That the unlawful conduct, contract, conspiracy, or combination alleged herein be
adjudged and decreed:
(a)
An unreasonable restraint of trade or commerce in violation of Section 1 of the
Sherman Act;
(b)
A per se violation of Section 1 of the Sherman Act;
(c)
An unlawful combination, trust, agreement, understanding and/or concert of
action in violation of the state antitrust and unfair competition and consumer protection
laws as set forth herein; and
(d)
Acts of unjust enrichment by Defendants as set forth herein.
3.
Plaintiff and the members of the Damages Class recover damages, to the
maximum extent allowed under such laws, and that a joint and several judgment in favor of
Plaintiff and the members of the Damages Class be entered against Defendants in an amount to
be trebled to the extent such laws permit;
4.
Plaintiff and the members of the Damages Class recover damages, to the
maximum extent allowed by such laws, in the form of restitution and/or disgorgement of profits
unlawfully gained from them;
5.
Defendants, their affiliates, successors, transferees, assignees and other officers,
directors, partners, agents and employees thereof, and all other persons acting or claiming to act
on their behalf or in concert with them, be permanently enjoined and restrained from in any
manner continuing, maintaining or renewing the conduct, contract, conspiracy, or combination
alleged herein, or from entering into any other contract, conspiracy, or combination having a
similar purpose or effect, and from adopting or following any practice, plan, program, or device
having a similar purpose or effect;
6.
Plaintiff and the members of the Damages Class be awarded restitution, including
disgorgement of profits Defendants obtained as a result of their acts of unfair competition and
acts of unjust enrichment;
7.
Plaintiff and the members of the Classes be awarded pre- and post- judgment
interest as provided by law, and that such interest be awarded at the highest legal rate from and
after the date of service of this Complaint;
8.
Plaintiff and the members of the Classes recover their costs of suit, including
reasonable attorneys’ fees, as provided by law; and
9.
Plaintiff and members of the Classes have such other and further relief as the case
may require and the Court may deem just and proper.
JURY DEMAND
Plaintiff demands a trial by jury, pursuant to Rule 38(b) of the Federal Rules of Civil
Procedure, of all issues so triable.
Respectfully submitted,
Dated: March 27, 2015
Eduardo Palmer, P.A.
255 Aragon Avenue, 2nd Floor
Coral Gables, Florida 33134
Telephone: (305) 476-1100
Facsimile: (305) 476-1300
By: s/ Eduardo Palmer____________
EDUARDO PALMER
Fla. Bar No. 0562548
BY: /s/ John D. Zaremba*
John D. Zaremba
ZAREMBA BROWNELL AND
BROWN PLLC
40 Wall Street, 27th Floor
New York, NY 10005
Phone: (212) 380-6700
Fax: (212) 871-6395
jzaremba@zbblaw.com
Brian Douglas Penny*
Goldman Scarlato & Penny
101 East Lancaster Avenue
Wayne, Pennsylvania 19087
(484) 342-0700
bpenny@lawgsp.com
Counsel for Plaintiff and the Putative
Classes
*(Pro Hac Vice Admission Pending)
| antitrust |
YPMyE4cBD5gMZwczbjpL | CLARK & MARKHAM LLP
David R. Markham (State Bar No. 071814)
R. Craig Clark (State Bar No. 129219)
James M. Treglio (State Bar No. 228077)
Laura M. Cotter (State Bar No. 259445)
600 "B" Street, Suite 2130
San Diego, CA 92101
Telephone: (619) 239-1321
Facsimile: (619) 239-5888
HESS-VERDON AND ASSOCIATES PLC
Barron E. Ramos (State Bar No. 179620)
620 Newport Center Drive, Ste. 1030
Newport Beach, CA
Telephone: (949) 706-7300
Facsimile: (949) 706-7373
Attorneys for Plaintiffs
(additional counsel listed on signature page)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
NASHONNA COLEMAN, an individual,
Case No. 11CV1301MMAPOR
TERESA SAMANIEGO, an individual,
and GAIL CHILLINSKY, an individual,
COLLECTIVE AND CLASS
on behalf of themselves and all persons
ACTION
similarly situated,
Plaintiffs,
V.
)
JENNY CRAIG, INC.. a Delaware
)
corporation, and DOES 1 through 100,
)
Inclusive.
)
et seq. (FLSA);
)
Defendants.
(2) FAILURE TO PAY WAGES
OWED IN VIOLATION OF CAL.
AND 227.3;
AND 1198;
(4) FAILURE TO TIMELY PAY
WAGES OWED UPON
§§ 201, 202, 203;
1
)
(6) UNFAIR COMPETITION IN
VIOLATION OF CAL. BUS. &
(7) PENALTIES PURSUANT TO
CAL. LAB. CODE § 2699 et seq.;
DEMAND FOR A JURY TRIAL
follows:
a reasonable opportunity for further investigation and discovery.
JURISDICTION AND VENUE
1.
U.S.C. § 1131.
2.
claims.
2
3.
business/ national headquarters in San Diego County.
COLLECTIVE ACTION AND CLASS ACTION DEFINITION
4.
worked (hereinafter the "Collective Class").
5.
adequately protect the interests of the Class.
6.
scheduled shifts to complete required paperwork.
7.
3Period").
COLLECTIVE ACTION ALLEGATIONS
8.
Plaintiff NASHONNA COLEMAN
(a) Is an individual who resides in San Diego County;
during the Collective Class and Class Period;
(c) Was not paid for all time worked; and,
Paragraph 3 of this Complaint.
9.
Plaintiff TERESA SAMANIEGO
(a) Is an individual who resides in San Diego County;
during the Collective Class and Class Period;
(c) Was not paid for all time worked; and,
Paragraph 3 of this Complaint.
10.
Plaintiff GAIL CHILLINSKY
(a) Is an individual who resides in San Diego County;
during the Collective Class and Class Period;
(c) Was not paid for all time worked; and,
Paragraph 3 of this Complaint.
DEFENDANTS
11.
Carlsbad, California, in the County of San Diego.
12.
The company became a part of Nestlé Nutrition in 2006.
13.
14.
scope of said agency and employment.
15.
acting within the course and scope of said agency and employment.
wrongful conduct, harm and damages alleged herein.
17.
Defendants thereby proximately causing the damages as herein alleged.
THE CONDUCT
5
worked.
19.
often required to continue to work after clocking out at the end of their shifts.
20.
and California law.
FIRST COUNT
IN VIOLATION OF THE FAIR LABOR STANDARDS ACT
[Fair Labor Standards Act, 29 U.S.C. § 201, et seq]
21.
forth herein, paragraphs 1 through 20 of this First Amended Complaint.
22.
throughout the United States and are, therefore, engaged in commerce within the
meaning of 29 U.S.C. § 203(b).
23.
willful violations of the Fair Labor Standards Act (FLSA).
24.
Pursuant to the FLSA, 29 U.S.C. § 201, et seq, Plaintiffs and theworked, including all time spent working "off the clock" during lunch periods,
before shifts began and after shifts concluded.
25.
At all relevant times, Defendants failed to pay Plaintiffs and other
members of the Collective Class for all hours worked.
26.
For purposes of the FLSA, the employment practices of Defendants
6
27.
As a result of Defendants' failure to pay compensation for all hours
were damaged.
28.
interest and attorneys' fees as provided by law.
SECOND COUNT
FOR FAILURE TO PAY WAGES OWED
[Cal. Lab. Code §§ 204, 218, 218.5, 218.6]
29.
Complaint.
30.
in the State of California to be paid wages in a timely fashion for their work.
31.
Pursuant to the IWC Wage Orders, Defendant is required to pay
time in which an employee is subject to the control of an employer.
32.
Defendant's uniform policy and procedure requires its employees to
and/or subject to the control of the Defendant. Plaintiffs therefore seek unpaid
wages and penalties.
33.
creates and/or maintains various materials, such as policy handbooks, letters, and
other correspondence which, taken together, constitute a written contract for
employment for Plaintiffs and the Class members.
34.
7
the State of California, scheduled to work and/or required, suffered or permitted
every hour worked during the Class Period.
35.
action.
36.
all amounts recovered herein.
37.
the Cal. Lab. Code and/or any other statute.
THIRD COUNT
FOR FAILURE TO PAY OVERTIME COMPENSATION
[Cal. Lab. Code §§510, 1194, 1198]
38.
Complaint.
39.
longer hours than those fixed by the Industrial Welfare Commission is unlawful.
40.
employed for more than eight (8) hours in any workday or forty (40) hours in a
Any work in excess of eight hours in one workday and any work in
8excess of 40 hours in any one workweek and the first eight hours
worked on the seventh day of work in any one workweek shall be
compensated at the rate of no less than one and one-half times the
regular rate of pay for an employee. Any work in excess of 12 hours
in one day shall be compensated at the rate of no less than twice the
regular rate of pay for an employee. [Emphasis Added]
41.
during the Class Period.
42.
the one and a half times their regular rate of pay, or any other additional
compensation, for the hours they have worked in excess of the maximum hours
43. By virtue of Defendants' unlawful failure to pay the lawful rate of
to suffer, damages in amounts which are presently unknown to them but which
according to proof at trial.
44.
JENNY CRAIG acted and is acting intentionally, oppressively, and
maliciously toward the Plaintiffs and the other members of the Class with a
depriving them of property and legal rights and otherwise causing them injury.
45.
the costs of litigation from their employer.
46.
Plaintiffs and the other members of the Class request recovery of
under the Cal. Lab. Code and/or other statutes.
FOURTH COUNT
FOR FAILURE TO TIMELY PAY WAGES OWED
[Cal. Lab. Code §§ 201, 203]
47.
by reference, as though fully set forth herein, the preceding paragraphs of this
Complaint
48.
Cal. Lab. Code §§ 201 and 202 provide that wages earned by an
employee but unpaid when the employer discharges the employee, or when the
seventy-two (72) hours of notice, are due and payable immediately.
49.
do not give at least seventy-two (72) hours of notice that they are terminating the
pursuant to Cal. Lab. Code § 202.
50.
The Defendants, as alleged above, knew that wages were due to
51.
Class their unpaid wages either at the time their employment was terminated, or
within seventy-two (72) hours of termination, or for the thirty (30) days that
followed.
52.
Cal. Lab. Code § 203 provides for a penalty when a terminated
employee's unpaid wages are not paid within the requisite period under Cal. Lab.
Code §§ 201 and 202. The employer shall be penalized by owing the former
53.
10FIFTH COUNT
[Cal. Lab. Code §§ 226.7 and 512]
54.
Complaint.
55.
minutes or longer.
56.
employee one (1) hour of pay at the employee's regular rate of compensation for
each meal period that is not provided.
57.
Cal. Lab. Code §§ 226.7 and 512 provide that employers shall
rest time per four (4) hours of work.
58.
each workday that the rest period is not provided.
59.
and 512.
60.
At all times relevant hereto Plaintiffs and the other members of the
and 512.
61.
11
and 512.
62.
At all times relevant hereto, the Plaintiffs and other members of the
Class worked more than four hours in a workday. At all times relevant hereto,
JENNY CRAIG failed to provide rest periods as required by Cal. Lab. Code §§
226.7 and 512.
but which exceed the jurisdictional requirements of this Court and which will be
ascertained according to proof at trial.
64.
should have known that the Plaintiffs and the other members of the Class were
mandated periods.
65.
Plaintiffs and the other members of the Class seek to recover the
under the Cal. Lab. Code and/or other statutes.
SIXTH COUNT
FOR UNLAWFUL BUSINESS PRACTICES
[Cal. Bus. and Prof. Code §§ 17200 et seq.]
66.
this reference, as though fully set forth herein, the preceding paragraphs of this
Complaint.
67.
Cal. Bus. & Prof. Code § 17201 defines persons as "natural persons,
corporations, firms, partnerships, joint stock companies, associations, and other
organizations of people."
68.
unlawful, unfair, or fraudulent business act or practice".
Prof. Code § 17201.
70.
At all times relevant hereto, by and through the conduct described
pay Plaintiffs and the other members of the Class for all hours worked or for
periods as required by the applicable Cal. Lab. Code and IWC Wage Order
deprived Plaintiffs and the other members of the Class of fundamental rights and
privileges owed to them by law.
71.
rights and benefits guaranteed by law, all to their detriment.
72.
business practices in violation of Cal. Bus. & Prof. Code § 17200 et seq.
73.
Plaintiffs and the other members of the Class are entitled to, and do,
seek such relief as may be necessary to restore to them the money and property
business acts and practices.
74.
do, seek a declaration that the above described business practices are unfair and
13future.
75.
Plaintiffs and the other members of the Class have no plain, speedy,
unpaid moneys to Plaintiffs and the other members of the Class.
SEVENTH COUNT
FOR PENALTIES PURSUANT TO THE CALIFORNIA PRIVATE
[Cal. Lab. Code §§ 2699 et seq.]
76.
forth herein, the preceding paragraphs of this First Amended Complaint.
behalf of himself or herself, and other current or former employees.
78.
same limitations and conditions, to assess a civil penalty.
14
79.
more of the California Labor Code violations was committed against them.
80.
Labor Code.
81.
each employee per pay period for each subsequent violation.
82.
any other applicable statutes.
83.
Section 2699.3(a)(1).
84.
Lab. Code § 2699.3 (a)(2)(A), Plaintiffs may pursue their claims under § 2699,
//
//
//
//
15PRAYER
and severally, as follows:
ON THE FIRST COUNT
1.
Collective Action;
2.
members of the Collective Class, plus interest thereon at the statutory rate;
3.
are recoverable pursuant to 29 U.S.C. §216 (b);
4.
For liquidated damages pursuant to 29 U.S.C. 216 (b);
5.
Collective Class Period through the time of judgment;
6.
For such other and further relief as the Court deem just and proper.
//
ON THE SECOND COUNT
1.
bonuses, and other losses, according to proof;
2.
For general damages, according to proof;
3.
4.
suit.
//
ON THE THIRD COUNT
1.
bonuses, and other losses, according to proof;
2.
For general damages, according to proof;
3.
4.
suit.
//
ON THE FOURTH COUNT:
1.
wages remain unpaid, for up to thirty (30) days.
//
ON THE FIFTH COUNT
1.
provided for each four (4) hours of work;
2.
period was not provided;
3.
For attorneys' fees and costs.
//
ON THE SIXTH COUNT
1.
For restitution and disgorgement;
2.
practices to cease, or as the Court otherwise deems just and proper;
3.
California law.
//
ON THE SEVENTH COUNT
1.
For statutory penalties according to proof;
2.
17
in full;
3.
For reasonable attorney's fees, expenses, and costs.
Dated: October 13, 2011
CLARK & MARKHAM LLP
By:
From
David R. Markham
UNITED EMPLOYEES LAW GROUP
65 Pine Ave, #312
Long Beach, California 90802
Tel: (877) 696-8378
Fax: (562) 256-1006
Attorneys for Plaintiffs
18
DEMAND FOR JURY TRIAL
Plaintiffs demand a jury trial on issues triable to a jury.
Dated: October 13, 2011
CLARK & MARKHAM LLP
By:
V
David R. Markham
Attorneys for Plaintiffs
19 | employment & labor |
f-RlEYcBD5gMZwczKLqs | IN THE LTNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MINNESOTA
James Caron Butler, Ben Gordon, Anthony Tolliver,
and Derrick Williams, individually, and on behalf of
all others similarly situated,
Plaintiffs,
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B anner S eventeen LLC, B obcats B asketball, LLC,
Chicago Professional Sports Limited Partnership,
Cavaliers Operating Company, LLC, Dallas Basketball
Limited, The Denver Nuggets Limited Partnership,
Detroit Pistons Basketball Company, Golden State
Warriors, LLC, Rocket Ball, Ltd., Pacers Basketball,
LLC, LAC Basketball Club, Inc., The Los Angeles
Lakers, Inc., Hoops, L.P., Miami Heat Limited
Partnership, Milwaukee Bucks, Inc., Minnesota
Timberwolves Basketball Limited Partnership, New
Jersey Basketball,LLC, New Orleans Hornets NBA
Limited Partnership, Madison Square Garden, L.P.,
Professional Basketball Club, LLC, Orlando Magic,
Ltd., Philadelphia 76ers, L.P., Suns Legacy Partners,
L.L.C., Trail Blazers, Inc., Sacramento Kings Limited
Partnership, San Antonio Spurs, L.L.C., Maple Leaf
Sports & Entertainment Ltd., Jazz Basketball
Investors, Inc., and Washington Bullets, L.P.,
Defendants.
Plaintiffs, by their undersigned attorneys, for their Complaint herein allege as
follows:
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INTRODUCTION
1. Plaintiffs are filing this class action to redress violations by each
defendant of the federal antitrust laws and applicable state contract and tort laws.
Plaintiffs are four professional basketball players, and similarly situated players who have
entered into, and/or who seek to enter into, player contracts with National Basketball
Association (.'NBA") teams.
2.
Defendants, the NBA and its separately-owned and independently-
operated member teams, have jointly agreed and conspired to deny Plaintiffs the ability to
provide and/or market their services in the major league market for professional
basketball players through an unlawful group boycott and price-fixing arrangement.
3.
The NBA Defendants' anticompetitive agreements include a boycott
that has eliminated competition in the free agent marketplace for players no longer under
contract, as well as a boycott of rookie players seeking an NBA contract for the first time.
The NBA Defendants have also conspired to refuse to deal with or to honor the contracts
of players who have NBA contracts. The anticompetitive purpose of this group boycott
is to coerce Plaintiffs and the other players to succumb to a new anticompetitive system
of player restraints which will, among other things, drastically reduce player
compensation levels below those that would exist in a competitive market.
4.
The group boycott, concerted refusal to deal and price-fixing which
Defendants are carrying out are pc1 se illegal acts under Section 1 of the Sherman Act, 15
U.S.C. $ l. Should these anticompetitive agreements be alternatively evaluated under the
"quick look" or even a full blown rule of reason test, they would still be illegal. As a
result of Defendants' anticompetitive agreements, Plaintiffs and other similarly situated
current and future professional basketball players who are employed by or seeking
employment with an NBA club will be prevented from offering or providing their
services in a competitive market and from receiving a competitive market value for their
services, and will be denied the freedom of movement available to employees in virtually
every other industry in the United States.
5.
The NBA Defendants cannot defend their violations of the federal
antitrust laws by hiding behind the non-statutory labor exemption to the antitrust laws.
Under Supreme Court precedent and settled law in this Circuit, that exemption only
conceivably applies as long as a collective bargaining relationship exists between the
NBA Defendants and the players. Here, however, the collective bargaining process and
relationship have completely broken down, and the NBA players have exercised their
labor law right not to be in a union. Specifically, after more than two years of futile
bargaining, and the refusal of the NBA to negotiate any further, the NBA players ended
the role of the National Basketball Players Association ('NBPA") as their collective
bargaining representative and no longer have a collective bargaining relationship with the
NBA Defendants. The consequence is that any labor exemption to the antitrust laws no
longer applies.
6.
Independent of their federal antitrust violations, the NBA Defendants'
boycott also gives rise to state law contractual and tort claims on behalf of Plaintiffs and
class members. There is no "labor exemption" or any other legal justification for the
NBA Defendants agreeing not to adhere to the terms of operative player contracts and to
interfere with the right of players not under contract to seek employment for their
services as professional basketball players.
JURISDICTION AND VENUE
7. These claims arise and are brousht under Sections 4 and 16 of the
Clayton Act, 15 U.S.C. $$ 15, 26, and Section I of the Sherman Antitrust Act, 15 U.S.C.
$ l, as well as applicable state contract and tort laws.
8. This Court has jurisdiction pursuant to 28 U.S.C. $$ 133l,1337 and
9. Venue in this action is proper pursuant to 28 U.S.C. $ l39l and 15
U.S.C. $ 22. Each of the Defendants can be found, resides, has an agent, or transacts
business in the District of Minnesota, and the unlawful activities were or will be carried
on in part by one or more of the Defendants within this district. Additionally, Plaintiff
Anthony Tolliver is employed within this district by the Minnesota Timberwolves.
THE PARTIES
10. Plaintiff James Caron Butler is a professional basketball player who is
a free agent who last played with the Dallas Mavericks and lives in Racine, Wisconsin.
11. Plaintiff Ben Gordon is presently under contract with the Detroit
Pistons. He lives in Rochester. Michiean.
12. Plaintiff Anthony Tolliver is presently under contract with the
Minnesota Timberwolves.
13. Plaintiff Derrick Williams was the second overall pick of the 2011
NBA draft, was selected by the Minnesota Timberwolves and has received a Required
Tender from the Minnesota Timberwolves.
14. Defendant NBA, which maintains its offices at 645 Fifth Avenue
New York, New York, is an unincorporated association consisting of the 30 separately-
owned and independently-operated professional basketball teams that are listed in
paragraph 21. The NBA is engaged in interstate commerce in the business of, among
other things, operating the sole major professional basketball league in the United States.
15. The other Defendants are the 30 NBA member teams in the United
States and Canada, each of which, upon information and belief, is a corporation, except
where noted below (collectively with the NBA, the "NBA Defendants"). Upon
information and beliel each of the defendant teams is a separately-owned and
independent entity which operates a professional basketball franchise for profit under the
team name and in the cities set forth below:
Defendant NBA Teams
State of Organization
NBA Franchise (City)
Atlanta Hawks. LP
Georeia
Atlanta Hawks
Banner Seventeen LLC
Delaware
Boston Celtics
Bobcats Basketball LLC
Delaware
Charlotte Bobcats
Chicago Professional Sports Limited
Partnership
Illinois
Chicago Bulls
Cavaliers Operating Company, LLC
Delaware
Cleveland Cavaliers
Dallas Basketball Limited
Texas
Dallas Mavericks
The Denver Nuggets Limited
Partnership
Delaware
Denver Nuggets
Detroit Pistons Basketball Company
Michigan
Detroit Pistons
Golden State Warriors, LLC
California
Golden State
Warriors
Rocket Ball, Ltd.
Texas
Houston Rockets
Pacers Basketball, LLC
Indiana
Indiana Pacers
LAC Basketball Club. Inc.
California
Los Angeles Clippers
The Los Angeles Lakers, Inc.
California
Los Angeles Lakers
Hoops, L.P.
Delaware
Memphis Grizzlies
Miami Heat Limited Partnership
Florida
Miami Heat
Milwaukee Bucks. Inc.
Wisconsin
Milwaukee Bucks
Minnesota Timberwolves B asketball
Limited Partnershio
Minnesota
Minnesota
Timberwolves
New Jersey Basketb all, LLC
New Jersev
New Jersev Nets
New Orleans Hornets NBA Limited
Parfrrership
North Carolina
New Orleans Hornets
Madison Square Garden, L.P.
Delaware
New York Knicks
The Professional Basketball Club.
LLC
Oklahoma
Oklahoma City
Thunder
Orlando Magic, Ltd.
Florida
Orlando Magic
Philadelphia 76ers, L.P.
Delaware
PhiladelphiaT6ers
Suns Legacy Partners, L.L.C.
Delaware
Phoenix Suns
TrailBlazers. Inc.
Oregon
Portland Trail Blazers
Sacramento Kings Limited
Partnership. LP
California
Sacramento Kings
San Antonio Spurs, L.L.C.
Texas
San Antonio Spurs
Maple Leaf Sports & Entertainment
Ltd.
Ontario. Canada
Toronto Raptors
J azz Basketball Investors. Inc.
Utah
UtahJazz
Washington Bullets, L.P.
District of Columbia I Washington Wizards
CLASS ACTION ALLEGATIONS
16. Plaintiffs James Caron Butler, Ben Gordon, Anthony Tolliver and
Denick Williams (collectively "Plaintiffs") are representatives of a class, as defined by
Rule 23(b)(l),23 (bX2) and/or Rule 23(b)(3) of the Federal Rules of Civil Procedure, and
bring this action on behalf of themselves and the class members as described in paragraph
17. The class represented by Plaintiffs is comprised of (i) all players who
are under contract to play professional basketball for an NBA team at any time from
November 14,201I to the date of final judgment in this action and the determination of
any appeal therefrom (the "Under-Contract Subclass"), (ii) all players who are not under
contract with an NBA team and are seeking employment as professional basketball
players for an NBA team at any time from November 14,2011 to the date of final
judgment in this action and the determination of any appeal therefrom (the "Free Agent
Subclass"), and (iii) all players who have not previously been under contract with an
NBA team and, as of November 15,2011, to the date of final judgment in this action and
the determination of any appeal therefrom, are or will be eligible to play basketball as a
rookie for an NBA team (the "Rookie Subclass").
18. The class and each subclass are so numerous and geographically so
widely dispersed that joinder of all members is impracticable. There are questions of law
and fact common to the class. Plaintiffs' claims are typical of the claims of the class or
subclass that they represent, and the Plaintiffs will fairly and adequately protect the
interests of the class or subclass that they represent. Common questions of law and fact
predominate within the meaning of Rule 23(bX3) of the Federal Rules of Civil Procedure.
19. Each person in the class or subclass is, has been, and/or will be
subject to Defendants' boycott. To the extent that in the future the NBA Defendants
agreed to a different of player restraints, they would be uniformly imposed on members
of the class or subclass.
20. Except for provisions as to individual compensation and other
variations which do not materially affect this action, the contracts signed by NBA players
are virtually identical throughout the NBA.
21. The prosecution of separate actions by individual members of the
class would create the risk of:
(a) inconsistent or varying adjudications with respect to
individual class members that would establish incompatible standards
of conduct for the party opposing the class; or
(b) adjudications with respect to individual class members
that, as a practical matter, would be dispositive of the interests of the
other members not parties to the individual adjudications or would
substantially impair or impede their ability to protect their interests
within the meaning of Rule 23(b)(l) of the Federal Rules of Civil
Procedure.
22.
In construing and enforcing their uniform agreements, rules and
practices, and in taking and planning to take the actions described in this complaint, the
Defendants have acted or refused to act on grounds that apply generally to the class, so
that final injunctive relief or corresponding declaratory relief would be appropriate for the
class as a whole within the meaning of Rule 23(b)(2).
23.
Questions of law and fact are common to the class and each of the
subclasses and predominate over any questions affecting only individual class members,
including legal and factual issues relating to liability, damages and restitution. This class
action is superior to the alternatives, if any, for the fair and efficient adjudication of this
controversy. Prosecution as a class action will eliminate the possibility of repetitive
litigation. There will be no material difficulty in the management of this action as a class
NATURE OF INTERSTATE TRADE AND COMMERCE
24. The primary business in which Defendants are engaged is the
operation of major league professional basketball teams and the sale of tickets and
telecast rights to the public for the exhibition of the individual and collective basketball
talents of players such as Plaintiffs. To conduct this business, the NBA Defendants must
compete with each other for and retain the professional services of players, such as
Plaintiffs, who are signed to or are seeking to sign to contracts to play basketball for the
various NBA defendant teams.
25.
The business of major league professional basketball is distinct
from other professional sports businesses, as well as from college and minor league
9
professional basketball. Its distinguishing features include: the rules of the sport and the
season during which it is played; the talents of and rates of compensation for the players,
for whom playing basketball is their full+ime profession; the nature and amounts of trade
and commerce involved; and the unique demand for the NBA Defendants' games by the
consuming public, both as ticket purchasers and as home viewers of and listeners to
television and radio.
26.
The NBA Defendants' operation of and engagement in the business
of major league professional basketball involves a substantial volume of interstate trade
and commerce, including, inter alia, the following interstate activities: travel;
communications; purchases and movement of equipment; broadcasts and telecasts of
league games; advertisements; promotions; sales of tickets and concession items; sales of
merchandise and apparel; employment of players and referees; and negotiations for all of
the above.
27.
The NBA Defendants' aforesaid interstate transactions involve
collective annual expenditures and receipts in excess of $4 billion.
28.
The Plaintiffs have been employed by and/or are seeking new
employment with, or will seek future employment with, one or more of the defendant
teams in interstate commerce as professional basketball players.
BACKGROUND
The NBA's Historv of Antitrust Violations
29.
The NBA Defendants enjoy a monopoly in the market for major
league professional basketball in the United States. The relevant market for assessing the
10
restraint of trade at issue is the market for the services of major league professional
basketball players in the United States. Robertson v. National Basketball Ass'n. 67
F.R.D. 691, 694 & n.3 (S.D.N.Y.1975). Defendants exercise monopoly power in this
market. See Denver Rockets v. All-Pro Management. Inc. ,325 F. Supp. 1049, 1067
(C.D. CaL l97l) (holding that the NBA's four-year college rule a violation of Section I
of the Sherman Act because, in part, the NBA did not contest that it enjoys "market
power in a degree approaching a shared monopoly" with respect to player services); see
also Chicago Professional Sports Ltd. Partnership v. National Basketball Ass'n, 95 F.3d
593,599 (7th Cir. 1996) ("from the perspective of college basketball players who seek to
sell their skills, the teams are distinct, and because the human capital of players is not
readily transferable to other sports . . . the league looks more like a group of firms acting
as a monopsony").
30.
The NBA Defendants comprise the only major league professional
basketball association in the United States. The NBA Defendants are the only United
States market participants for the services of major league professional basketball
players. Together, they monopolize and/or restrain trade in, and/or have combined and
conspired to monopolize andlor restrain trade in the United States market for the services
of major league professional basketball players. The only actual or potential competition
that exists in this market is among the separately-owned and independently-operated
NBA teams. Rather than engaging in competition for the players' services, however, the
NBA Defendants have combined and conspired to eliminate such competition among
themselves for NBA players through a goup boycott, price-fixing arrangement, and
l1
concerted refusal to deal, the purpose and effect of which is to prevent players from
offering their services to NBA teams in a competitive market and to coerce those players
into agreeing to a new set of anticompetitive restraints on competition for their services.
31.
This is not the first instance of the NBA violating the federal
antitrust laws in an effort to minimize its labor costs. For example, in 1970, a group of
fourteen players, led by Oscar Robertson, brought a putative class action challenging the
various anticompetitive NBA employment practices, including the College Draft and free
agency restrictions. In denying the NBA Defendants' motion for summary judgment, the
district court held that practically all of the restraints at issue were pc! se violations of the
Sherman Act and were invalid, as well, under the rule of reason.
Basketball Ass'n, 389 F. Supp. 867, 890-91 (S.D.N.Y. 1975). The action resulted in the
Robertson Settlement Agreement, as well as over $4.3 million to the plaintiffs in
damages. Another antitrust class action was filed against the NBA in 1987 known as the
Bridgeman class action. Bridgeman v. National Basketball Ass'n, Civ. A. No. 87-4189
(D.N.J. October 16, 1987). That action resulted in the Bridgeman class action settlement
agreement. And, the NBA was found guilty of engaging in per se unlawful practices in
the player market in Denver Rockets v. All-Pro Management. Inc. ,325 F . Supp. 1049
(C.D. Cal. r97r).
The Expiration of the 2005 NBA CBA
32.
The last collective bargaining agreement was entered into by the
NBA Defendants and the NBPA on July 29,2005 and was set to expire on June 30,2011
or, at the option of the NBA Defendants, could have been extended through 2012. The
t2
NBA Defendants declined to extend the agreement, because of its stated desire to achieve
a massive "reset" in player salaries and the imposition of a new, far more restrictive set of
restraints in the player market that would severely reduce competition for the services of
NBA players.
33.
The 2005 CBA provided players with approximately 57%o of all
"Basketball Related Income" ("BH"), generally, income received as a result of
basketball operations.
34.
Since at least 2009, the NBA has expressed its unhappiness with the
CBA to the NBPA and indicated its intention to seek a massive reduction in player
salaries and a far more restrictive market for players. The NBA sought to begin early
negotiations for a new collective bargaining agreement and such negotiations, in fact,
began by February of 2010. Such negotiations continued for almost twenty months, but
ultimately proved to be futile.
35.
On July 1,2005, when the 2005 CBA expired, the NBA Defendants
decided to impose a "lockout" of all NBA players. The stated purpose of this conduct is
to massively roll back player salaries and coerce the NBA players into agreeing to a new
onerous set of restraints on the market for player services. The NBA Defendants have
repeatedly and publicly stated that their goal is to increase their profit margins by
reducing the amount of money they pay to their players and by subjecting them to a new
set of anticompetitive player restraints.
l3
The Breakdown of Collective Barsainins. The End of the Union and The NBA's
Group Bovcott.
36.
The NBPA spent almost two years attempting to negotiate a new
CBA with the NBA Defendants. Since July l, 2011 alone, scores of collective
bargaining sessions have taken place. Twice, the Federal Mediation and Conciliation
Service was brought in to try to achieve a collective bargaining agreement. All of these
bargaining efforts, however, proved to be fruitless and no new CBA could be negotiated.
37.
On November 10, 2011, the NBA presented its final bargaining
ultimatum which, among other things, would have reduced the players' share of BRI from
57Yoto 50Vo and imposed a new set of restrictions on player competition that would have
wiped out the competitive market for most NBA players. The NBA informed the NBPA
that it was making this final "revised" offer for just a few days and that if the NBPA did
not accept this offer by the following Monday or Tuesday, the offer would be withdrawn
and replaced with an even more onerous offer that would reduce the players' BRI share to
47Yo and impose what amounted to a hard salary cap. The NBA also indicated that its
offers would continue to get worse as time went on. The NBA unequivocally stated that it
would not entertain any counter-offer from the NBPA to its final "take it or leave it"
proposal. Instead, the NBA declared that further bargaining over these terms was at an
t4
Renunciation of anv Collective Bargainins Representation bv the NBA Plavers'
Union
38.
With the NBA having declared that it would not further bargain, the
NBA Players concluded that the collective bargaining process had failed and that
maintaining a collective bargaining relationship with the NBA was no longer in the
interest of NBA players. Accordingly on November 14,2011, the Board of Player
Representative of the NBPA met and took action to immediately terminate the NBPA's
status as the players' collective bargaining representative effective at 12 noon, Eastern
time on November 14.2011.
39.
Specifically, a substantial majority of NBA players had previously
signed aufhorization cards to empower the NBPA to disclaim the NBPA's role as the
collective bargaining representative of NBA players if it was determined that it was no
longer in the best interests of NBA players to remain in a union.
40.
On November 14, 2}ll,the Executive Committee of the NBPA,
along with the Board of Player Representatives, unanimously determined that the
collective bargaining process had failed and had no further prospect of achieving an
agreement. They therefore voted to immediately have the NBPA disclaim interest as the
bargaining representative of the NBA players and directed the association to change its
status to that of a trade association which would not engage in any collective bargaining.
41. On November 14. 2011. the NBPA formallv notified the NBA that
it was disclaiming interest in acting as the collective bargaining representative of NBA
players, effective as of 12 noon Eastern time on that day. The NBPA is in the process of
l5
amending its bylaws to prohibit it or its members from engaging in collective bargaining
with the NBA, the NBA's member clubs or their agents.
42.
The NBPA will no longer represent players in grievances under the
expired CBA, and players will now have to pursue or defend any grievance with the NBA
or its members on an individual basis.
43.
The NBPA has also ceased the regulation of player agents and all
other activities associated with being the collective bargaining representative of NBA
44.
The NBPA will shortly file a labor orsanization termination notice
with the Department of Labor. An application by the NBPA will also shortly be filed
with the IRS to reclassiff the NBPA for tax purposes as a professional association rather
than a labor organization.
45. Despite being informed of the above disclaimer of collective
bargaining status by the NBPA, the NBA Defendants have made it clear that they intend
to continue their group boycott of plaintiffs and all other NBA players and will not cease
this boycott until the players agree to a new set of anticompetitive restraints and massive
roll back in their salaries. This conduct now constitutes ablatant violation of the antitrust
The NBA Defendants' Conduct llleeallv Eliminates Competition in the Market for
Plaver Services
46.
The NBA Defendants have jointly conspired and agreed to impose,
a group boycott prohibiting all competition for player services, player signings, and
T6
employment and/or a system of anticompetitive restraints on player movement, salaries,
contract signings, and payment of compensation due under existing contracts.
47.
As part of this group boycott, all NBA Defendants have conspired
and agreed to prevent NBA teams from negotiating, or even communicating with, or
employing NBA players, thereby completely eliminating a competitive market for player
services. In addition, NBA teams have conspired and agreed not to honor existing
contracts with NBA players, by not paying them and precluding their access to team
facilities and personnel.
48.
Neither the existence nor the terms of the NBA Defendants' group
boycott agreement is in dispute.
49. The owners' collective pulpose in imposing the group boycott is to
force the now non-unionized NBA players to agree to the massive wage reductions and
anticompetitive restrictions, which the NBA Defendants are seeking from the players.
50.
The prohibition on player signings and/or employment by the NBA
Defendants constitutes an illegal group boycott, price-fixing agreement, and/or restraint
of trade in violation of the Sherman Act, under each of the pq se, "quick look" and rule
ofreason standards.
The NBA Defendants' Anticompetitive Behavior Is Not Protected bv Anv Labor
Exemption
51.
The NBA Defendants are expected to argue, as they have in the
past, that their anticompetitive restraints are immune from antitrust scrutiny because of
t7
the non-statutory labor exemption defense. However, the law makes clear that no such
defense is available here.
52.
This Court in McNeil v. National Football League,764 F . Supp.
l35l (D. Minn. I99I), found that the following actions taken by NFL players ended the
collective bargaining relationship with the NFL:
On November 3, 1989, the NFLPA's Executive Committee voted to
renounce collective bargaining. On November 6,1989, the Committee
advised the NFL Defendants that it would no longer engage in collective
bargaining or represent players in grievances. Next, approximately sixty-
two percent of the active players signed petitions revoking the authority of
the NFLPA or any other entity to engage in collective bargaining on their
behalf. On December 5, 1989, the NFLPA's player representatives
unanimously adopted new bylaws that ended the organization's status as a
collective bargaining representative. Under the new bylaws, no officer,
employee or member of the NFLPA is authorized to discuss, deal or
negotiate with the NFL or any of its member clubs or their agents. The
NFLPA thus terminated its status as a labor organization. Reflecting its
change in character and purpose, the NFLPA filed a labor organization
termination notice with the United States Department of Labor. The
Internal Revenue Service also changed the organization's tax-exempt status
from that of a "labor organization" under $ 501(c)(5) of the Internal
Revenue Code to that of a "business league" under $ 501(c)(6).
Id. at 1356.
53.
Just earlier this year, in Brady v. NFL, this Court similarly observed
in the context of a preliminary injunction determination, that the non-statutory labor
exemption would end with their disclaimer of union status by the NFLPA. Brady v.
NFL, 779 F. Supp. 2d992 (D. Minn. 20ll) ("And in contrast to the murky boundaries
presented by an impasse that occurs within an ongoing collective bargaining process, the
dissolution of the Players' former Union provides a clear boundary demarcating the end
of collective bargaining under labor law.").
l8
54.
The NBA players have similarly taken action to end their collective
bargaining relationship with the NBA Defendants. Indeed, the NBA players have only
done so after enduring a lockout for more than four months and having the NBA declare
that it was no will negotiate about its "final" take it or leave it offer.
55.
The Supreme Court of the United States has indicated that the non-
statutory labor exemption ends when a collective bargaining relationship has collapsed,
such as is the case here. As stated bv the Court:
[A]n agreement among employers could be sufficiently distant in time and
in circumstances from the collective-bargaining process that a rule
permitting antitrust intervention would not significantly interfere with that
process. See. e.g., 50 F.3d, at 1057 (suggesting that exemption lasts until
collapse of the collective-bargaining relationship. as evidenced by
decertification ofthe union). . . .
Brown v. Pro Football. Inc., 518 U.S. 231,250 (1996) (emphasis added). Here, the
collective bargaining process and relationship have completely broken down, and the
NBA players have exercised their labor law right not to be in a union. The non-statutory
labor exemption thus no longer applies and offers the NBA Defendants no basis to avoid
liability for its group boycott of NBA players under the federal antitrust laws.
The Iniuries of Plaintiffs and the Class
56. Upon information and belief, the NBA Defendants intend to
continue to impose their group boycott in the U.S. market for the services of major league
professional basketball players unless and until the players agree to the anticompetitive
set of restrictions and massive salary reductions being sought by the Defendants. Absent
this group boycott, the Plaintiffs and class members would be free to work in the 2011
19
NBA season and to offer their services to NBA teams in a competitive market. Plaintiffs
and class members will suffer severe damages, totaling billions of dollars, if they are
prevented from offering their services in a competitive market to NBA teams. Other
injuries being suffered by the Plaintiffs and Class are irreparable, as there is no
replacement for a lost NBA season in their short careers.
The Plaintiffs
57. Plaintiff James Caron Butler, a member of the Free Agent Subclass,
is currently a free agent who last played with the Dallas Mavericks.
58. Plaintiff Ben Gordon, a member of the Under-Contract Subclass, is
currently under contract with the Detroit Pistons.
59. Plaintiff Anthony Tolliver, another member of the Under-Contract
Subclass, is currently under contract with the Minnesota Timberwolves.
60.
As a result of Defendants' boycott, the NBA Defendants are in
breach of, and tortiously interfering with, Mr. Gordon's and Mr. Tolliver's contracts.
61. Plaintiff Derrick Williams, a member of the Rookie Subclass, has
been drafted by the Minnesota Timberwolves.
62.
Defendants' boycott may also prevent all of the Plaintiffs from
playing for any NBA team during the 201l-2012 NBA season or beyond.
20
COUNT I
Violation of Section 1 of the Sherman Act
63. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs I through 62.
64.
There is a relevant market for the services of major league
professional basketball players in the United States. The group boycott orchestrated by
the NBA Defendants is substantially restraining and injuring competition in that market
and will continue to do so.
65. The group boycott constitutes an agreement among competitors to
eliminate competition for the services of major league professional basketball players in
the United States and to refuse to pay contractually-owed compensation to players
currently under contract with the NBA Defendants for the 201I season and beyond, in
violation of Section I of the Sherman Act.
66.
The NBA Defendants' conduct operates as a perpetual horizontal
group boycott and price-fixing agreement, which is pgf se unlawful.
67.
The NBA Defendants' conduct also constitutes an unreasonable
restraint of trade under the "quick look" or rule of reason tests. The NBA Defendants
have significant market power in the relevant market. Their group boycott and price-
fixing agreement is a naked restraint of trade without any pro-competitive pu{pose or
effect. In fact, its objective is to reduce player wages and increase the profits of the NBA
Defendants through the imposition of a concerted refusal to deal. Moreover, the
2l
agreement is not in any way necessary for the production of NBA basketball or the
achievement of any pro-competitive objective.
68.
Each of the NBA Defendants is a participant in this unlawful
combination or conspiracy.
69.
The Plaintiffs and class members have suffered and will suffer
antitrust injury to their business or property by reason of the continuation of this unlawful
combination or conspiracy. The NBA Defendants' boycott has injured and will continue
to injure Plaintiffs and class members by depriving them of the ability to work as, receive
contractually-mandated compensation for, and/or offer their services as professional
basketball players in a free and open market.
70.
Monetary damages alone will not be adequate to compensate
Plaintiffs or other class members for the irreparable harm they have and will continue to
suffer, warranting permanent inj unctive relief.
71.
The conduct of the NBA Defendants is causing and threatens to
cause monetary injuries to Plaintiffs and other class members that will total billions of
dollars if the defendants continue their boycott for the entire 2011 NBA season.
COUNT II
Breach of Contract
72.
Plaintiffs repeat and reallege each of the allegations contained in
paragraphs I through 71.
73.
Plaintiffs and the Under-Contract Subclass include players who, as
of July l,20ll, are under contract to play professional basketball for an NBA team in
22
what would have been the 2011 NBA season and thereafter. Pursuant to their group
boycott, NBA teams are preventing members of the Under-Contract Subclass from
working as professional basketball players and will refuse to pay them the compensation
mandated by their existing contracts. The aforesaid conduct violates the individual state
contract laws that apply to these contracts.
74.
Plaintiffs and the Under-Contract Subclass members will be
damaged by the NBA Defendants breaches of their contracts by a failure to receive
amounts that are contractually owed, and also by being deprived of the opportunity to
play professional basketball and further demonstrate their abilities on the basketball field.
75.
Monetary damages are not adequate to compensate Plaintiffs or
other class members for the irreparable harm they have and will continue to suffer,
warranting injunctive relief.
76.
The conduct of the NBA Defendants has caused monetary injuries
to Plaintiffs and other class members, entitling them to damages for, among other things,
their lost compensation.
COUNT III
Tortious Interference with Contract
77. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs I through 76.
78.
Each of the NBA Defendants was aware of the contracts entered
into by Plaintiffs Gordon and Tolliver and the members of the Under-Contract Subclass
23
with individual NBA teams. The NBA Defendants then intentionally procured the
breaches of those contracts with improper motive and without justification.
79.
By jointly conspiring and agreeing to refuse to make contractually-
owed payments, each of the NBA Defendants intentionally interfered with the rights of
those Plaintiffs and class members with NBA Player Contracts for the 2011 NBA season
to receive the compensation and other benefits due under those contracts. Absent these
restrictions, the Plaintiffs and Subclass members with NBA Player Contracts for the 2011
season would have received payments mandated by their contracts with NBA teams.
Plaintiffs Gordon and Tolliver and Under-Contract Subclass members have suffered
injury as a result of the NBA Defendants' actions.
80. Plaintiffs and Subclass members with 2011 NBA Player Contracts
have suffered significant and irreparable injury as a result of the NBA Defendants'
tortious interference with contract. Among other things, these Plaintiffs and Subclass
members are being deprived of the ability to practice and compete as NBA players during
their very short NBA careers.
81.
Monetary damages are not adequate to compensate Plaintiffs or
other class members for the irreparable harm they have and will continue to suffer,
warranting injunctive relief.
82.
The conduct of the NBA Defendants has caused monetary injuries
to Plaintiffs and other class members, entitling them to damages for, among things, their
lost compensation.
24
83.
The NBA Defendants' tortious interference with contract violates
tort laws in the states in which such conduct is taking place.
COUNT IV
Tortious Interference with Prospective Contractual Relations
84. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 83.
85.
By jointly conspiring and agreeing to impose a group boycott, each
of the NBA Defendants intentionally interfered with the rights of Plaintiffs Butler and
Williams and Free Agent Subclass and Rookie Subclass members to enter into
prospective contracts with NBA teams. Absent these restrictions, these Plaintiffs and
subclass members, in reasonable probability, would have entered into contracts with
NBA teams.
86.
The aforesaid conduct was taken intentionally by the NBA
Defendants and is improper as it is intended to harm the players and earn monopoly
profits for the NBA Defendants by suppressing the market for player services in violation
of federal law.
87. Plaintiffs Butler and Williams and the Free Agent and Rookie
Subclass members will be injured by the deprivation, by reason of the restrictions
imposed by the NBA Defendants, of the ability to negotiate and enter into contracts with
NBA teams. These Plaintiffs and Free Agent Subclass and Rookie Subclass members
will suffer severe and irreparable harm if they are prevented from entering into contracts
with NBA teams for the 2011 season or beyond.
25
88.
Monetary damages are not adequate to compensate Plaintiffs or
other class members for the irreparable harm they have and will continue to suffer,
warranting injunctive relief.
89.
The conduct of the NBA Defendants has caused monetary injuries
to Plaintiffs and other class members, entitling them to damages for, among other things,
their lost compensation.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for judgment with respect to their First
Amended Complaint as follows:
1.
That the Court certifr this action as a class action under Rules
26(bxl), 23(b)(2) and/or 23(bX3) of the Federal Rules of Civil Procedure;
2.
Declaring that the NBA Defendants' group boycott violates
Section 1 of the Sherman Act:
3.
Declaring that Defendants' imposition of other anticompetitive
restrictions violates Section 1 of the Sherman Act;
4.
Awarding Plaintiffs and class members treble the amount of
damages they sustained as a result of the violations of the antitrust laws alleged herein;
5.
Awarding Plaintiffs and class members a permanent injunction
against Defendants' group boycott and other anticompetitive restrictions in violation of
Section 1 of the Sherman Act:
6.
Awarding Plaintiffs and Under-Contract Subclass members the
damages they sustained as a result of the NBA Defendants' breaches of contract;
26
l.
Awarding Plaintiffs and Under-Contract Subclass members the
damages they sustained as a result of the NBA Defendants' interference with their
contracts;
8.
Awarding Plaintiffs and Free Agent and Rookie Subclass members
the damages they sustained as a result of the NBA Defendants' interference with their
entering into prospective contracts;
9.
Declaring that the NBA Defendants are obligated to pay all
contractually-owed amounts to Plaintiffs and Under-Contract Subclass members;
10. Awarding Plaintiffs their costs and disbursements in this action,
including reasonable attorneys' fees; and
I l.
Grantine Plaintiffs and class members such other and further relief.
including any appropriate injunctive relief, as may be appropriate.
DEMAND FOR JURY
Pursuant to Rule 38 of the Federal Rules of Civil Procedure. Plaintiffs
demand a trial by jury.
Dated: November 15, 20ll
Respectfully S
ubmitted,
/olt
L;,
Barbara Podlucky Be
09788
Just Rae Miller, #387330
Berens & Miller, P.A.
3720 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
(612) 34e-6r7r
(612) 349-6416 (fax)
Attorneysfor Plaintffi
2l
| antitrust |
pdV4D4cBD5gMZwczITnH | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No.
GEORGE ASSAD, Individually and on Behalf of All Others Similarly Situated,
Plaintiff,
v.
STILLWATER MINING COMPANY,
BRIAN D. SCHWEITZER,
MICHAEL J. MCMULLEN,
GEORGE M. BEE,
PATRICE E. MERRIN,
LAWRENCE PETER O'HAGAN,
MICHAEL S. PARRETT,
GARY A. SUGAR,
SIBANYE GOLD LIMITED,
THOR US HOLDCO INC., and
THOR MERGCO INC.,
Defendants.
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934
Plaintiff, by his undersigned attorneys, for this complaint against defendants, alleges
upon personal knowledge with respect to himself, and upon information and belief based upon,
inter alia, the investigation of counsel as to all other allegations herein, as follows:
NATURE OF THE ACTION
1.
This action stems from a proposed transaction announced on December 9, 2016
(the “Proposed Transaction”), pursuant to which Stillwater Mining Company (“Stillwater” or the
“Company”) will be acquired by Sibanye Gold Limited (“Parent”), Thor US Holdco Inc. (“US
Holdco”), and Thor Mergco Inc. (“Merger Sub,” and together with Parent and US Holdco,
“Sibanye”).
2.
On December 9, 2016, Stillwater’s Board of Directors (the “Board” or “Individual
Defendants”) caused the Company to enter into an agreement and plan of merger (the “Merger
Agreement”). Pursuant to the terms of the Merger Agreement, shareholders of Stillwater will
receive $18.00 per share in cash.
3.
On January 24, 2017, defendants filed a Preliminary Proxy Statement (the “Proxy
Statement”) with the United States Securities and Exchange Commission (“SEC”) in connection
with the Proposed Transaction.
4.
The Proxy Statement omits material information with respect to the Proposed
Transaction, which renders the Proxy Statement false and misleading. Accordingly, plaintiff
alleges herein that defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act
of 1934 (the “1934 Act”) in connection with the Proxy Statement.
JURISDICTION AND VENUE
5.
This Court has jurisdiction over the claims asserted herein pursuant to Section 27
of the 1934 Act because the claims asserted herein arise under Sections 14(a) and 20(a) of the
1934 Act and Rule 14a-9.
6.
This Court has jurisdiction over defendants because each defendant is either a
corporation that conducts business in and maintains operations within this District, or is an
individual with sufficient minimum contacts with this District so as to make the exercise of
jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.
7.
Venue is proper under 28 U.S.C. § 1391(b) because a substantial portion of the
transactions and wrongs complained of herein occurred in this District.
PARTIES
8.
Plaintiff is, and has been continuously throughout all times relevant hereto, the
owner of Stillwater common stock.
9.
Defendant Stillwater is a Delaware corporation and maintains its principal
executive office at 26 West Dry Creek Circle, Suite 400, Littleton, Colorado 80120. Stillwater’s
common stock is traded on the NYSE under the ticker symbol “SWC.”
10.
Defendant Brian D. Schweitzer (“Schweitzer”) has served as a director and
Chairman of the Board of Stillwater since May 2013. According to the Company’s website,
Schweitzer is a member of the Corporate Governance & Nominating Committee and the Health,
Safety & Environmental Committee.
11.
Defendant Michael J. McMullen (“McMullen”) has served as a director of
Stillwater since May 2013 and as President and Chief Executive Officer (“CEO”) since
December 2013. According to the Company’s website, McMullen is a member of the Health,
Safety & Environmental Committee and the Technical and Ore Reserve Committee.
12.
Defendant George M. Bee (“Bee”) has served as a director of Stillwater since
November 2012. According to the Company’s website, Bee is Chair of the Health, Safety &
Environmental Committee and a member of the Technical and Ore Reserve Committee.
13.
Defendant Patrice E. Merrin (“Merrin”) has served as a director of Stillwater
since May 2013. According to the Company’s website, Merrin is Chair of the Corporate
Governance & Nominating Committee and a member of the Compensation Committee.
14.
Defendant Lawrence Peter O’Hagan (“O'Hagan”) has served as a director of
Stillwater March 2015. According to the Company’s website, O’Hagan is a member of the
Audit Committee and the Compensation Committee.
15.
Defendant Michael S. Parrett (“Parrett”) has served as a director of Stillwater
since May 2009. According to the Company’s website, Parrett is Chair of the Audit Committee
and a member of the Corporate Governance & Nominating Committee.
16.
Defendant Gary A. Sugar (“Sugar”) has served as a director of Stillwater since
August 2012. According to the Company’s website, Sugar is Chair of the Compensation
Committee, Chair of the Technical and Ore Reserve Committee, and a member of the Audit
Committee.
17.
The defendants identified in paragraphs 10 through 16 are collectively referred to
herein as the “Individual Defendants.”
18.
Defendant Parent is a public company organized under the laws of South Africa
and a party to the Merger Agreement.
19.
Defendant US Holdco is a Delaware corporation, an indirect wholly owned
subsidiary of Parent, and a party to the Merger Agreement.
20.
Defendant Merger Sub is a Delaware corporation, a direct wholly-owned
subsidiary of US Holdco, and a party to the Merger Agreement.
CLASS ACTION ALLEGATIONS
21.
Plaintiff brings this action as a class action on behalf of himself and the other
public stockholders of Stillwater (the “Class”). Excluded from the Class are defendants herein
and any person, firm, trust, corporation, or other entity related to or affiliated with any defendant.
22.
This action is properly maintainable as a class action.
23.
The Class is so numerous that joinder of all members is impracticable. As of
December 6, 2016, there were approximately 121,080,187 shares of Stillwater common stock
outstanding, held by hundreds, if not thousands, of individuals and entities scattered throughout
the country.
24.
Questions of law and fact are common to the Class, including, among others: (i)
whether defendants violated the 1934 Act; and (ii) whether defendants will irreparably harm
plaintiff and the other members of the Class if defendants’ conduct complained of herein
continues.
25.
Plaintiff is committed to prosecuting this action and has retained competent
counsel experienced in litigation of this nature. Plaintiff’s claims are typical of the claims of the
other members of the Class and plaintiff has the same interests as the other members of the
Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class.
26.
The prosecution of separate actions by individual members of the Class would
create the risk of inconsistent or varying adjudications that would establish incompatible
standards of conduct for defendants, or adjudications that would, as a practical matter, be
dispositive of the interests of individual members of the Class who are not parties to the
adjudications or would substantially impair or impede those non-party Class members’ ability to
protect their interests.
27.
Defendants have acted, or refused to act, on grounds generally applicable to the
Class as a whole, and are causing injury to the entire Class. Therefore, final injunctive relief on
behalf of the Class is appropriate.
SUBSTANTIVE ALLEGATIONS
Background of the Company
28.
Stillwater is the only United States miner of platinum group metals (“PGMs”)
and the largest primary producer of PGMs outside of South Africa and the Russian Federation.
29.
The Company is engaged in the development, extraction, and processing of PGMs
from a geological formation in south-central Montana recognized as the J-M Reef. The J-M
Reef is the only known significant source of PGMs in the United States and the highest-grade
PGM deposit known in the world.
30.
The Company also recycles PGMs from spent catalytic converters and other
industrial sources.
31.
The Company owns the Marathon PGM-copper deposit in Ontario, Canada, and
the Altar porphyry copper-gold deposit located in the San Juan province of Argentina.
32.
On July 29, 2016, Stillwater issued a press release wherein it reported its financial
results for the second quarter ended June 30, 2016. The Company reported mined palladium and
platinum sales of 150,900 ounces, an increase of 13.5% from 133,000 ounces sold during the
second quarter of 2015, and mined palladium and platinum production of 137,100 ounces, an
increase of 8.0% from 127,000 ounces mined during the second quarter of 2015. Stillwater
processed 169,900 ounces of recycled palladium, platinum, and rhodium, an increase of 12.1%
over 151,600 ounces recycled during the second quarter of 2015 and is the second highest total
on record. Moreover, East Boulder Mine set several new records in the second quarter, including
highest monthly tons milled (June), highest monthly ounces per employee (June), and the first
half of 2016 was the highest number of ounces produced for any half-year period. The Company
also accelerated its Blitz project on the 56 East development drive, with first production now
expected in late 2017 or early 2018.
33.
With respect to the results, Individual Defendant McMullen, President and CEO
of the Company, commented:
We are pleased to report not only strong operational performance this quarter, but
also a notable 61.4% year-over-year reduction in our total company reportable
incident rate, reflecting our team’s diligence in prioritizing safety while delivering
improvement across the organization.
We delivered quarterly costs of metals sold of $501 per PGM mined ounce and
AISC within our new medium-term mid-to-high $500’s target range. Our
momentum continued throughout the quarter, with June delivering the highest
monthly ounces since April 2015, a significant decrease in costs of metals sold
and the lowest AISC since 2010. We exit the first half of the year on track to
exceed several of the original targets set for 2016, and thus today are announcing
new guidance for the full-year. Our progress in results and safety represents an
important milestone for the Company. I am confident that we now have the
culture in place to continue safely increasing production while maintaining cost
discipline.
The Company’s liquidity position remains strong, with cash and cash equivalents
plus highly liquid investments of $442.2 million at the end of the second quarter.
The increase in purchased material in the recycling business during the second
quarter, coupled with increasing metal prices, drove a $20.5 million build in
working capital in the PGM Recycling segment. This shift was a significant factor
in the overall reduction in cash and equivalents of $10.2 million from the first
quarter of 2016. We continue to make solid progress in growing the recycling
business, processing 169,900 PGM ounces during the quarter and achieving the
second best quarter on record. In addition, we continue to invest in our mines
through sustaining capital activities at a development rate above the schedule
under our current mine plan.
34.
McMullen continued:
Work on the Blitz project continues to progress. Advance rates in the construction
of the 56 East development heading, a critical path item for first production,
continue to improve. Our focus on accelerating the project timeline has enabled us
to bring forward plans for first production, which we now anticipate to occur in
late 2017 or early 2018. Project spend on Blitz up to first production is now
expected to be in the range of $155 million to $175 million. We anticipate Blitz
will provide growth in our production profile and the Company’s lowest cost
mined ounces, given the grades shown by the drilling to date, as well as the
logistical set up of the Blitz project.
Even as realized PGM prices saw a significant decline over the prior year period,
recent improvements are encouraging. During the first half of 2016, platinum
reversed its previous downward trend to reach $999 per ounce at the mid-year
mark, and palladium rose from a low of $470 per ounce in the first quarter to
$589 per mined ounce at the mid-year mark. At July 28, 2016, platinum traded at
$1,143 per ounce and palladium had strengthened to $702 per ounce.
Overall, our solid second quarter performance and strong momentum in June
reflect the diligent focus of our team in continuing to drive costs lower and
elevate safety across the organization. The fundamentals of palladium, our
primary product, remain strong, and we are confident that our disciplined
approach to capital deployment and focus on operational efficiencies position
Stillwater to benefit across all stages of the commodity cycle.
35.
On October 28, 2016, Stillwater issued a press release wherein it reported its
financial results for the third quarter ended September 30, 2016. The Company reported PGM
mined sales of 131,800 ounces, an increase of 12.4% from 117,300 ounces sold during the third
quarter of 2015, and PGM mined production of 138,800 ounces, an increase of 8.4% from
128,100 PGM mined ounces during the third quarter of 2015. The Company processed 175,000
ounces of recycled palladium, platinum, and rhodium, an increase of 8.7% over 161,000 ounces
recycled during the third quarter of 2015 and a Company record. The Company further reported
consolidated net income attributable to common stockholders of $12.6 million or $0.10 per
diluted share, compared to a consolidated net loss attributable to common stockholders of $11.9
million or $0.10 per diluted share for the third quarter of 2015.
36.
With respect to the results, Individual Defendant McMullen commented:
The third quarter 2016 results demonstrate that Stillwater Mining Company
continues to deliver on operational plans and stated objectives. Our efforts to
grow the recycling business have been successful as we processed 175,000 ounces
of recycled PGMs during the third quarter of 2016, which was a Company record.
Mined production and costs were in-line with our expectations. Based on our
year-to-date results and future outlook, we remain confident in our ability to
achieve the improved full-year guidance targets provided last quarter. . . .
The Company remains focused on Blitz, our primary growth project. The progress
on the two critical path items to first production, the 56 East development heading
and the 53 East decline is ahead of plan. In addition, considerable engineering
work has been updated on the Blitz project. This new work has driven a
substantial increase to the scope of the project with relatively minimal additional
costs. As a result of the new work performed, the project now incorporates the
lower Blitz area. We now anticipate that Blitz will add between 270,000 and
330,000 ounces of mine production annually when fully ramped up by 2021-
2022. This is anticipated to be all incremental production for at least the first
decade of the Blitz production phase. Costs for the project are expected to
increase to approximately $250 million from the previous $205 million estimate,
which we consider to be a small escalation given the much expanded scope of the
project and the acceleration of the production profile. Additional capital will be
required for expansion of the Stillwater Mine concentrator to treat the increased
ore tonnage and the related work is currently underway.
37.
McMullen concluded:
The third quarter provides another data point for the evaluation of the progress we
are making at Stillwater. As the business continues to evolve, we have
consistently reached our performance targets, while achieving record safety
results. I believe we have successfully established a foundation of financial
discipline and focus on continuous operational improvement that will allow our
shareholders to benefit from the world-class mining and processing assets we
possess along with robust PGM market fundamentals. I would like to thank our
team for the hard work to achieve the success Stillwater has experienced to date
and the continued efforts for future progress.
The Inadequate Proposed Transaction and Preclusive Merger Agreement
38.
The Board caused the Company to enter into the Merger Agreement, pursuant to
which the Company will be acquired for inadequate consideration.
39.
The Individual Defendants have all but ensured that another entity will not
emerge with a competing proposal by agreeing to a “no solicitation” provision in the Merger
Agreement that prohibits the Individual Defendants from soliciting alternative proposals and
severely constrains their ability to communicate and negotiate with potential buyers who wish to
submit or have submitted unsolicited alternative proposals. Section 6.2.1 of the Merger
Agreement states:
Except as expressly permitted by this Section 6.2, during the Pre-Closing Period,
the Company shall not, and shall cause its Subsidiaries and Representatives and
its and their directors, officers and employees and other Representatives not to,
directly or indirectly through another Person, (i) initiate, solicit or knowingly take
any action to encourage, or knowingly facilitate the submission or making of, any
Acquisition Proposal, or any inquiry, expression of interest, proposal, offer or
request for information that could reasonably be expected to lead to or result in an
Acquisition Proposal, (ii) other than informing Third Parties of the existence of
the provisions contained in this Section 6.2 or (for a period of no more than two
Business Days), in response to an unsolicited Acquisition Proposal or solely to the
extent reasonably necessary to ascertain facts from the Person making such
Acquisition Proposal for the purpose of providing the Company Board with
sufficient information about such Acquisition Proposal and the Person that made
it, participate or engage in negotiations or discussions with, or furnish any
information concerning the Company or any of its Subsidiaries to, any Third
Party relating to an Acquisition Proposal or any inquiry, expression of interest,
proposal, offer or request for information that could reasonably be expected to
lead to or result in an Acquisition Proposal, (iii) enter into any Contract (written
or oral) relating to an Acquisition Proposal, or (iv) resolve or agree to do any of
the foregoing. From and after the execution and delivery of this Agreement, the
Company shall, and shall cause its Subsidiaries and its and their respective
Representatives to, (A) immediately cease and cause to be terminated all
discussions or negotiations with any Person that may be ongoing and existing on
the date hereof with respect to any Acquisition Proposal, or any inquiry,
expression of interest, proposal, offer or request for information that could
reasonably be expected to lead to or result in an Acquisition Proposal,
(B) terminate access by any Third Party to any physical or electronic data room or
other access to data or information of the Company, in each case relating to or in
connection with, any Acquisition Proposal or any potential Acquisition
Transaction, (C) request the prompt return or destruction of all information
previously provided to any Third Party in connection with any inquiry, expression
of interest, proposal, offer or request for information that could reasonably be
expected to lead to or result in an Acquisition Proposal or a proposed Acquisition
Transaction, and (D) use reasonable best efforts to enforce, and not waive or
modify, the provisions of any existing confidentiality or non-disclosure Contract
entered into with respect to any Acquisition Proposal or any potential Acquisition
Transaction; provided, however, that the Company shall waive standstill
provisions therein to the extent such provisions prohibit or limit any Third Party
from requesting that such provisions be waived or modified in connection with
the submission or possible submission of an Acquisition Proposal in accordance
with this Section 6.2. The Company shall ensure that its Representatives and the
Representatives of its Subsidiaries are aware of the provisions of this Section 6.2,
and it is agreed that any violation of the restrictions set forth in this Section 6.2 by
any Representative of the Company or any of its Subsidiaries shall constitute a
breach of this Section 6.2 by the Company.
40.
Further, the Company must promptly advise Sibanye of any proposals or inquiries
received from other parties. Section 6.2.3 of the Merger Agreement states:
The Company shall promptly (and in no event later than 24 hours after receipt by
the Company) notify Parent (which notice shall be provided orally and in writing
and shall identify the Person making the Acquisition Proposal and set forth in
reasonable detail the material terms thereof) after receipt of any Acquisition
Proposal, and shall promptly (and in no event later than 24 hours after receipt by
the Company) provide copies to Parent of any written proposals or indications of
interest with respect to any Acquisition Proposal, and/or draft agreements relating
to any Acquisition Proposal. Without limiting the foregoing, the Company shall
keep Parent informed of any developments (including the status of discussions or
negotiations) regarding any Acquisition Proposal (including by promptly (and in
no event later than 24 hours after receipt by the Company) providing to Parent
copies of any additional or revised written proposals or indications of interest with
respect to such Acquisition Proposal, and/or draft agreements relating to such
Acquisition Proposal) on a reasonably prompt basis (and in any event within 24
hours after receipt by the Company). The Company agrees that it and its
Subsidiaries will not enter into any Contract with any Third Party subsequent to
the date of this Agreement that prohibits the Company from providing any
information to Parent in accordance with this Section 6.2.3.
41.
Moreover, the Merger Agreement contains a highly restrictive “fiduciary out”
provision permitting the Board to withdraw its approval of the Proposed Transaction under
extremely limited circumstances, and grants Sibanye a “matching right” with respect to any
“Superior Proposal” made to the Company. Section 6.2.4 of the Merger Agreement provides, in
relevant part:
In addition, and without limiting this Section 6.2.4, at any time after the date of
this Agreement and prior to the time, but not after, the Company Stockholder
Approval is obtained, if the Company Board determines, in good faith, after
consultation with its outside legal counsel and outside independent financial
advisors, that a written Acquisition Proposal made after the date hereof that did
not result from a breach of this Section 6.2 constitutes a Superior Proposal, then
the Company Board may, subject to compliance with this Section 6.2.4, make a
Company Adverse Recommendation Change; provided, that prior to making a
Company Adverse Recommendation Change, the Company shall have provided
Parent five Business Days’ prior written notice (“Superior Proposal Notice”)
advising Parent that it intends to take such action and specifying, in reasonable
detail, the reasons for such action and the terms and conditions of any such
Superior Proposal, including the identity of the Third Party who has made such
Superior Proposal, and provided Parent a copy of the relevant proposed
Alternative Acquisition Agreement or the latest draft thereof or, if no such
agreement or draft exists, a written summary of the material terms and conditions
of such Superior Proposal, and any other related available documentation and
correspondence relating to such Superior Proposal (including any related
financing commitments and fee letters), and:
(A) during such five Business Day period, if requested by Parent, the Company
shall have engaged in good faith negotiations with Parent (and the Company shall
have directed its Representatives, including, its outside legal counsel and outside
independent financial advisors, to have engaged in good faith negotiations with
Parent and its Representatives) regarding changes to the terms of this Agreement
intended to cause such Acquisition Proposal to no longer constitute a Superior
Proposal; and
(B) the Company shall have considered the Proposed Changed Terms proposed
by Parent no later than 11:59 p.m., NY time, on the fifth Business Day of such
five-Business Day period and shall have determined in good faith (after
consultation with its outside legal counsel and outside independent financial
advisors) that the Superior Proposal would continue to constitute a Superior
Proposal if such Proposed Changed Terms were to be given effect and that the
failure to make a Company Adverse Recommendation Change would be
inconsistent with the Company Board’s fiduciary duties to the stockholders of the
Company under Applicable Law.
The Parties acknowledge and agree that any (1) revisions to the financial or any
other material terms of a Superior Proposal or (2) revisions to the financial terms
or any other material terms of an Acquisition Proposal that the Company Board
had determined no longer constitutes a Superior Proposal, shall constitute a new
Acquisition Proposal and shall in each case require the Company to deliver to
Parent a new Superior Proposal Notice and a new period (which period shall be
three Business Days) shall commence thereafter, during which time the Company
shall be required to comply with the requirements of this Section 6.2.4 anew with
respect to such additional notice.
42.
Further locking up control of the Company in favor of Sibanye, the Merger
Agreement provides for a “termination fee” of $16.5 million, payable by the Company to
Sibanye if the Individual Defendants cause the Company to terminate the Merger Agreement.
Stillwater also may be required to reimburse Sibanye’s expenses up to $10 million.
43.
By agreeing to all of the deal protection devices, the Individual Defendants have
locked up the Proposed Transaction and have precluded other bidders from making successful
competing offers for the Company.
44.
The consideration to be paid to plaintiff and the Class in the Proposed Transaction
is inadequate.
45.
Among other things, the intrinsic value of the Company is materially in excess of
the amount offered in the Proposed Transaction.
46.
The merger consideration also fails to adequately compensate the Company’s
stockholders for the significant synergies resulting from the merger.
47.
Accordingly, the Proposed Transaction will deny Class members their right to
share proportionately and equitably in the true value of the Company’s valuable and profitable
business, and future growth in profits and earnings.
The Proxy Statement Omits Material Information, Rendering It False and Misleading
48.
Defendants filed the Proxy Statement with the SEC in connection with the
Proposed Transaction.
49.
The Proxy Statement omits material information with respect to the Proposed
Transaction, which renders the Proxy Statement false and misleading.
50.
First, the Proxy Statement omits material information regarding Stillwater’s
financial projections and the financial analyses performed by the Company’s financial advisor,
Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”), in support of its
so-called fairness opinion.
51.
For example, with respect to Stillwater’s financial projections, the Proxy
Statement fails to disclose: (i) all of the projection line items for Stillwater for each year of the
projection period as provided by management and/or relied upon by BofA Merrill Lynch in its
financial analyses, including but not limited to annual production rates for each separate product,
assumed pricing for each product for each year, and operating expenses; (ii) the definition of
unlevered free cash flow; (iii) each of the constituent line items used in the calculation of
unlevered free cash flow, including for each of the Stillwater Mine, Blitz project, East Boulder
Mine, and Lower East Boulder project; and (iv) a reconciliation of GAAP to non-GAAP metrics.
52.
With respect to BofA Merrill Lynch’s Net Asset Value Analysis, the Proxy
Statement fails to disclose: (i) the specific inputs and assumptions used to determine the
discount rate range of 11.6% to 14.5%; and (ii) the separate concluded values for each of the
Stillwater Mine, Blitz project, East Boulder Mine, and Lower East Boulder project, as well as the
values for cash, the market value of Stillwater’s convertible debentures as of December 7, 2016,
mine closure liabilities, and the value of Altar Resources, as used by BofA Merrill Lynch in this
analysis.
53.
With respect to BofA Merrill Lynch’s Selected Publicly Traded Companies
Analysis, the Proxy Statement fails to disclose the individual multiples for the companies
observed by BofA Merrill Lynch in its analysis, as well as the separately concluded values for
Stillwater and Altar Resources.
54.
With respect to BofA Merrill Lynch’s Selected Precedent Transactions Analysis,
the Proxy Statement fails to disclose the individual multiples for the transactions observed by
BofA Merrill Lynch in its analysis, as well as the separately concluded values for Stillwater and
Altar Resources.
55.
When a banker’s endorsement of the fairness of a transaction is touted to
shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and
range of ultimate values generated by those analyses must also be fairly disclosed. Moreover,
the disclosure of projected financial information is material because it provides stockholders with
a basis to project the future financial performance of a company, and allows stockholders to
better understand the financial analyses performed by the company’s financial advisor in support
of its fairness opinion.
56.
The omission of this material information renders the Proxy Statement false and
misleading, including, inter alia, the following sections of the Proxy Statement: (i) “Opinion of
Stillwater’s Financial Advisor”; (ii) “Certain Stillwater Unaudited Prospective Financial
Information”; (iii) “Reasons for the Merger; Recommendation of the Stillwater Board of
Directors”; and (iv) “Background of the Merger.”
57.
Second, the Proxy Statement omits material information regarding potential
conflicts of interest of the Company’s officers and directors.
58.
Specifically, the Proxy Statement fails to disclose the timing and nature of all
communications regarding future employment and/or directorship of Stillwater’s officers and
directors, including who participated in all such communications.
59.
Communications regarding post-transaction employment during the negotiation of
the underlying transaction must be disclosed to stockholders. This information is necessary for
stockholders to understand potential conflicts of interest of management and the Board, as that
information provides illumination concerning motivations that would prevent fiduciaries from
acting solely in the best interests of the Company’s stockholders.
60.
Additionally, the Proxy Statement fails to disclose the amount of compensation
the Company’s officers and directors are estimated to receive in connection with the Proposed
Transaction.
61.
The omission of this material information renders the Proxy Statement false and
misleading, including, inter alia, the following sections of the Proxy Statement: (i) “Interests of
the Company’s Directors and Executive Officers in the Merger”; (ii) “Reasons for the Merger;
Recommendation of the Stillwater Board of Directors”; and (iii) “Background of the Merger.”
62.
Third, the Proxy Statement omits material information regarding potential
conflicts of interest of BofA Merrill Lynch.
63.
Specifically, the Proxy Statement fails to disclose whether BofA Merrill Lynch
has provided past services to Stillwater and/or its affiliates, as well as the amount of
compensation received by BofA Merrill Lynch for such services.
64.
Full disclosure of investment banker compensation and all potential conflicts is
required due to the central role played by investment banks in the evaluation, exploration,
selection, and implementation of strategic alternatives.
65.
The omission of this material information renders the Proxy Statement false and
misleading, including, inter alia, the following sections of the Proxy Statement: (i) “Opinion of
Stillwater’s Financial Advisor”; (ii) “Reasons for the Merger; Recommendation of the Stillwater
Board of Directors”; and (iii) “Background of the Merger.”
66.
Fourth, the Proxy Statement omits material information regarding the background
of the Proposed Transaction. The Company’s stockholders are entitled to an accurate description
of the “process” the directors used in coming to their decision to support the Proposed
Transaction.
67.
For example, the Proxy Statement fails to disclose whether the confidentiality
agreements entered into between Stillwater and the potential bidders, including Company B,
Company C, and Company D, contained standstill and/or “don’t ask, don’t waive” provisions.
68.
The Proxy Statement further fails to disclose the nature of the “preliminary
discussions with representatives of third parties regarding possible sales by Stillwater of non-
core assets.”
69.
The omission of this material information renders the Proxy Statement false and
misleading, including, inter alia, the following sections of the Proxy Statement: (i) “Reasons for
the Merger; Recommendation of the Stillwater Board of Directors”; and (ii) “Background of the
Merger.”
70.
The above-referenced omitted information, if disclosed, would significantly alter
the total mix of information available to Stillwater’s stockholders.
COUNT I
Claim for Violation of Section 14(a) of the 1934 Act and Rule 14a-9 Promulgated
Thereunder Against the Individual Defendants and Stillwater
71.
Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
72.
The Individual Defendants disseminated the false and misleading Proxy
Statement, which contained statements that, in violation of Section 14(a) of the 1934 Act and
Rule 14a-9, in light of the circumstances under which they were made, omitted to state material
facts necessary to make the statements therein not materially false or misleading. Stillwater is
liable as the issuer of these statements.
73.
The Proxy Statement was prepared, reviewed, and/or disseminated by the
Individual Defendants. By virtue of their positions within the Company, the Individual
Defendants were aware of this information and their duty to disclose this information in the
Proxy Statement.
74.
The Individual Defendants were at least negligent in filing the Proxy Statement
with these materially false and misleading statements.
75.
The omissions and false and misleading statements in the Proxy Statement are
material in that a reasonable stockholder will consider them important in deciding how to vote on
the Proposed Transaction. In addition, a reasonable investor will view a full and accurate
disclosure as significantly altering the total mix of information made available in the Proxy
Statement and in other information reasonably available to stockholders.
76.
The Proxy Statement is an essential link in causing plaintiff and the Company’s
stockholders to approve the Proposed Transaction.
77.
By reason of the foregoing, defendants violated Section 14(a) of the 1934 Act and
Rule 14a-9 promulgated thereunder.
78.
Because of the false and misleading statements in the Proxy Statement, plaintiff
and the Class are threatened with irreparable harm.
COUNT II
Claim for Violation of Section 20(a) of the 1934 Act
Against the Individual Defendants and Sibanye
79.
Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
80.
The Individual Defendants and Sibanye acted as controlling persons of Stillwater
within the meaning of Section 20(a) of the 1934 Act as alleged herein. By virtue of their
positions as officers and/or directors of Stillwater and participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false statements contained in the Proxy
Statement, they had the power to influence and control and did influence and control, directly or
indirectly, the decision making of the Company, including the content and dissemination of the
various statements that plaintiff contends are false and misleading.
81.
Each of the Individual Defendants and Sibanye was provided with or had
unlimited access to copies of the Proxy Statement alleged by plaintiff to be misleading prior to
and/or shortly after these statements were issued and had the ability to prevent the issuance of the
statements or cause them to be corrected.
82.
In particular, each of the Individual Defendants had direct and supervisory
involvement in the day-to-day operations of the Company, and, therefore, is presumed to have
had the power to control and influence the particular transactions giving rise to the violations as
alleged herein, and exercised the same. The Proxy Statement contains the unanimous
recommendation of the Individual Defendants to approve the Proposed Transaction. They were
thus directly in the making of the Proxy Statement.
83.
Sibanye also had direct supervisory control over the composition of the Proxy
Statement and the information disclosed therein, as well as the information that was omitted
and/or misrepresented in the Proxy Statement.
84.
By virtue of the foregoing, the Individual Defendants and Sibanye violated
Section 20(a) of the 1934 Act.
85.
As set forth above, the Individual Defendants and Sibanye had the ability to
exercise control over and did control a person or persons who have each violated Section 14(a)
of the 1934 Act and Rule 14a-9, by their acts and omissions as alleged herein. By virtue of their
positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the 1934
Act. As a direct and proximate result of defendants’ conduct, plaintiff and the Class are
threatened with irreparable harm.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment and relief as follows:
A.
Preliminarily and permanently enjoining defendants and all persons acting in
concert with them from proceeding with, consummating, or closing the Proposed Transaction;
B.
In the event defendants consummate the Proposed Transaction, rescinding it and
setting it aside or awarding rescissory damages;
C.
Directing the Individual Defendants to disseminate a Proxy Statement that does
not contain any untrue statements of material fact and that states all material facts required in it
or necessary to make the statements contained therein not misleading;
D.
Declaring that defendants violated Sections 14(a) and/or 20(a) of the 1934 Act, as
well as Rule 14a-9 promulgated thereunder;
E.
Awarding plaintiff the costs of this action, including reasonable allowance for
plaintiff’s attorneys’ and experts’ fees; and
F.
Granting such other and further relief as this Court may deem just and proper.
JURY DEMAND
Plaintiff respectfully requests a trial by jury on all issues so triable.
DATE: January 27, 2017
Respectfully submitted,
/s/ Rusty E. Glenn
Rusty E. Glenn
THE SHUMAN LAW FIRM
600 17th Street, Suite 2800 South
Denver, CO 80202
Telephone: (303) 861-3003
Facsimile: (303) 536-7849
Email: rusty@shumanlawfirm.com
Kip B. Shuman
THE SHUMAN LAW FIRM
Post-Montgomery Ctr.
One Montgomery Street, Ste. 1800
San Francisco, CA 94104
Telephone: (303) 861-3003
Facsimile: (303) 536-7849
Email: kip@shumanlawfirm.com
Local Counsel for Plaintiff
RIGRODSKY & LONG, P.A.
Seth D. Rigrodsky
Brian D. Long
Gina M. Serra
Jeremy J. Riley
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
RM LAW, P.C.
Richard A. Maniskas
995 Old Eagle School Road, Suite 311
Wayne, PA 19087
(484) 588-5516
Attorneys for Plaintiff
| securities |
rKRfCYcBD5gMZwczXBgy | Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 323-306-4234
Fax: 866-633-0228
tfriedman@toddflaw.com
abacon@toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
LINDA JOHNSTONE, individually and
on behalf of all others similarly situated,
Plaintiff,
vs.
Case No. 8:21-cv-01177
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
EQUITY DIRECT FINANCIAL, LLC,
and DOES 1 through 10, inclusive, and
each of them,
Defendant.
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
3.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(c)]
4.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(c)]
DEMAND FOR JURY TRIAL
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Plaintiff LINDA JOHNSTONE (“Plaintiff”), individually and on behalf of
all others similarly situated, alleges the following upon information and belief
based upon personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action individually and on behalf of all others
similarly situated seeking damages and any other available legal or equitable
remedies resulting from the illegal actions of EQUITY DIRECT FINANICAL,
LLC (“Defendant”), in negligently, knowingly, and/or willfully contacting
Plaintiff on Plaintiff’s cellular telephone in violation of the Telephone Consumer
Protection Act, 47. U.S.C. § 227 et seq. (“TCPA”) and related regulations,
specifically the National Do-Not-Call provisions, thereby invading Plaintiff’s
privacy.
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff,
a resident of California, seeks relief on behalf of a Class, which will result in at
least one class member belonging to a different state than that of Defendant, a
California company. Plaintiff also seeks up to $1,500.00 in damages for each call
in violation of the TCPA, which, when aggregated among a proposed class in the
thousands, exceeds the $5,000,000.00 threshold for federal court jurisdiction.
Therefore, both diversity jurisdiction and the damages threshold under the Class
Action Fairness Act of 2005 (“CAFA”) are present, and this Court has jurisdiction.
3.
Venue is proper in the United States District Court for the Central
District of California pursuant to 28 U.S.C. § 1391(b) and because Defendant does
business within the State of California and Plaintiff resides within the County of
Ventura.
PARTIES
4.
Plaintiff, LINDA JOHNSTONE (“Plaintiff”), is a natural person
residing in Thousand Oaks, California and is a “person” as defined by 47 U.S.C. §
153 (39).
5.
Defendant, EQUITY DIRECT FINANCIAL LLC (“Defendant”) is a
mortgage lending company, and is a “person” as defined by 47 U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in or around September 2020, Defendant contacted
Plaintiff on Plaintiff’s cellular telephone number ending in -6983, in an attempt to
solicit Plaintiff to purchase Defendant’s services.
9.
Defendant used an “automatic telephone dialing system” as defined
by 47 U.S.C. § 227(a)(1) to place its call to Plaintiff seeking to solicit its services.
10.
Defendant contacted or attempted to contact Plaintiff from telephone
number (805) 364-8496 confirmed to be Defendant’s number.
11.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
12.
During all relevant times, Defendant did not possess Plaintiff’s “prior
express consent” to receive calls using an automatic telephone dialing system or an
artificial or prerecorded voice on her cellular telephone pursuant to 47 U.S.C. §
227(b)(1)(A).
13.
Further, Plaintiff’s cellular telephone number ending in -6983 was
added to the National Do-Not-Call Registry on or about July 27, 2003.
14.
Defendant placed multiple calls and left a voicemail which utilized a
prerecorded voice soliciting its business to Plaintiff on her cellular telephone
ending in -6983 on or around September 16, 2020.
15.
Such calls constitute solicitation calls pursuant to 47 C.F.R. §
64.1200(c)(2) as they were attempts to promote or sell Defendant’s services.
16.
Plaintiff received at least one solicitation call from Defendant within
a 12-month period.
17.
Defendant called Plaintiff in an attempt to solicit its services and in
violation of the National Do-Not-Call provisions of the TCPA.
18.
Upon information and belief, and based on Plaintiff’s experiences of
being called by Defendant after being on the National Do-Not-Call list for several
years prior to Defendant’s initial call, and at all relevant times, Defendant failed to
establish and implement reasonable practices and procedures to effectively prevent
telephone solicitations in violation of the regulations prescribed under 47 U.S.C. §
227(c)(5).
CLASS ALLEGATIONS
19.
Plaintiff brings this action individually and on behalf of all others
similarly situated, as a member the two proposed classes (hereafter, jointly, “The
Classes”).
20.
The class concerning the ATDS claim for no prior express consent
(hereafter “The ATDS Class”) is defined as follows:
All persons within the United States who received any
solicitation/telemarketing
telephone
calls
from
Defendant to said person’s cellular telephone made
through the use of any automatic telephone dialing
system or an artificial or prerecorded voice and such
person had not previously consented to receiving such
calls within the four years prior to the filing of this
Complaint
21.
The class concerning the National Do-Not-Call violation (hereafter
“The DNC Class”) is defined as follows:
All persons within the United States registered on the
National Do-Not-Call Registry for at least 30 days, who
had not granted Defendant prior express consent nor had
a prior established business relationship, who received
more than one call made by or on behalf of Defendant
that promoted Defendant’s products or services, within
any twelve-month period, within four years prior to the
filing of the complaint.
22.
Plaintiff represents, and is a member of, The ATDS Class, consisting
of all persons within the United States who received any collection telephone calls
from Defendant to said person’s cellular telephone made through the use of any
automatic telephone dialing system or an artificial or prerecorded voice and such
person had not previously not provided their cellular telephone number to
Defendant within the four years prior to the filing of this Complaint.
23.
Plaintiff represents, and is a member of, The DNC Class, consisting
of all persons within the United States registered on the National Do-Not-Call
Registry for at least 30 days, who had not granted Defendant prior express consent
nor had a prior established business relationship, who received more than one call
made by or on behalf of Defendant that promoted Defendant’s products or services,
within any twelve-month period, within four years prior to the filing of the
complaint.
24.
Defendant, its employees and agents are excluded from The Classes.
Plaintiff does not know the number of members in The Classes, but believes the
Classes members number in the thousands, if not more. Thus, this matter should
be certified as a Class Action to assist in the expeditious litigation of the matter.
25.
The Classes are so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Classes
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Classes includes thousands of members. Plaintiff alleges that The Classes
members may be ascertained by the records maintained by Defendant.
26.
Plaintiff and members of The ATDS Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiff
and ATDS Class members via their cellular telephones thereby causing Plaintiff
and ATDS Class members to incur certain charges or reduced telephone time for
which Plaintiff and ATDS Class members had previously paid by having to retrieve
or administer messages left by Defendant during those illegal calls, and invading
the privacy of said Plaintiff and ATDS Class members.
27.
Common questions of fact and law exist as to all members of The
ATDS Class which predominate over any questions affecting only individual
members of The ATDS Class. These common legal and factual questions, which
do not vary between ATDS Class members, and which may be determined without
reference to the individual circumstances of any ATDS Class members, include,
but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any telemarketing/solicitation call
(other than a call made for emergency purposes or made with
the prior express consent of the called party) to a ATDS Class
member using any automatic telephone dialing system or any
artificial or prerecorded voice to any telephone number
assigned to a cellular telephone service;
b.
Whether Plaintiff and the ATDS Class members were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such
conduct in the future.
28.
As a person that received numerous telemarketing/solicitation calls
from Defendant using an automatic telephone dialing system or an artificial or
prerecorded voice, without Plaintiff’s prior express consent, Plaintiff is asserting
claims that are typical of The ATDS Class.
29.
Plaintiff and members of The DNC Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiff
and DNC Class members via their telephones for solicitation purposes, thereby
invading the privacy of said Plaintiff and the DNC Class members whose telephone
numbers were on the National Do-Not-Call Registry. Plaintiff and the DNC Class
members were damaged thereby.
30.
Common questions of fact and law exist as to all members of The
DNC Class which predominate over any questions affecting only individual
members of The DNC Class. These common legal and factual questions, which do
not vary between DNC Class members, and which may be determined without
reference to the individual circumstances of any DNC Class members, include, but
are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant or its agents placed more than one
solicitation call to the members of the DNC Class whose
telephone numbers were on the National Do-Not-Call Registry
and who had not granted prior express consent to Defendant and
did not have an established business relationship with
Defendant;
b.
Whether Defendant obtained prior express written consent to
place solicitation calls to Plaintiff or the DNC Class members’
telephones;
c.
Whether Plaintiff and the DNC Class member were damaged
thereby, and the extent of damages for such violation; and
d.
Whether Defendant and its agents should be enjoined from
engaging in such conduct in the future.
31.
As a person that received numerous solicitation calls from Defendant
within a 12-month period, who had not granted Defendant prior express consent
and did not have an established business relationship with Defendant, Plaintiff is
asserting claims that are typical of the DNC Class.
32.
Plaintiff will fairly and adequately protect the interests of the members
of The Classes. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
33.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Classes members is impracticable. Even if every Classes member could
afford individual litigation, the court system could not. It would be unduly
burdensome to the courts in which individual litigation of numerous issues would
proceed. Individualized litigation would also present the potential for varying,
inconsistent, or contradictory judgments and would magnify the delay and expense
to all parties and to the court system resulting from multiple trials of the same
complex factual issues. By contrast, the conduct of this action as a class action
presents fewer management difficulties, conserves the resources of the parties and
of the court system, and protects the rights of each Classes member.
34.
The prosecution of separate actions by individual Classes members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Classes members not parties to
such adjudications or that would substantially impair or impede the ability of such
non-party Class members to protect their interests.
35.
Defendant has acted or refused to act in respects generally applicable
to The Classes, thereby making appropriate final and injunctive relief with regard
to the members of the Classes as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b).
On Behalf of the ATDS Class
36.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-35.
37.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227(b), and in particular
47 U.S.C. § 227 (b)(1)(A).
38.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b),
Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
39.
Plaintiff and the ATDS Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
On Behalf of the ATDS Class
40.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-39.
41.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227(b),
and in particular 47 U.S.C. § 227 (b)(1)(A).
42.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(b), Plaintiff and the ATDS Class members are entitled an award of
$1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
43.
Plaintiff and the Class members are also entitled to and seek injunctive
relief prohibiting such conduct in the future.
THIRD CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(c)
On Behalf of the DNC Class
44.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-43.
45.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227(c), and in particular
47 U.S.C. § 227 (c)(5).
46.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(c),
Plaintiff and the DNC Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(c)(5)(B).
47.
Plaintiff and the DNC Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
FOURTH CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227 et seq.
On Behalf of the DNC Class
48.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-47.
49.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227(c),
in particular 47 U.S.C. § 227 (c)(5).
50.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(c), Plaintiff and the DNC Class members are entitled an award of
$1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(c)(5).
51.
Plaintiff and the DNC Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b)
• As a result of Defendant’s negligent violations of 47 U.S.C.
§227(b)(1), Plaintiff and the ATDS Class members are entitled to and
request $500 in statutory damages, for each and every violation,
pursuant to 47 U.S.C. 227(b)(3)(B).
• Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
• As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(b)(1), Plaintiff and the ATDS Class members are
entitled to and request treble damages, as provided by statute, up to
$1,500, for each and every violation, pursuant to 47 U.S.C.
§227(b)(3)(B) and 47 U.S.C. §227(b)(3)(C).
• Any and all other relief that the Court deems just and proper.
THIRD CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(c)
• As a result of Defendant’s negligent violations of 47 U.S.C.
§227(c)(5), Plaintiff and the DNC Class members are entitled to and
request $500 in statutory damages, for each and every violation,
pursuant to 47 U.S.C. 227(c)(5).
• Any and all other relief that the Court deems just and proper.
FOURTH CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(c)
• As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(c)(5), Plaintiff and the DNC Class members are entitled
to and request treble damages, as provided by statute, up to $1,500,
for each and every violation, pursuant to 47 U.S.C. §227(c)(5).
• Any and all other relief that the Court deems just and proper.
52.
Pursuant to the Seventh Amendment to the Constitution of the United
States of America, Plaintiff is entitled to, and demands, a trial by jury.
Respectfully Submitted this 8th Day of July, 2021.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: /s/ Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
| privacy |
BFa8BIkBRpLueGJZJYuY |
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Case No. 1:20-cv-00731-PAE
TUTOR PERINI BUILDING CORP.,
individually and, as to Count I of the Complaint,
on behalf of all others similarly situated, pursuant
to Article 3-A of the N.Y. Lien Law,
Plaintiff,
SECOND AMENDED COMPLAINT
vs.
NEW YORK CITY REGIONAL CENTER, LLC;
GEORGE
WASHINGTON
BRIDGE
BUS
STATION
AND
INFRASTRUCTURE
Plaintiff Demands Trial By Jury
DEVELOPMENT FUND, LLC; GSNMF SUB-
CDE 12 LLC; GSB NMTC INVESTOR LLC:
LIIF SUB-CDE XXVI, LLC; DVCI CDE XIII,
LLC; GWB NMTC INVESTMENT FUND LLC;
GWB LEVERAGE LENDER, LLC; GEORGE
WASHINGTON BRIDGE BUS STATION AND
INFRASTRUCTURE DEVELOPMENT FUND,
PHASE
II,
LLC;
UPPER
MANHATTAN
EMPOWERMENT
ZONE
DEVELOPMENT
CORPORATION;
SLAYTON
VENTURES,
LLC; SLAYTON EQUITIES; SJM PARTNERS
INC.;
PAUL
SLAYTON,
an
individual,
STEPHEN GARCHIK, an individual; WILLIAM
“TREY” BURKE, an individual, STEPHEN
McBRIDE, an individual; and DOES 1-300,
inclusive,
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Defendants.
Tutor Perini Building Corp. (“TPBC” or “Plaintiff”), by and through its undersigned
counsel, individually and, as to Count I of the Complaint, on behalf of all others similarly situated
or class members, pursuant to Article 3-A of the N.Y. Lien Law, files this Second Amended
Complaint against (1) New York City Regional Center, LLC; George Washington Bridge Bus
Station And Infrastructure Development Fund, LLC; GSNMF Sub-Cde 12 LLC; GSB NMTC
Investor LLC; LIIF SUB-CDE XXVI, LLC; DVCI CDE XIII, LLC; GWB NMTC Investment
Fund LLC; GWB Leverage Lender, LLC; George Washington Bridge Bus Station And
Infrastructure Development Fund, Phase II, LLC; Upper Manhattan Empowerment Zone
Development Corporation; (“Lender Defendants”); (2) the Complaint is also brought against
individuals and companies related to non-party George Washington Bridge Development Venture
LLC, which is the subject of a pending Chapter 11 bankruptcy proceeding, including, Slayton
Ventures, LLC; Slayton Equities; SJM Partners Inc.; Paul Slayton, an individual; Stephen Garchik,
an individual; William “Trey” Burke, an individual; Stephen McBride, an individual; and (3) to
the extent permitted by law, the Complaint is also brought against Does 1-300, inclusive,
(collectively, the “Defendants”). Plaintiff, based on knowledge, information and belief, and, as a
result of its investigation to date, alleges as follows:
I.
NATURE OF ACTION
1.
This Complaint asserts (a) a claim by TPBC in its representative capacity as a
beneficiary of a trust under Article 3-A of the Lien Law and for the benefit of all beneficiaries or
class members of said trust, for diversion of trust assets; and (b) claims held by TPBC, in its
individual capacity, arising from the George Washington Bridge Bus Station development project,
a major construction project located in New York City, New York. This Complaint asserts causes
of action due to massive and coordinated fraudulent misconduct that resulted from the wrongful
receipt of monies, which said funds were absconded, stolen and/or otherwise diverted from
statutory trust funds. The individual defendants and their companies in particular engaged in
conduct that shocks any notion of lawful, ethic of reasonable business practice.
II.
JURISDICTION, VENUE AND STATUTORY PREDICATES
2.
The jurisdiction of this Court is based both upon diversity of citizenship and a
federal question.
3.
First, the jurisdiction of this Court is based upon diversity of citizenship, pursuant
to 28 U.S.C. § 1332(a). The parties are citizens of different states and the amount in controversy
exceeds $75,000.
4.
Second and independently, this Court has jurisdiction because TPBC asserts claims
arising under the federal Declaratory Judgment Act.
5.
Venue is proper and personal jurisdiction exists because a substantial part of the
events giving rise to the Complaint occurred in this District. This case is based on circumstances
concerning the building of a construction project located within this District, specifically within
Manhattan, New York City, New York. Additionally, multiple Defendants reside and/or their
business is conducted within the District. 28 U.S.C. § 1391(b)-(c).
6.
This case is commenced pursuant to Article 3-A of the N.Y. Lien Law (the “Lien
Law”), Federal Declaratory Judgment Act and the causes of action asserted herein.
III.
PARTIES
7.
Plaintiff Tutor Perini Building Corp. is an Arizona corporation, with its principal
place of business in Nevada. During all relevant periods of time and currently, TPBC held a valid
license to operate as a general contractor in the State of New York.
8.
TPBC alleges that Defendant New York City Regional Center, LLC (“NYCRC” or
“Regional Center”) is, and at all times herein mentioned was, a limited liability company duly
formed, existing, and organized under the laws of the State of New York, with its principal place
of business in the State of New York. The managing members of NYCRC are Paul Anton
Levinshon and George Olsen, both of whom are citizens of the State of New York.
9.
TPBC alleges that Defendant George Washington Bridge Bus Station and
Infrastructure Development Fund, LLC is, and at all times herein mentioned was, a limited liability
company duly formed, existing, and organized under the laws of the State of New York, with its
principal place of business in the State of New York. The managing member of Defendant George
Washington Bridge Bus Station and Infrastructure Development Fund, LLC is NYCRC. NYCRC
is a limited liability company duly formed, existing, and organized under the laws of the State of
New York with its principal place of business in the State of New York. The managing members
of NYCRC are Paul Anton Levinshon and George Olsen, both of whom are citizens of the State
of New York.
10.
TPBC alleges that Defendant GSNMF SUB-CDE 12 LLC is, and at all times herein
mentioned was, a limited liability company duly formed, existing, and organized under the laws
of the State of Delaware, with its principal place of business in New York. Defendant GSNMF
SUB-CDE 12 LLC has 2 members: 1) GS New Markets Fund, LLC (which owns a .01%
membership interest and is the managing member), and 2) GWB NMTC Investment Fund, LLC
(which owns a 99.9% membership interest). GS New Markets Fund, LLC is a limited liability
company and duly formed, existing, and organized under the laws of the State of Delaware, with
its principal place of business in the State of New York. GWB NMTC Investment Fund LLC is,
and at all times herein mentioned was, a limited liability company duly formed, existing, and
organized under the laws of the State of Delaware, with its principal place of business in New
York. GWB NMTC Investment Fund, LLC is wholly owned by 2018 NMTC Secondary Fund
LLC. 2018 NMTC Secondary Fund LLC is wholly owned by Citibank N.A. Citibank N.A is
wholly owned by Citicorp LLC. Citicorp LLC is wholly owned by Citigroup, Inc. Citigroup Inc.
is a corporation formed under the laws of the State of Delaware, with its principal place of business
in the State of New York.
11.
TPBC alleges that Defendant GSB NMTC Investor Fund LLC is, and at all times
herein mentioned was, a limited liability company duly formed, existing, and organized under the
laws of the State of Delaware, with its principal place of business in New York. GSB NMTC
Investor LLC is the managing member of Defendant GSB NMTC Investor Fund LLC. GSB
NMTC Investor LLC is a limited liability company and duly formed, existing, and organized under
the laws of the State of Delaware, with its principal place of business in New York. GSB UIG LLC
is the 100% owner of the GSB NMTC Investor LLC and is a Delaware LLC with its principal
place of business in the State of New York. Goldman Sachs Bank USA is the 100% owner of GSB
UIG LLC. Goldman Sachs Bank USA is Chartered Bank, chartered under the laws of the State of
New York, with its principal place of business in the State of New York.
12.
TPBC alleges that Defendant LIIF SUB-CDE XXVI, LLC is, and at all times herein
mentioned was, a limited liability company duly formed, existing, and organized under the laws
of the State of Delaware, with its principal place of business in New York. LIIF SUB-CDE XXVI,
LLC has two members: 1) GWB NMTC Investment Fund, LLC (99.9 percent) and 2) LIFF New
Markets, LLC (.01% Member and Managing Member). GWB NMTC Investment Fund, LLC is
a limited liability company and duly formed, existing, and organized under the laws of the State
of Delaware, with its principal place of business in the State of New York. LIFF New Markets,
LLC is a Delaware a limited liability company and duly formed, existing, and organized under the
laws of the State of Delaware, with its principal place of business in the State of New York. GWB
NMTC Investment Fund, LLC is wholly owned by 2018 NMTC Secondary Fund LLC. 2018
NMTC Secondary Fund LLC is wholly owned by Citibank N.A. Citibank N.A is wholly owned
by Citicorp LLC. Citicorp LLC is wholly owned by Citigroup, Inc. Citigroup Inc. is a corporation
formed under the laws of the State of Delaware, with its principal place of business in the State of
New York.
13.
TPBC alleges that Defendant DVCI CDE XIII, LLC is, and at all times herein
mentioned was, a limited liability company duly formed, existing, and organized under the laws
of the State of Delaware, with its principal place of business in New York. DVCI CDE XIII, LLC
has two members: 1) DV Community Investment Fund LLC is a .01% member, and 2) GWB
NMTC Investment Fund LLC is a 99.9% member DV Community Investment Fund is a limited
liability company and duly formed, existing, and organized under the laws of the State of
Delaware, with its principal place of business in the State of New York. GWB NMTC Investment
Fund, LLC is a limited liability company and duly formed, existing, and organized under the laws
of the State of Delaware, with its principal place of business in the State of New York. GWB
NMTC Investment Fund, LLC is wholly owned by 2018 NMTC Secondary Fund LLC. 2018
NMTC Secondary Fund LLC is wholly owned by Citibank N.A. Citibank N.A is wholly owned
by Citicorp LLC. Citicorp LLC is wholly owned by Citigroup, Inc. Citigroup Inc. is a corporation
formed under the laws of the State of Delaware, with its principal place of business in the State of
New York.
14.
TPBC is informed and believes and thereon alleges that Defendant GWB NMTC
Investment Fund LLC is, and at all times herein mentioned was, a limited liability company duly
formed, existing, and organized under the laws of the State of Delaware, with its principal place
of business in New York. GWB NMTC Investment Fund, LLC is wholly owned by 2018 NMTC
Secondary Fund LLC. 2018 NMTC Secondary Fund LLC is wholly owned by Citibank N.A.
Citibank N.A is wholly owned by Citicorp LLC. Citicorp LLC is wholly owned by Citigroup, Inc.
Citigroup Inc. is a corporation formed under the laws of the State of Delaware, with its principal
place of business in the State of New York.
15.
TPBC alleges that Defendant GWB Leverage Lender, LLC is, and at all times
herein mentioned was, a limited liability company duly formed, existing, and organized under the
laws of the State of Delaware. GWB Development Partners, LLC is the managing member of
Defendant GWB Leverage Lender, LLC. George Washington Bridge Bus Station and
Infrastructure Development Fund, Phase II, LLC is the “loan member” of GWB Leverage Lender,
LLC. GWB Development Partners, LLC is a limited liability company and duly formed, existing,
and organized under the laws of the State of Delaware, with its principal place of business in New
York. George Washington Bridge Bus Station and Infrastructure Development Fund, Phase II,
LLC is a limited liability company and duly formed, existing, and organized under the laws of the
State of New York, with its principal place of business in New York.
16.
TPBC alleges that Defendant George Washington Bridge Bus Station and
Infrastructure Development Fund, Phase II, LLC is, and at all times herein mentioned was, a
limited liability company duly formed, existing, and organized under the laws of the State of New
York with its principal place of business in New York. The managing member of Defendant
George Washington Bridge Bus Station and Infrastructure Development Fund, Phase II LLC is
NYCRC. NYCRC is a limited liability company duly formed, existing, and organized under the
laws of the State of New York with its principal place of business in the State of New York. The
managing members of NYCRC are Paul Anton Levinshon and George Olsen, both of whom are
citizens of the State of New York.
17.
TPBC alleges that Defendant Upper Manhattan Empowerment Zone Development
Corporation is, and at all times herein mentioned was, a corporation duly formed, existing, and
organized under the laws of the State of New York, with its principal place of business in the State
of New York.
18.
TPBC alleges that Defendant Slayton Ventures, LLC is, and at all times herein
mentioned was, a limited liability company duly formed, existing, and organized under the laws
of the State of New York, with its principal place of business in New York. Paul Slayton is the
managing member of Slayton Ventures LLC, and Paul Slayton is a citizen of the State of New
19.
TPBC is informed and believes and thereon alleges that Defendant Slayton
Equities, also known as Slayton Equities LTD, is, and at all times herein mentioned was, a
corporation, organized under the laws of the State of New York, with its principal place of business
in the State of New York.
20.
TPBC is informed and believes and thereon alleges that Defendant SJM Partners
Inc. is, and at all times herein mentioned was, a corporation duly formed, existing, and organized
under the laws of the State of Florida, with its principal place of business in the States of Florida.
21.
TPBC is informed and believes and thereon alleges that Defendant Paul Slayton,
an individual, is, and at all times herein mentioned was, the principal executive, agent and
employee of Defendant Slayton Ventures, LLC, and was acting within the scope of such agency
and employment and is his individual capacity for his own benefit, and engaged in other activities
related to the allegations set forth in this Complaint. Defendant Paul Slayton is a citizen of the
State of New York.
22.
TPBC is informed and believes and thereon alleges that Defendant Stephen
Garchik, an individual is, and at all times herein mentioned was, the chief executive, agent and
employee of Defendant SJM Partners Inc., and was at all times, acting within the scope of such
agency and employment and is his individual capacity for his own benefit, and engaged in other
activities related to the allegations set forth in this Complaint. Defendant Stephen Garchik is a
citizen of the State of Florida.
23.
TPBC is informed and believes and thereon alleges that Defendant William “Trey”
Burke, an individual, is, and at all times herein mentioned was an agent and employee of Defendant
SJM Partners Inc. with the title of “Development, Senior Vice President” and acting is his
individual capacity for his own benefit. Mr. Burke is a citizen of the Commonwealth of Virginia.
24.
TPBC is informed and believes and thereon alleges that Defendant Stephen
McBride, an individual, is, and at all times herein mentioned was an agent and employee of SJM
Partners Inc, with the title of “Development, Managing Principal” and acting is his individual
capacity for his own benefit. Defendant Stephen McBride is a citizen of the Commonwealth of
Virginia.
25.
TPBC is informed and believes and thereon alleges that none of the defendants
named in this Second Amended Complaint are citizens nor have their principal places of business
in the States of Nevada or Arizona.
26.
The identities of each fictitiously named Doe defendants are unknown to Plaintiff.
Plaintiff is informed and believes, and upon such information and belief thereon alleges, that each
Doe defendant is in some manner legally responsible for the damages hereinafter pled. Plaintiff
will seek leave to amend this Complaint once the true and correct identities of these Doe defendants
are ascertained. The above-named defendants and DOES 1 through 300, inclusive, are collectively
referred to herein as “Defendants.”
IV.
FACTUAL BACKGROUND
A.
The Project
27.
TPBC is a leading building construction firm offering diversified general
contracting and engineering services to private clients and public agencies. TPBC has built some
of the most complex and high-profile projects in New York and throughout the country, including
major sports facilities, hotels, health care centers, residential and retail facilities.
28.
The George Washington Bridge Bus Station, which first opened on January 17,
1963, acts as a transit facility operated by the Port Authority of New York and New Jersey (the
“Port Authority”). The station is built over the Trans-Manhattan Expressway (Interstate 95) on
property owned in fee by the Port Authority between 178th and 179th Streets and Fort Washington
and Wadsworth Avenues (designated on the tax map of the City of New York as Block 2163 Lot
1 and Block 2176 Lot 17) (the “Property”).
29.
On June 30, 2011, the Port Authority approved a $183.2 million renovation and
improvement plan for the George Washington Bridge Bus Station (the “Project”), which is located
on the Property. The Project was a public-private venture between the Port Authority, as owner
of the Property, and non-party George Washington Bridge Development Venture LLC (the
“Developer”), as ground lessee and developer/contractor. The Project included relocating the bus
terminals to the third floor of the complex and creating a state-of-the-art ground transportation
hub. The Project also entailed a new 15,000 square foot bus terminal that increased the number of
gates from 17 to 22. Additionally, 85,000 square feet of the existing bus station was reconfigured
and upgraded. By relocating the bus station terminal to the third floor of the complex, a retail
center of approximately 129,000 square feet was created.
30.
Upon information and belief and representations of agents of the Developer, the
members of the Developer are GWB Development Partners, LLC and Marketplace GWB, LLC.
Defendants Stephen Garchik, Stephen McBride and Paul Slayton (the “Individual Owners”) are
indirect owners of the Developer, given the multi-layered ownership structure of the Developer.
One or all of the Individual Owners also own and operate Defendants Slayton Ventures, LLC,
Slayton Equities, SJM Partners Inc. (the “Related Developer Entities”). Upon information and
belief, Defendant William “Trey” Burke is an employee and principal agent of the Developer
(hereinafter referred to with the “Individual Owners” as “Individual Owners”). Upon information
and belief, Individual Owners are officers of the Developer or the companies that control the
Developer. The structure, ownership and control of the Developer may have changed from time-
to-time throughout the project.
31.
On or about July 21, 2011, the Port Authority entered into a written contractual
lease agreement with the Developer (the “Ground Lease”). Under the Ground Lease, the Developer
was permitted to use and operate portions of the Project as retail space for its own benefit for a
period of 49 years with 5 ten year extension options (for a total leasehold term of 99 years) (the
“Leased Premises”). Additionally, the Ground Lease provided that certain space would be
designed and built by the Developer and returned to the Port Authority for its use to operate a bus
terminal (the “Reserved Premises”). The Ground Lease provided, inter alia,
(a)
The scope of work for the Project at the time of execution of the Ground
Lease was based on plans (“Stage I Conformed Documents”) previously prepared under a separate
agreement between the Port Authority and the Developer. The Developer was obliged under the
Ground Lease to advance the Stage I Conformed Documents to final plans and specifications for
the work through the preparation of “working drawings, specifications, calculations, product
samples and other design materials,” which upon approval by the Port Authority became the
“Approved Construction Documents.”
(b)
The Developer was to perform “all work required to redevelop the
[Reserved Premises] . . . in compliance with the Approved Construction Documents” and “all work
required to construct the public areas of the Leased Premises, including without limitation all
Common Areas . . . the core and shell of the entire Leased Premises,” and other sub-tenant fit-out
work, including “all work necessary to properly complete the entire Project as contemplated by
and in compliance with the Approved Construction Documents (collectively, the ‘Construction
Work’), including all site work, demolition work, staging and phasing, construction work, utility
relocation . . ., and equipment procurement and installation.”
(c)
The Construction Work was to be performed at the Developer’s sole cost
and expense except (i) the Port Authority agreed to pay the Developer the fixed price of
$52,650,558 for the construction of the Reserved Premises, subject to adjustment as provided in
the Ground Lease, payable monthly upon approval by the Port Authority of progress payment
applications submitted by the Developer evidencing the work that “was performed by the
[Developer]” during the previous month, and (ii) the Port Authority authorized the Developer, in
accordance with certain specified terms, to procure construction loans and other financing secured
by mortgages on the Developer’s leasehold estate in portions of the Property to finance the
remainder of the Developer’s hard and soft construction costs for the Project.
(d)
The Port Authority retained certain control over the Construction Work as
the Project Owner, including but not limited to, (i) the Approved Construction Drawings could not
be modified without the Port Authority’s approval, (ii) the Developer was required to perform
changes in the work in the Reserved Premises directed by the Port Authority, (iii) the Developer
was prohibited from engaging any contractor or permitting any subcontractor to perform
Construction Work on the Project without the Port Authority’s approval of the contractor or
subcontractor, (iv) the right to issue badges and control who was permitted on the construction
site, (v) the Developer was required to consult with the Port Authority for “instructions and/or
decisions relating to ‘field-condition’ construction matters” and to comply with the Port
Authority’s decisions, (vi) the Port Authority had the right to monitor and inspect Construction
Work, (vii) if the Port Authority determined any of the Construction Work was non-compliant by
the Developer, the Port Authority had the right to direct the Developer to correct such work, (viii)
the Developer was required to provide the Port Authority with certain updates; and (ix) the
Developer was required to abide by numerous conditions, requirements, and limitations
established by the Port Authority on the Developer’s construction operations.
32.
On June 26, 2013, the Developer and TPBC entered into a written contract (the
“Construction Contract”), whereunder the parties acknowledged the Developer was contractually
obligated under the Ground Lease to perform certain construction work on the Project, and, to the
extent set forth in the Construction Contract, TPBC assumed to the Developer “the same
obligations and responsibilities expressly and or [sic] relating to the scope of work, quality of
work, time and schedule requirements, or character of work as are assumed by the [Developer] to
the Port Authority” under certain specified provisions of the Ground Lease. The Developer
expressly reserved in the Construction Contract the right to perform construction or operations
related to Project with the Developer’s own forces or to award separate contracts in connection
with other portions of the Project, in which case, the Developer agreed it would coordinate the
activities of TPBC under the Construction Contract with the activities being performed by the
Developer and/or the other contractors. And, in fact, TPBC was contracted to conduct only certain
work on the Project, including making structural changes and reconstructing certain buildings on
the Project site. TPBC was contracted to conduct the construction work on the “build-out” of only
a single retail space, but not the remaining multiple retail spaces, including a fitness center, grocery
store, restaurants and other spaces, which was done by others retained by the Developer and
unaffiliated with TPBC. TPBC commenced work under the Construction Contract in late 2013.
33.
The Project is not complete at this time. On June 21, 2019, the Developer, through
its principal manager, Stephen J. Garchik, prepared and signed an affidavit filed in federal court
indicating that the Project is not yet complete. (See USDC-SDNY Action, 1:19-cv-05344-RA,
Docket No. 22, paragraphs 10 and 13). On November 25, 2019, the Developer filed a pleading
with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy
Court”) (Case No. 19-13196 (SCC); Developer’s Reply to Tutor Perini Building Corp.’s Objection
to the Motion to Approve Bidding Procedures; Bankruptcy Docket No. 87, paragraph 8) in which
it stated, “Because all Final Punch List Items have not been completed, the Port Authority has not
made the Final Payment.” Exhibit A to that same pleading contains a settlement agreement
between the Developer and the Port Authority which states, “the Project will be complete upon
completion of the New Egress.” In addition, TPBC, through its lower-tier subcontractor, Siemens,
continued to conduct certain services under through the Construction Project into the 2020
calendar year. Therefore, based on such information and belief, the Project was not complete as of
the filing of this lawsuit on January 27, 2020.
34.
Based on information and belief, the Developer’s sole source of revenue since the
Project opened was construction funds and rental payments from sublesees of the Leased Premises,
and the Developer’s sole asset is the leasehold under the Ground Lease.
B.
The Developer Received Funds for the Purpose of Paying Costs of Improvements but
Defendants Slayton Ventures, LLC, Slayton Equities, SJM Partners Inc, Paul
Slayton, Stephen Garchik, William “Trey” Burke and Stephen McBride, Does 1-100,
Diverted those Funds to Themselves and Others
35.
Each month, following the completion of scheduled work, TPBC would issue the
Developer a payment application seeking compensation for costs and labor expended on the
Project that month. In accordance with industry practice, this initial payment application was
dubbed a “pencil copy,” because it was subject to review and revision by both the Developer and
the Port Authority. Indeed, the Developer would frequently make changes and negotiate payment
application figures with TPBC, and then submit its own version dubbed the “final copy.”
36.
The final copy, as agreed upon by all parties, was signed and notarized by TPBC
and formally submitted to the Developer. The Developer then applied to the Port Authority and
the Developer’s lenders for the disbursement of funds specifically for the purpose of paying TPBC
and others for their construction work.
37.
As to TPBC, the Developer made progress payments in connection with payment
applications Nos. 1 through 29. However, despite issuing approved final copies for payment
applications Nos. 30 through 44, the Developer failed to make payments thereon. These payment
applications alone, Nos. 30 through 44, plus the project retention fund, exceed $29 million.
C.
The Arbitration Proceeding
38.
Due to claims submitted by TPBC and its subcontractors concerning, among other
things, delays, design changes and extra work costs incurred in construction of the Project, and the
Developer’s failure to pay TPBC its contract balance for completion of the Project including 15
monthly payments due under payment applications Nos. 30 through 44, the matter was submitted
to the dispute resolution provisions of the Construction Contract.
39.
On February 26, 2015, the Developer initiated an arbitration proceeding (the
“Arbitration Proceeding”) by filing a demand for arbitration with the American Arbitration
Association, pursuant to their Construction Industry Rules. The Arbitration Proceeding is styled
as George Washington Bridge Bus Station Development Venture, LLC v. Tutor Perini Building
Corp., American Arbitration Association, Case No. 01-15-0002-7887. The demand sought
declaratory relief and a determination of the pending claims submitted by the contractors on the
Project. TPBC filed an answer and counterclaim, as amended, seeking damages against the
Developer, on behalf of itself and its subcontractors.
40.
The parties selected an arbitration panel comprising three senior construction
attorneys, Dennis Cavanaugh, Gregory Beckwith, and John Fieldsteel (the “Panel”), which was
appointed on March 31, 2016.
41.
Following extensive discovery, the parties submitted amended pleadings on March
30, 2018, wherein TPBC alleged a claim of $120 million, with the Developer seeking $3.8 million.
Certain small claims were resolved during the course of the proceedings, but remain unpaid.
42.
In March and July 2018, the parties submitted extensive expert reports and rebuttal
reports on the merits and damages sought by the parties. The parties exchanged documents and
discovery, and commenced hearings on August 22, 2018, with a site visit by the Panel. Testimony
on the merits of the claims began in the Arbitration Proceedings on September 24, 2018. TPBC
put on its case-in-chief first. By the time that the Developer commenced its Chapter 11 Case, the
Panel had conducted 67 days of evidentiary hearing on the merits regarding Project delays, change
orders, and the unpaid contract balance claim. The last hearing on the merits took place on April
12, 2019, with two additional in-person hearings on issuance and enforcement of TPBC’s
attachment motion on May 22, 2019, and September 6, 2019.
43.
TPBC concluded the presentation of its affirmative claims on April 10, 2019,
proving its amended claims for $113 million by the requisite standard. TPBC’s claims were
supported by expert and fact witness testimony and voluminous documentary evidence.
44.
The Arbitration Proceeding was interrupted when, on April 15, 2019, all of the
lawyers of record for the Developer, at two different law firms, withdrew from the case. It was
later learned that the Developer had not paid the lawyers for over four months. However, once the
Developer hired new legal counsel, the parties were able to schedule further hearing dates with the
Panel. This resulted in the vacation of hearing dates scheduled from May to early November 2019,
with the hearings scheduled to commence again on November 18, 2019. On October 7, 2019, the
Developer filed its Chapter 11 bankruptcy petition, staying the Arbitration Proceeding and forcing
the parties to vacate all scheduled hearing dates. As of the filing of this Second Amended
Complaint, the Arbitration Proceedings remain stayed.
45.
TPBC’s damages asserted in the arbitration at the time the matter was stayed total
$113,251,238 (plus millions of dollars of interest and arbitration costs) and is summarized in the
chart below.
Type
Damages
Steel and Chipping Work Claim – Direct Cost Proposed Change Inquiry
(“PCI”) Claims
$4,552,838
Steel and Chipping Work Claim – Impact Claim
$8,700,923
$41,784,235
Time Impact Analysis and Request for Time Extension #1, #2 with General
Condition and Impact Damages ($23,642,744 in Extended Time-Related
Costs, $14,867,554 in Cumulative Impacts, $2,472,508 in Premium Time PCI
Claim, and $801,429 Additional Direct Costs PCI related to Delay)
PCI Damages – Direct Cost Claims on Individual PCIs (Non-Steel)
$10,071,231
TPBC’s Claim for the Delay/Impact to Subcontractor WDF Inc.
$6,512,692
TPBC’s Claim for the Delay/Impact to Subcontractor Five Star Electric Corp.
$10,572,295
TPBC’s Claim for the Delay/Impact to Subcontractor Associated Specialty
Contracting, Inc.
$783,492
Contract Balance, Payment Applications 30-44 and Retention
$29,131,950
Subtotal $112,109,656
Settlement of All Non-Steel PCIs under $20,000 before Hearing
$914,224
Settlement of Various PCIs during Hearings
$227,358
GRAND TOTAL $113,251,238
D.
Application for Equitable Relief
46.
Prior to the commencement of the hearings on the merits in the Arbitration
Proceeding, on June 29, 2018, TPBC filed an application for an order of attachment and a
preliminary injunction with the Panel (the “Application”) to (a) freeze the $29,131,856.16
approved under payment applications Nos. 30 through 44, plus retention, and allocated to
compensate TPBC for work performed in connection with the Project and (b) place the funds in
an escrow account monitored by an independent third-party, thereby enjoining the Developer from
withdrawing, spending, transferring, dissipating, assigning, encumbering, disposing of, or
otherwise using those funds.
47.
The Application was based in part on then-recently discovered evidence stating that
Developer, the Related Developer Entities and certain Individual Owners were contemplating
filing for bankruptcy to avoid paying the Developer’s debt to TPBC.
48.
The Developer and the Individual Owners, who were the representatives, declarants
and client contacts of the Developer in the Arbitration Proceeding, including their counsel of
record in the Arbitration, represented, both verbally and through certain filings, to the Panel and
the parties that TPBC was not at risk and there no basis for an injunction or attachment. These
include oral representations made during an oral argument conducted with the Arbitration Panel
on August 22, 2018, and statements made thereafter by the Developer’s representatives. The
Developer further represented to the Arbitration Panel and others that it had no plans to declare
bankruptcy, despite internal Developer emails written to the contrary. On September 14, 2018,
the Panel declined the injunction. After further briefing, the Panel permitted the Application for
the attachment to be renewed at a later time.
49.
On February 15, 2019, TPBC presented in the Arbitration the contract balance
claim which established the unpaid balance of $29,131,856.16. The claim was not contested on
the merits or calculation of the claim. After introduction of the approved payment applications,
related correspondence and other evidence, the parties stipulated to a demonstrative chart setting
for the contract balance dates, payments and calculation.
50.
TPBC concluded the presentation of its affirmative claims on April 10, 2019 and
rested its case. The Developer began its defensive case on April 11, 2019, and presented a witness
on Thursday and Friday, April 11 and 12, 2019.
51.
In a sudden and unexpected development, on Monday, April 15, 2019, all of the
lawyers of record for Developer, at two different law firms, simultaneously withdrew from their
representation of the Developer in the Arbitration Proceedings.
52.
Shortly thereafter, TPBC renewed the Application for the attachment. The renewal
was based on three premises: (a) that TPBC had rested its case, proved its damages, including
showing a likelihood of success in receiving an award on the contract balance portion of the claim;
(b) the financial insolvency of the Developer demonstrated by the withdrawal of its attorneys; and
(c) the extension of time sought by the Developer in the proceedings. The Developer retained
attorneys to represent it during the renewal proceedings. The Panel conducted a proceeding on the
renewal, including the Developer filing papers, through its attorneys retained for such purposes,
and conducting a hearing on May 22, 2019.
53.
On June 4, 2019, the Panel issued an order granting the Application and issued an
order of attachment of Twenty-Three Million dollars ($23,000,000.00), (“Attachment Order”).
54.
On July 15, 2019, the Attachment Order was confirmed by the U.S. District Court
for the Southern District of New York (“SDNY”) (See USDC-SDNY Action, 1:19-cv-05344-RA)
and judgment thereon was entered on July 22, 2019.
E.
Developer’s Failure to Comply with Attachment Order and Subsequent Disclosures
and Continued Diversion of Funds
55.
Despite the confirmation of Attachment Order and Judgment, the Developer and
the Individual Owners refused to comply therewith.
56.
On June 20, 2019, TPBC filed a sanctions motion with the Panel seeking relief from
Developer’s failure to comply with the Attachment Order, including the failure to disclose the
location of project funds, the continuing disbursement of project funds, and the failure to comply
with the attachment. TPBC also submitted post-judgment discovery through its confirmation
lawsuit with SDNY to obtain information relating to the location of the funds to enforce the
Attachment Order.
57.
Developer responded to both the sanctions motion and the post-judgment discovery
with an Affidavit by Defendant Stephen Garchik, indicating that Developer was not in possession
of the $23 million TPBC sought to attach. Defendant Stephen Garchik affirmed that Developer
“has very limited cash on hand.”
58.
The Panel scheduled a hearing for September 6, 2019, pertaining, inter alia, to
Developer’s failure to disclose the location of the funds to be attached and its inquiry was limited
to funds in Developer’s possession from the date of entry of the Attachment Order.
59.
During that September 6, 2019 hearing, Developer refused to provide principals of
the Developer as expressly ordered by the Panel, but instead produced witness Stephen Winiarski,
a bookkeeper hired as a project accountant by the Developer specifically for this Project, to testify
regarding the Developer’s financial status as of the entry of the Attachment Order. Mr. Winiarski
is not an employee of the Developer, but rather an employee of his own corporation, Envirocon
Financial, Inc. The Developer was represented by its business attorneys during these proceedings.
The hearing was transcribed by the certified court reporter.
60.
Mr. Winiarski testified that Developer had not received payments from the Port
Authority or loan disbursements from the Developer’s lenders since late March or early April 2017
to his knowledge, and no such funds were in Developer’s primary bank account on June 4, 2019 –
the date the Panel entered its Attachment Order. This was in direct contradiction to prior
statements made on behalf of the Developer by its attorneys during the original attachment
proceedings, including statements made on August 22, 2018.
61.
Upon information and belief, Developer and the Individual Owners were
effectively in possession and control of those funds and prioritized the Developer’s obligation to
a favored lender in direct violation of the Panel’s Attachment Order, as confirmed by the SDNY.
62.
Upon information and belief, there were also payments, authorized and directed by
one or all of the Individual Owners, that Winiarski made, for purposes other than the payment for
the construction work on the Project, including payments to the Developer’s principals. Mr.
Winiarski testified he was aware of the Attachment Order, but violated it at the direction of Paul
Slayton and/or Stephen Garchik.
63.
As a result of that hearing on September 6, 2019 and subsequent briefing and a
telephonic hearing on September 24, 2019, on October 3, 2019, the Panel issued a further order
finding against the Developer that:
“After consideration of the written submissions, the evidence and arguments
presented at the September 6th hearing, and oral argument, the Panel finds that the
GWBDV [Developer] willfully violated the Panel's Interim Orders dated June 4,
2019. The Panel finds that GWBDV transferred funds subject to the Interim Order
of attachment for the payment of personal expenses of one of its principals, Douglas
Slayton and for the payment of legal expenses of GWBDV. The Panel further finds
GWBDV wrongfully transferred net rental income received to its third-party lender,
George Washington Bridge Bus Station and Infrastructure Development Fund, LLC
("Infrastructure Fund").”
64.
In addition, the Panel ordered the return of certain funds paid to “Douglas Slayton”,
“Stephen J. Garchik”, “all payments/wire transfers to Sterling National for George Washington
Bridge Bus Station and Infrastructure Development Fund, LLC.” and others. The Panel further
ordered that TPBC was entitled to have the address of Project included in the judgment to
administer the attachment.
65.
On Friday, October 4, 2019, TPBC filed the October 3, 2019, order of the Panel
with the District Court seeking to amend the Court’s July 22, 2019, Judgment of attachment
confirming the original attachment order of the Panel dated June 4, 2019 (Case No. 1:19-cv-05344-
RA; Docket 55).
F.
The Chapter 11 Case
66.
On Monday, October 7, 2019, the Developer commenced a Chapter 11 proceeding
in the United States Bankruptcy Court for the Southern District of New York by filing a petition
for relief under Chapter 11 of the Bankruptcy Code, which was assigned Case No. 19-13196-scc.
Upon the filing of the Chapter 11 Case, the automatic stay under 11 U.S.C. § 362 stayed the
Arbitration Proceeding and the District Court action. The Developer is not a party to this action.
V.
CAUSES OF ACTION
COUNT I
WRONGFUL DIVERSION OF MONIES FROM TRUST FUND
(Article 3-A N.Y. Lien Law (§ 70, et seq.))
(By Plaintiff on behalf of itself and all others similarly situated, pursuant to Article 3-A of
the N.Y. Lien Law, Against All Defendants, including New York City Regional Center,
LLC; George Washington Bridge Bus Station And Infrastructure Development Fund,
LLC; GSNMF Sub-Cde 12 LLC; GSB NMTC Investor LLC: LIIF SUB-CDE XXVI, LLC;
DVCI CDE XIII, LLC; GWB NMTC Investment Fund LLC; GWB Leverage Lender,
LLC; George Washington Bridge Bus Station And Infrastructure Development Fund,
Phase II, LLC; Defendant Upper Manhattan Empowerment Zone Development
Corporation; Slayton Ventures, LLC; Slayton Equities; SJM Partners Inc.; Paul Slayton,
an Individual; Stephen Garchik, an individual; William “Trey” Burke, an individual;
Stephen McBride, an individual; and Does 1-300, inclusive)
67.
The Plaintiff restates and realleges the foregoing paragraphs, which are
incorporated by reference as if set forth fully herein.
68.
The Developer is a “contractor” under the New York State Lien Law § 2(9) as it
entered into the Lease with the Port Authority for the improvement of the Property, which is owned
by the Port Authority.
69.
The Developer is also an “owner” under Lien Law § 2(3) as it is defined as a lessee
under the Lease.
70.
Under Article 3-A of the Lien Law, the funds received by Developer under or in
connection with the Ground Lease are the assets of a trust (the “Article 3-A Trust”) which may
only be used for the payment of the architects, contractors, subcontractors, and material suppliers
and for certain other specified purposes.
71.
The Ground Lease authorized the Developer, under certain terms and conditions,
to procure construction loans and other financing secured by mortgages on the Developer’s
leasehold estate in portions of the Property to finance the remainder of the Developer’s hard and
soft construction costs for the Project. The Developer procured loans from a variety of sources to
finance the Construction Work it was obliged to perform under the Ground Lease, and the proceeds
of those loans are assets of the Article 3-A Trust.
72.
On or about July 20, 2011, the Developer procured a loan in an amount not to
exceed $72 million from Defendant George Washington Bridge Bus Station and Infrastructure
Development Fund, LLC (“Senior Lender”) secured by a mortgage against the Developer’s
leasehold estate on the Property and an assignment of leases and rents in connection with the
Developer’s leasehold estate on the Property. The Senior Lender loan agreement and mortgage
expressly provides that, inter alia, (a) the proceeds of the Senior Lender loan would be used solely
to finance the hard and soft costs of construction of the Project; (b) the Developer would construct
the Project in accordance with the approved plans and specifications, which could not be modified
without the Senior Lender’s prior approval; (c) the Senior Lender had the right to monitor the
progress of construction with a consultant hired by the Senior Lender at the Developer’s cost; (d)
the Developer was obliged to deliver to the Senior Lender reports on the status of construction; (e)
the Developer would pay the Senior Lender an origination fee of two percent (2%) of the amount
of each advance made to the Developer; (f) the loan proceeds were part of an Article 3-A Trust “to
be applied first for the purpose of paying any unpaid costs of the Improvements before any part of
the same is used for any other purpose”; and (g) the Developer was expressly prohibited from
using the loan proceeds to pay interest or origination fees.
73.
On or about December 26, 2013, the Developer procured a loan in an amount up to
$19.065 million from Defendants GSB NMTC Investor LLC, GSNMF Sub-CDE 12 LLC, LIIF
Sub-CDE XXVI, LLC, DVCI CDE XIII, LLC, GWB NMTC Investment Fund LLC, and George
Washington Bridge Bus Station and Infrastructure Development Fund, Phase II, LLC.
(collectively, the “Co-Lenders”) secured by a building loan mortgage against the Developer’s
leasehold estate on the Property and the assignment and pledge of the Developer’s accounts. The
Co-Lenders loan agreement and mortgage expressly provides that, inter alia, (a) the proceeds of
the Co-Lenders loan would be used solely to finance the hard and soft costs of construction of the
Project; (b) the Co-Lenders’ obligation to fund was conditioned on its review and approval of,
among other things, the Ground Lease, the Construction Contract, and a consent from TPBC to
the assignment of the Construction Contract to the Co-Lenders; (c) the Co-Lenders would retain a
Construction Consultant to, among other things, verify the work claimed under a Draw Request
filed by the Developer and to approve the Plans and any changes thereto ; (d) the Developer would
pay Co-Lenders’ fees and expenses, including but not limited to, asset management fees, audit and
tax reimbursements, success fees, management fees, administration and compliance expenses and
fees, and the cost of the Administrative Agent, its Construction Consultant, and its attorneys; (e)
the Developer pre-approved in the Loan Agreement the use of loan proceeds to pay the foregoing
fees and expenses of the Co-Lenders and interest on the Co-Lenders’ loan; and (f) the loan was
“subject to the trust fund provisions of the Lien Law” and the loan proceeds would be deposited
by the Developer into a “Building Loan Trust Account” for the purpose of paying only the cost of
the improvements.
74.
On or about April 7, 2014, the Developer procured a loan in an amount up to $9
million from Defendant GWB Leverage Lender, LLC (“Leverage Lender”) secured by a pledge
by Marketplace GWB, LLC of its membership interest in the Developer. The Leverage Lender
loan agreement expressly provides, inter alia, (a) the proceeds of the Leverage Lender loan would
be used solely to pay the Direct and Indirect Costs of construction of the Project; (b) Leverage
Lender’s prior written consent was required for any amendments to the Construction Contract or
any of the major subcontracts; (c) Leverage Lender would retain a Construction Consultant to,
among other things, monitor the progress of construction, review the Developer’s requests for
advances to verify the work has been substantially and satisfactorily completed, and other similar
services; (d) the Developer would pay certain fees and expenses of Leverage Lender, including
but not limited to, the costs of the Construction Consultant and Leverage Lender’s taxes (except
for its income, franchise, or branch profits taxes); and (e) the Developer was required to submit
periodic reports to the Leverage Lender on the status of construction.
75.
On or about February 27, 2018, the Developer procured a loan in the principal sum
of $5 million from Defendant Upper Manhattan Empowerment Zone Development Corporation
(“UMEZ”) secured by a mortgage against the Developer’s leasehold estate on the Property and an
assignment of leases and rents in connection with the Developer’s leasehold estate on the Property.
The UMEZ loan agreement and mortgage expressly provides that, inter alia, (a) the proceeds of
the UMEZ loan would be used solely to pay for the costs incurred or to be incurred in the
completion of the construction, fit-out and leasing of the Project and for certain loan closing costs;
(b) the Developer disclosed to UMEZ that there was a pending arbitration between the Developer
and TPBC (the “Arbitration Proceeding”) and that TPBC, the architect for the Project, and other
subcontractors and suppliers claimed to be owned approximately $101 million for work performed
on the Project; (c) the Developer agreed to complete the construction of the Project in accordance
with the approved plans and specifications, which could not be modified without UMEZ’s prior
approval; (d) UMEZ had the right to monitor the progress of construction with a consultant hired
by the UMEZ at the Developer’s cost; (e) the Developer was obliged to deliver to UMEZ periodic
reports on the status of construction and of the Arbitration Proceeding; (e) the Developer would
pay UMEZ at the closing an origination fee of $125,000 and other costs and would reimburse
UMEZ for all reasonable out-of-pocket costs, including fees for outside counsel; and (f) the loan
proceeds were part of an Article 3-A Trust “to be applied first for the purpose of paying any unpaid
costs of the Improvements before any part of the same is used for any other purpose.”
76.
Defendants George Washington Bridge Bus Station and Infrastructure
Development Fund, LLC; GSNMF Sub-CDE 12 LLC; GSB NMTC Investor LLC; LIIF Sub-CDE
XXVI, LLC; DVCI CDE XIII, LLC; GWB NMTC Investment Fund LLC; George Washington
Bridge Bus Station and Infrastructure Development Fund, Phase II, LLC; GWB Leverage Lender,
LLC; and Upper Manhattan Empowerment Zone Development Corporation collectively are
referred to as the “Lender Defendants.”
77.
TPBC is informed and believes, and based thereon alleges, that each of the
aforementioned loans was fully funded and the Article 3-A Trust includes (a) the $52,650,558,
subject to adjustment as provided in the Ground Lease, in funds paid or payable to the Developer
by the Port Authority under the Ground Lease; (b) the $72 million in loan proceeds paid or payable
to the Developer pursuant to the loan with the Senior Lender; (c) the $19.065 million in loan
proceeds paid or payable to the Developer pursuant to the loan with the Co-Lenders; (d) the $9
million in loan proceeds paid or payable to the Developer pursuant to the loan with the Leverage
Lender; and (e) the $10 million in loan proceeds paid or payable to the Developer pursuant to the
loan with UMEZ.
78.
TPBC and the other beneficiaries of the Article 3-A Trust furnished labor, materials
and equipment which were used in and for the improvement of the Project and were furnished for
and were applied in the construction of the Project. There is now due, owing and unpaid from the
Developer to the beneficiaries (which include TPBC and other similarly-situated parties) of the
Article 3-A Trust in excess of $113,251,231.
79.
Notwithstanding the outstanding unpaid claims of the beneficiaries of the Article
3-A Trust, TPBC is informed and believes, and based thereon alleges, that the Developer paid,
transferred or applied assets of the Article 3-A Trust for numerous purposes other than and prior
to the payment or discharge of amounts due, or to become due, to the trust beneficiaries, and that
each such use constitutes a diversion of trust assets, including but not limited to, (a) the payment
of interest, origination fees, loan closing costs, asset management fees, compliance fees, audit and
tax reimbursements, administration and compliance expenses, success fees, attorney’s fees, and
construction monitoring costs to the Lender Defendants, and each of them; (b) the repayment of
loan principal to Lender Defendants; (c) payments made to the Individual Owners and Related
Developer Entities, and each of them; (d) payments made by the Developer to fund the Arbitration
Proceedings; and (e) other payments made to Defendants, and each of them. The Individual
Owners, and each of them, knew or should have known that the funds received by the Developer
from the Port Authority and the Lender Defendants were to be used to pay for the construction
work on the Project. TPBC is informed and believes, and based thereon alleges that the Individual
Owners, and each of them, had possession, custody, or control over the assets of the Article 3-A
Trust and, in their capacity as statutory trustees of said Trust, instructed, authorized, or caused the
Developer to disburse funds from the Article 3-A Trust for purposes other than the payment or
discharge of amounts due, or to become due to beneficiaries of the trust and in breach of their
fiduciary duty to such beneficiaries.
80.
TPBC alleges that Doe defendants 1 through 25 are owners, partners, members,
agents, employees, principals and the persons with an interest in and acting on behalf of or in
concert with the Developer, and which, upon amendment of the Complaint to add this defendant
by its true identity, will be referred to as an “Individual Owners.” TPBC alleges that Doe
defendants 26 through 50 are owners, related or affiliated companies, or alter egos, with an interest
in and acting on behalf of or in concert with the Developer, and which, upon amendment of the
Complaint to add this defendant by its true identity, will be referred to as a “Related Developer
Entity.” TPBC alleges that Doe defendants 51 through 99 are persons or entities which received
a distribution of assets of the Article 3-A Trust for a purpose other than the payment or discharge
of amounts due or to become due to beneficiaries of the trust. All references in this Complaint to
a defined category of Defendants shall also refer to the corresponding Doe defendants as described
above, and each of them.
81.
TPBC alleges that Defendants Does 100-300 are EB-5 investors, which used the
Defendants New York City Regional Center, LLC, George Washington Bridge Bus Station and
Infrastructure Development Fund, LLC, George Washington Bridge Bus Station and Infrastructure
Development Fund, Phase II, LLC and certain of their affiliates as their agents to make the EB-5
contributions to the Developer and to otherwise administer their investments in the Developer and
the Project. Defendants Does 100-300 are therefore properly imputed with all of the Defendant
New York City Regional Center, LLC’s, George Washington Bridge Bus Station and
Infrastructure Development Fund, LLC, George Washington Bridge Bus Station and Infrastructure
Development Fund, Phase II, LLC, and their affiliates’ actual or constructive knowledge regarding
the transfers. Upon information and belief, substantial portions of the funds transferred by the
Developer to Defendant New York City Regional Center, LLC, George Washington Bridge Bus
Station and Infrastructure Development Fund, LLC, George Washington Bridge Bus Station and
Infrastructure Development Fund, Phase II, LLC and their affiliates were, in turn, transferred by
Defendant New York City Regional Center, LLC, George Washington Bridge Bus Station and
Infrastructure Development Fund, LLC, George Washington Bridge Bus Station and Infrastructure
Development Fund, Phase II, LLC and their affiliates to the EB-5 investors.
82.
Plaintiff asserts this cause of action on its own behalf and on behalf of all
beneficiaries of the Article 3-A Trust created in connection with the Project.
83.
One year has not elapsed since the completion of the Project within the meaning of
Article 3-A of the Lien Law.
84.
The Court should compel the Individual Owners, and each of them, to provide a
final accounting of the Article 3-A Trust, including the identification of (a) the source and amount
of all funds which were at any time assets of the Article 3-A Trust and (b) the amount and recipient
of any Article 3-A Trust assets for a purpose other than the payment or discharge of an amount
owed to a trust beneficiary.
85.
The Court, based on such final accounting, should enter an Order (a) requiring each
Defendant that was the recipient of such diverted funds to return such funds to the Article 3-A
Trust together with interest on each such payment from the date the diverted payment was received
by that Defendant, (b) requiring the Individual Owners, and each of them, as statutory trustees, to
restore the entirety of the diverted funds to the Article 3-A Trust, with interest on each such
payment from the date of each diverted payment, and (c) establishing a procedure for distribution
of the recovered funds to the beneficiaries of the Article 3-A Trust and the disposition of the
remaining balance, if any, after all trust claims have been paid or discharged in full.
COUNT II
DECLARATORY JUDGMENT
(Declaratory Judgment Act)
(By Plaintiff Against the Lender Defendants, including New York City Regional Center,
LLC; George Washington Bridge Bus Station And Infrastructure Development Fund,
LLC; GSNMF Sub-Cde 12 LLC; GSB NMTC Investor LLC: LIIF SUB-CDE XXVI, LLC;
DVCI CDE XIII, LLC; GWB NMTC Investment Fund LLC; GWB Leverage Lender,
LLC; George Washington Bridge Bus Station And Infrastructure Development Fund,
Phase II, LLC; Defendant Upper Manhattan Empowerment Zone Development
Corporation; and Does 1-300, inclusive)
86.
The Plaintiff restates and realleges the foregoing paragraphs, which are
incorporated by reference as if set forth fully herein.
87.
The Ground Lease was entered into by the Developer and the Port Authority. The
Ground Lease remains in effect as a valid and binding contract for, inter alia, the lease of the
Project by the Port Authority to the Developer.
88.
The advances by the Defendants were subordinated to the claims of other creditors.
Section 14A.10 of the Ground Lease provides that:
Subordination. Notwithstanding anything contained in any
Mortgage or in this Article 14A, it is understood and agreed that the
rights of the holder of any Mortgage, including a Recognized
Mortgagee, shall be subject and subordinate to [the Ground Lease].
The terms, covenants, conditions and provisions of [the Ground
Lease] shall govern as between the Port Authority, the [Developer]
and any Recognized Mortgagee, and in the event of any
inconsistency between the terms, covenants, conditions and
provisions of [the Ground Lease] and the terms, covenants,
conditions and provisions of any Mortgage, the terms, covenants,
conditions, and provisions of [the Ground Lease] shall control. …
Any Mortgage granted hereunder shall make reference to the
provisions of [the Ground Lease] and shall provide that the
Mortgage and the rights of the Recognized Mortgagee thereunder
are and shall be in all respects subject to all provisions of [the
Ground Lease].
89.
Under section 14A.10 of the Ground Lease, the claims of any contractor,
subcontractor, material-men and workmen retained on the Project would be senior to any purported
mortgage, not least because section 5.7(c) of the Ground Lease expressly provides for the payment
of such parties.
90.
Section 5.7(c) provides, in relevant part, that:
[p]rovided that the Port Authority shall pay the amounts due and
owing under Section 5.4 hereof, the [Developer] shall pay all claims
lawfully made against it by its contractors, subcontractors, material-
men and workmen and all claims lawfully made against it by other
third persons arising out of or in connection with or because of the
performance of the Construction Work and shall cause its
contractors and subcontractors to pay all such claims lawfully made
against them.
91.
The provisions of the Ground Lease relating to, inter alia, the payment of the
contractors and subcontractors on the Project were entered into to benefit such parties. For
example, section 5.7(c) of the Ground Lease specifically provides for the direct performance—
i.e., payment—by the Developer to TPBC (and the other contractors and subcontractors) of
amounts required to be paid under the Construction Contract. Other circumstances surrounding
the execution of the Ground Lease and the retention of TPBC as general contractor for the Project
pursuant to the Construction Contract demonstrate that TPBC was an intended beneficiary of the
Ground Lease, including the fact that the Port Authority and the Developer knew that TPBC was
the general contractor for the Project. The Port Authority has even acknowledged that TPBC is a
beneficiary of the terms of the Ground Lease. See Port Authority Reply ¶ 681.
92.
In a letter dated July 20, 2011, the Regional Center agreed that it would lend money
for the Project subject to the terms of the Lease. The Regional Center stated: “In addition to
commercially standard loan terms in New York City, the Loan will be made subject to and in
accordance with the terms and conditions of the Agreement of Lease between The Port Authority
of New York and New Jersey and George Washington Bridge Bus Station Development Venture,
LLC. [sic] entered into in connection with the Project.” Accordingly, Regional Center made loans
to the Developer having expressly acknowledged that its leasehold mortgage and the remedies
thereunder were subject to and in accordance with the terms of the Lease – including Sections
5.7(c) and 14A.10.
93.
TPBC (and the other contractors and subcontractors) were to receive immediate
and ongoing benefit from the applicable provisions of the Ground Lease. For example, section
5.7(c) of the Ground Lease provides for the timely payment of TPBC, and under the Construction
Contract, TPBC was entitled to regular construction payments from the Developer.
1 A true and correct copy of the Response of the Port Authority to (I) Debtor’s Opposition to Tutor Perini
Building Corp.’s Motion for an Order Granting (A) Relief from the Automatic Stay with Respect to the
Tutor Perini Arbitration and (B) Related Relief; and (II) Objection and Joinder of New York City Regional
Center, LLC to Debtor’s Opposition to Tutor Perini Building Corp.’s Motion for an Order Granting (A)
Relief from the Automatic Stay with Respect to the Tutor Perini Arbitration and (B) Related Relief can be
found at can be found in the United States Bankruptcy Court for the Southern District of New York (the
“Bankruptcy Court”) (Case No. 19-13196 (SCC), Docket No. 135, dated January 16, 2020.
94.
Because TPBC is an intended third-party beneficiary of the Ground Lease, TPBC
is entitled to the benefits of section 14A.10 of the Ground Lease, which subordinates the liens and
claims of the Lenders to the liens and claims held by the Port Authority and TPBC. Due to such
subordination, TPBC should be paid out of the proceeds of any disposition of the Ground Lease
before the Lender Defendants receive any such proceeds.
COUNT III
COMMON LAW CONVERSION
(By Plaintiff Against the Individual Owners and Related Developer Entities, including
Slayton Ventures, LLC; Slayton Equities; SJM Partners Inc.; Paul Slayton, an Individual;
Stephen Garchik, an individual; William “Trey” Burke, an individual; Stephen McBride,
an individual; and Does 1-300, inclusive)
95.
Plaintiff restates and realleges the foregoing paragraphs, which are incorporated by
reference as if set forth fully herein.
96.
During the pendency of the Project, TPBC became the beneficial owner of specific
sums of money which was to be paid to TPBC for construction work upon the Project. These sums
of money include: (a) TPBC’s pro rata share (based on the sum of $113,251,231, together with
interest and costs thereon, due and owing to TPBC ) of the Article 3-A Trust Funds, which were
the property of TPBC and other trust beneficiaries who furnished labor, materials and equipment
which were used in and for the improvement of the Project, based on the sum of $113,251,231,
together with interest and costs thereon, due and owing to TPBC, and (b) in the event the Article
3-A Trust is for some reason deemed invalid, the $29,131,856.16 paid by the Port Authority and
Lender Defendants to Developer upon final copies of payment applications Nos. 30 through 44
and for acknowledged retention for the Project (“TPBC Contract Balance”), and (c) the funds and
other assets subject to the Attachment Order. For purposes of this Conversion action, TPBC’s
share of the Article 3-A Trust Funds and the TPBC Contract Balance will be collectively referred
to as the “TPBC Funds”).
97.
The Individual Owners, who were the executive officers or principals of Developer
and the Related Developer Entities, had control over the TPBC Funds that were being held in the
possession of the Developer.
98.
During the time that the Individual Owners and the Related Developer Entities were
in possession and control of the TPBC Funds, the Individual Owners, on their own behalf and on
behalf of Developer made or caused to be made hundreds of unauthorized transfers of the TPBC
Funds to individuals and entities other than the trust beneficiaries in violation of Article 3-A of the
Lien Law and/or the Attachment Order, including, but not limited to the Individual Owners
themselves, the Related Developer Entities, and the Lender Defendants, according to proof.
99.
By making the unauthorized transfers of TPBC Funds, the Individual Owners and
Related Developer Entities, acting for themselves and on behalf of Developer, exercised dominion
and control of the TPBC Funds. Thus, the Individual Owners took, stole, and/or absconded with
the aforesaid TPBC Funds, and converted same for their own benefit, use and control.
100.
None of the aforementioned transfers of TPBC Funds were authorized by TPBC,
who had continued throughout this period to demand payment of the TPBC Contract Balance, as
well as payment of additional TPBC Funds that had been received by Developer for payment of
TPBC’s claims for additional compensation, delays and impacts incurred upon the Project. In fact,
TPBC wrote several letters to the Developer demanding that the funds be held in trust pending the
outcome of the Arbitration Proceedings and warning the Developer that any transfer of such funds
would be in violation of New York law.
101.
Upon learning the Individual Owners were exercising dominion and control over
TPBC Funds, TPBC made specific demands for return of the TPBC Funds which TPBC knew had
been transferred to the Developer by the Port Authority and by the Lender Defendants for the
purpose of paying TPBC. To that end, TPBC made multiple demands for payment and filed and
prosecuted a claim for compensation in the Arbitration. In addition, TPBC filed a request to the
Panel requesting attachment of the $29.131,856.16 which constituted the TPBC Contract Balance.
102.
Despite TPBC’s consistent demands for return of the absconded TPBC Funds, the
Individual Owners refused to return the TPBC Funds upon which they had exercised wrongful
dominion and control. The Individual Owners, acting for themselves and in their capacity as
executive officers and principals of Developer, resisted TPBC’s demands for payment of the TPBC
Funds and resisted TPBC’s two requests for attachment.
103.
As the direct and proximate result of the Individual Owners’ and Related Developer
Entities conversion of the TPBC Funds, Plaintiff has suffered general, consequential and special
damages, and interest thereon.
104.
The acts of the Individual Owners and Related Developer Entities in converting the
TPBC Funds were performed intentionally and/or with reckless disregard of Plaintiff’s property
and/or legal rights, as demonstrated by the Panel’s finding that the transfers to the Individual
Owners and Related Developer Entities were made in willful disregard of the Panel’s Order of
Attachment.
105.
By reason of the above, the Individual Owners and Related Developer Entities are
jointly and severally liable to Plaintiffs in an amount to be determined at trial.
106.
By reason of the above, the Individual Owners and Related Developer Entities are
jointly and severally liable to Plaintiff for to punitive damages in an amount to be determined at
COUNT IV
CONSTRUCTIVE FRAUD
(By Plaintiff Against the Individual Owners and Related Developer Entities, including
Slayton Ventures, LLC; Slayton Equities; SJM Partners Inc.; Paul Slayton, an Individual;
Stephen Garchik, an individual; William “Trey” Burke, an individual; Stephen McBride,
an individual; and Does 1-300, inclusive))
107.
Plaintiff restates and realleges the foregoing paragraphs, which are incorporated by
reference as if set forth fully herein.
108.
As owners, principals and officers of the Developer and the representatives of the
Developer on the Project and during the Arbitration Proceeding, the Individual Owners and
Related Developer Entities were aware of TPBC’s claims against the Developer for its work to
improve the Property and the Project. Moreover, the Individual Owners, and the Related
Developer Entities, and each of them, were aware that funds obtained by the Developer, whether
from the Port Authority or from the Lender Defendants, were funds intended to pay for
construction work on the Project, and thus were part of the Article 3-A Trust.
109.
It is believed and therefore alleged that the Individual Owners, each of them
collectively and individually, including specifically Slayton Ventures, LLC, Slayton Equities,
SJM Partners Inc., Paul Slayton, Stephen Garchik, William “Trey” Burke and Stephen McBride
were directly involved in the payment application process, submission of payment applications to
the Port Authority and Lenders, receipt of funds from the Lenders and Port Authority, and/or the
distribution of such funds.
110.
Each month, including for Payment Applications 30-44 that remain unpaid to
TPBC, TPBC would prepare two payment application drafts (one for the Reserved Premises and
one for Leased Premises), wherein William “Trey” Burke and other Developer project staff would
engage with TPBC in monthly meetings to review the payment applications, revise and edit those
payment applications to reach agreement on the scope and percentage of work complete, and
approve the completion of the work and expenditures on the Project by TPBC and its
subcontractors. These monthly payment applications were further discussed, in detail, during
every Bi-Weekly Project Meeting. These meetings were attended by William “Trey” Burke and
often by Stephen McBride, as the representatives of the Developer, wherein the payment
applications and expenditures on the construction project were discussed in detail. Once discussed
and approved with the Developer, TPBC would sign and certify the payment application and
formally submit them to the Developer.
111.
Thereafter, the Individual Owners would cause these approved and signed payment
applications to be submitted to the Lenders and Port Authority, so the payment application
amounts, along with other expenditures for designers and others would be funded.
112.
Once the approved payment application funds were received by the Developer, Paul
Slayton, Stephen Garchik and others, would direct the distribution of the received funds to the
Individual Owners and others. These distributions were done by the Individual Owners with
knowledge that the funds were collected based on the completed construction work of TPBC.
113.
The Individual Owners, each of them, acted on their own behalf and collectively as
a group for the benefit of each other, engaged in acts to collect funds from the Port Authority and
Lenders, and to retain those funds collected by the benefit of TPBC in contradiction of their
fiduciary obligations to TPBC.
114.
The Individual Owners further were aware that the Port Authority and Lenders had
made payment to Developer of the TPBC Contract Balance of approximately $29 million, which
represented payment applications 30-44 and retention.
115.
As principals, owners and officers of the Developer, the Individual Owners are
trustees of the Article 3-A Trust Funds.
116.
Additionally, as transferees of the Article 3-A Trust Funds, the Individual Owners
and the Related Developer Entities are trustees of those funds under the Lien Law.
117.
As a statutory trustee, the Individual Owners and Related Developer Entities were
obligated to act as fiduciary manager of the Article 3-A Trust Funds. The Individual Owners
therefore owed TPBC, one of the beneficiaries of the Article 3-A Trust Funds, a duty of loyalty
and were required to administer the trust solely in the interest of the beneficiaries of the Article 3-
A Trust, including TPBC.
118.
In addition to the Lien Law, the Individual Owners and Related Developer Entities
had a statutory and common law fiduciary duty to TPBC to protect Project funds belonging to
119.
TPBC made its initial application for attachment to the Panel on or about June 29,
2018. The Developer and the Individual Owners, who were the representatives, declarants and
client contacts of the Developer in the Arbitration Proceeding, including their counsel of record in
the Arbitration, represented, both verbally and through certain filings, to the Panel and the parties
that TPBC was not at risk and there no basis for an injunction or attachment. These include oral
representations made during an oral argument conducted with the Arbitration Panel on August 22,
2018, and statements made thereafter by the Developer’s representatives. The Developer further
represented to the Arbitration Panel and others that it had no intention of declaring bankruptcy,
despite internal Developer emails written to the contrary. The Individual Owners and Related
Developer Entities were aware of the disclosure by Developer’s counsel in the Arbitration
Proceeding and made no efforts to correct the disclosure.
120.
These statements by the Individual Owners, by themselves and through their
attorneys of record, were made for the purpose of (a) preventing the Panel from issuing an
attachment of the Trust Funds held by Developer, and (b) preventing TPBC from ceasing
performance of additional work on the Project for nonpayment or taking such other legal measures
as it had available, including appealing the Panel’s ruling denying the initial request for attachment
to the Court or instituting additional legal proceedings in the Courts to enforce its rights to the
TPBC Funds.
121.
The Panel and TPBC believed the representations of the Individual Owners to be
true and, consequently, they both justifiably relied upon the representations of the Individual
Defendants and Developer, as made through their attorneys, that funds which were the property of
TPBC were being held by Developer for the benefit of TPBC and its subcontractors and would be
paid over to TPBC upon completion of the Arbitration. After these representations, the Panel
refused TPBC’s initial application for attachment in July 2018, and TPBC forewent instituting
other legal action in the state, federal or bankruptcy courts to enforce its rights to the TPBC Funds.
122.
As described above, TPBC made a second request for attachment to the Panel on
or about April 22, 2019. The Panel granted TPBC’s request by Order of June 4, 2019 and attached
the sum of $23,000,000, which was confirmed by the United States District Court for the Southern
District of New York on July 15, 2019, and entered as a judgment of attachment on July 22, 2019.
As owners and officers of the Developer and the representatives of the Developer in the Arbitration
Proceeding, the Individual Owners and Related Developer Entities were aware of the Order of
Attachment issued by the Panel freezing $23,000,000 from the amounts the Developer and the
Individual Owners and Related Developer Entities previously represented was being held by the
Developer to satisfy TPBC’s claims in the Arbitration Proceeding.
123.
The representations by the Individual Owners, by themselves and through their
counsel that the Developer was holding funds to pay TPBC claims should TPBC prevail in the
Arbitration were false. In fact, the Developer was not holding funds to pay TPBC claims.
Developer, through the Individual Owners made numerous transfers of TPBC Funds to
themselves, to the Related Developer Entities, and to the Lender Defendants, effectively depleting
the funds purportedly being held for owed to TPBC to zero. By way of example, on July 19, 2018,
the Developer transferred the sum of $1,152,666.67 to Defendant New York City Regional Center,
and on January 10, 2019, Developer transferred $1,165,333.33 to Defendant New York City
Regional Center. Upon information and belief, Developer and the Individual Owners made many
tens of additional transfers of funds belonging to TPBC despite their representations that they were
holding TPBC Funds for the benefit of TPBC. This information is within the sole custody and
control of Developer and the Individual Owners.
124.
As evidenced by the sworn testimony of Stephen Winiarski, the Developer’s
Project accountant, on September 6, 2019 in the Arbitration Proceeding, the Individual Owners
and Related Developer Entities were effectively in possession and control of the Article 3-A Trust
Funds and authorized and directed payments of those trust funds to themselves and the other
Defendants during the Arbitration Proceeding and after the Order of Attachment had been issued,
despite the Individual Owners’ knowledge of TPBC’s claims, the Developer’s and the Individual
Owners and Related Developer Entities’ representations to TPBC and the Panel and the directions
set forth in the Order of Attachment. Mr. Winiarski testified that Defendants Steven Garchik and
Paul Slayton were the officers of Developer that had the authority to make transfers of funds from
Developer accounts, and that both of them did in fact direct transfers of funds form Developer’s
accounts despite knowledge of their obligations to hold the funds for the benefit of TPBC.
125.
By authorizing and directing these transfers to themselves and the other
Defendants, the Individual Owners and Related Developer Entities deprived TPBC of its share of
the Article 3-A Trust Funds, and breached the fiduciary duty owed by the Individual Owners to
126.
In addition to the violation under the Lien Law, the Individual Owners and Related
Developer Entities in having transferred project funds belonging to TPBC to themselves and others
had a statutory and common law fiduciary duty over those funds, which the Individual Owners
and Related Developer Entities violated by wasting, disposing, transferring and other
misappropriating the money of TPBC.
127.
As the direct and proximate result of the constructive fraud accomplished by the
acts described, TPBC has suffered general, consequential and special damages in an amount to be
determined at trial.
128.
The acts of the Individual Owners described herein were performed intentionally
and/or with willful disregard of TPBC’s property and/or legal rights, such that each of the
Individual Owners are guilty of oppression, fraud, or malice, and TPBC is entitled to recover
exemplary or punitive damages from the Individual Owners for the sake of example and by way
of punishment.
129.
In addition, TPBC is entitled by law to recover its costs of suit herein and to obtain
such other and further relief as the Court may order.
V.
DEMAND FOR TRIAL BY JURY
130.
Pursuant to Federal Rule of Civil Procedure 38 and other applicable law, Plaintiff,
on behalf of itself, and, as to Count I of the Complaint, on behalf of all others similarly situated,
demand a trial by jury on all issues so triable.
VI.
PRAYER FOR RELIEF
WHEREFORE, by reason of the foregoing, TPBC requests that judgment be entered
against the Defendants as follows:
A.
On Count I, entering a judgment against (i) Defendants named therein that were the
recipient of diverted funds to return such funds to the Article 3-A Trust together
with interest on each such payment from the date the diverted payment was received
by that Defendant, and (ii) the Individual Owners, and each of them, as statutory
trustees, to restore the entirety of the diverted funds to the Article 3-A Trust, with
interest on each such payment from the date of each diverted payment, and
establishing a procedure for distribution of the recovered funds to the beneficiaries
of the Article 3-A Trust and the disposition of the remaining balance, if any, after
all trust claims have been paid or discharged in full.
B.
On Count II, entering a judgment against Defendants named therein finding that (a)
TPBC is a third-party beneficiary of the Ground Lease and, as such, entitled to
enforce its terms and (b) as such, TPBC is entitled to the benefit of section 14A.10
of the Ground Lease and therefore should be paid out of the proceeds of any
disposition of the Ground Lease before the Lenders receive any such proceeds.
C.
On Count III, entering a judgment in favor of TPBC against Defendants named
therein for their conversion of funds in an amount to be determined at trial.
D.
On Count IV, entering a judgment in favor of TPBC against Defendants named
therein for their constructive fraud in an amount to be determined at trial.
E.
On all Counts, entering a judgment in favor of TPBC against Defendants for interest
on the amount of judgment.
F.
On all Counts, entering a judgment in favor of TPBC against Defendants for costs
of this suit.
G.
On all Counts, entering a judgment in favor of TPBC against Defendants for
attorney fees to the extent permitted by law or contract.
H.
On all Counts, for other judgment that the Court finds just.
Respectfully submitted,
DATED: May 11, 2020
/s/ ROBERT NIDA
NIDA & ROMYN, P.C.
Robert Nida
1900 Avenue of the Stars, Suite 650
Los Angeles, CA 90067
Telephone: (310) 286-3400
rnida@nidaromyn.com
SHEPPARD, MULLIN, RICHTER &
HAMPTON LLP
Ira M. Schulman
Emily D. Anderson
30 Rockefeller Plaza
New York, NY 10112-0015
Telephone: (212) 653-8700
ISchulman@sheppardmullin.com
Emanderson@sheppardmullin.com
| consumer fraud |
3dtLEIcBD5gMZwczZ9sw |
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CHRISTINA DARDAR
CIVIL ACTION NO.:
VERSUS
JUDGE:
MAGISTRATE:
PIT STOP EATERY OF HOUMA,
LLC
COLLECTIVE ACTION COMPLAINT
UNDER THE FAIR LABOR STANDARDS ACT
Plaintiff Christina Dardar, a major domiciled in Terrebonne Parish, Louisiana,
individually and on behalf of all others similarly situated (“the “FLSA Collective”), brings this
action against defendant Pit Stop Eatery of Houma, LLC (“Pit Stop”) for failing to pay the
plaintiff and all other similarly situated Pit Stop employees all of their overtime pay as required
by the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. In support of this action, the
plaintiff respectfully represents as follows:
1.
Made defendant herein is Pit Stop Eatery of Houma, LLC (“Pit Stop”), a domestic limited
liability company authorized to do business in the State of Louisiana, which may be served
through its registered agent, Charles Babin, 928 Eagle Drive, Houma, Louisiana, 70364.
2.
Pit Stop operates and conducts business in Terrebonne Parish, which is within this
judicial district, and the alleged conduct occurred within this judicial district. Therefore, this
claim is within the jurisdiction of this Court.
3.
The plaintiff brings this action against Pit Stop for unpaid overtime compensation,
declaratory relief, and other relief under the Fair Labor Standards Act, as amended, 29 U.S.C. §
216(b) (the “FLSA”). This Court has jurisdiction over the plaintiff’s claims pursuant to 28
U.S.C. § 1331 and the FLSA.
4.
This action is brought against Pit Stop under the FLSA to recover unpaid overtime
compensation, liquidated damages, and reasonable attorney fees and costs.
FACTUAL ALLEGATIONS RELATED TO ALL CLAIMS
5.
The plaintiff re-alleges and incorporates by reference the above paragraphs as if fully set
forth herein.
6.
Plaintiff Christina Dardar was employed at Pit Stop from August 2013 through December
7.
The plaintiff and other similarly situated individuals worked as employees of Pit Stop
during the past three years at its locations at 8045 Park Avenue, Houma, Louisiana 70364, and at
6613 West Park Avenue, Houma, Louisiana 70364.
8.
During her employment, the plaintiff took on various roles, including as a short order
cook for Pit Stop’s location at 8045 Park Avenue, Houma, Louisiana 70364 from approximately
2013 through 2015; as a manager of both Pit Stop locations at 8045 Park Avenue, Houma,
2
Louisiana 70364 and at 6613 West Park Avenue, Houma, Louisiana 70364 from approximately
2015 through 2017; and then again as a cook at 8045 Park Avenue, Houma, Louisiana 70364
from 2017 until her termination in December 2019.
9.
At all material times relevant to this action, Pit Stop failed to comply with 29 U.S.C. §§
201-209, because the plaintiff and other similarly situated employees performed services for Pit
Stop for which no provisions were made by Pit Stop to properly pay the plaintiff or other
employees the entire amount that was owed to them under the law for all hours worked in excess
of 40 within a work week.
10.
Pit Stop compensated the plaintiff and other employees for their work on an hourly basis.
11.
Pit Stop suffered and permitted the plaintiff and other similarly situated employees to
work more than 40 hours per workweek.
12.
Pit Stop had a policy of not paying the plaintiff and other similarly situated employees at
a rate of one and one-half times their regular rate of pay for the overtime hours they worked as
required by the FLSA.
13.
In calculating the plaintiff’s and other similarly situated employees’ overtime pay, Pit
Stop only paid them their regular hourly rate (i.e., straight time rate), rather than the legally
required one and one-half times their regular rate of pay.
3
14.
Further, as part of the scheme of not paying the plaintiff and other similarly situated
employees their full rate of one and one-half times their hourly rate for hours worked above 40
hours per week, Pit Stop had a practice of paying the plaintiff and other similarly situated
employees in cash for such overtime hours.
15.
Pit Stop willfully operated under a scheme to deprive the plaintiff and the other similarly
situated employees of proper overtime compensation by paying them less than what is required
under federal law.
16.
Pit Stop knew or should have known that the plaintiff and other similarly situated
employees performed work that required proper payment of overtime compensation.
17.
Pit Stop was aware, or should have been aware, of its unlawful payment practices and
recklessly chose to disregard the consequences of its actions.
18.
The plaintiff and similarly situated employees were entitled to be paid for all time worked
for Pit Stop, including time and one-half their regular rate of pay for each hour worked in excess
of 40 hours per work week.
19.
The records, to the extent any exist, concerning the number of hours worked, amounts
paid to the plaintiff and other similarly situated employees, and other information relevant to the
4
allegations of this Complaint, are in the possession and custody of Pit Stop, which as an
employer is required to maintain such records pursuant to 29 C.F.R. Part 516.
FLSA COLLECTIVE ACTION ALLEGATIONS
20.
The plaintiff realleges and incorporates by reference the above paragraphs as if fully set
forth herein.
21.
The plaintiff brings Count I below individually and on behalf of all similarly situated
employees, specifically: All persons employed by Pit Stop at any time since three years prior to
the filing of this Complaint until the date of final judgment in this matter (the proposed “FLSA
Collective”).
22.
The plaintiff consents in writing to assert her claims for unpaid wages under the FLSA
pursuant to 29 U.S.C. § 216(b). The plaintiff’s signed consent form is filed with the Court as
Exhibit A to this Complaint. As this case proceeds, it is likely that other individuals will file
consent forms and join as opt-in plaintiffs.
23.
Members of the proposed FLSA Collective are known to Pit Stop and are readily
identifiable through Pit Stop’s records.
24.
The plaintiff and the FLSA Collective are all victims of Pit Stop’s repeated, systematic,
and consistent illegal policies that have resulted in willful violations of their rights under the
FLSA, which have caused significant damage to the plaintiff and the FLSA Collective.
5
25.
These individuals would benefit from the issuance of court-supervised notice of this
lawsuit and the opportunity to join by filing their written consent.
COUNT I
Fair Labor Standards Act, 29 U.S.C. § 201 et seq.
On Behalf of the Plaintiff and the FLSA Collective
26.
The plaintiff, individually and on behalf of the FLSA Collective, realleges and
incorporates by reference the above paragraphs as if fully set forth herein.
27.
Pit Stop is an “employer” and an “enterprise” as defined by the FLSA, 29 U.S.C. § 203,
and is engaged in commerce within the meaning of the FLSA, § 203(b), (s)(1).
28.
The FLSA requires covered employers like Pit Stop to pay non-exempt employees like
the plaintiff and the FLSA Collective no less than one and one-half (1.5) times their regular rate
of pay for all hours worked in excess of forty (40) in a workweek. 29 U.S.C. § 207.
29.
The plaintiff and the FLSA Collective regularly worked more than forty (40) hours per
week for Pit Stop, but Pit Stop did not properly compensate them for all of their overtime hours
as required by the FLSA.
30.
Pit Stop did not and has not made a good-faith effort to comply with the FLSA as it
relates to the compensation of the plaintiff and the FLSA Collective.
6
31.
Pit Stop knew that the plaintiff and the FLSA Collective worked overtime without proper
compensation, and they willfully failed and refused to pay the plaintiff and the FLSA Collective
wages at the required overtime rates. See 29 U.S.C. § 255.
32.
Pit Stop’s willful failure and refusal to pay the plaintiff and the FLSA Collective
overtime wages for time worked violates the FLSA. 29 U.S.C. § 207.
33.
As a direct and proximate result of these unlawful practices, the plaintiff and the FLSA
Collective suffered and continue to suffer wage loss and are therefore entitled to recover unpaid
overtime wages for up to three years prior to the filing of their claims, liquidated damages or
prejudgment interest, attorneys’ fees and costs, and such other legal and equitable relief as the
Court deems just and proper.
PRAYER FOR RELIEF
34.
WHEREFORE, Plaintiff Christina Dardar, individually and on behalf of the proposed
FLSA Collective, prays for relief as follows:
a) A finding that the plaintiff and the FLSA Collective are similarly situated;
b) Certification of this case as a collective action pursuant to 29 U.S.C. § 216(b);
c) Authorization for the prompt issuance of notice to all those similarly situated, apprising
them of the pendency of this action and providing them with the opportunity to assert
timely FLSA claims by filing individual consent forms;
d) Judgment against Defendants for an amount equal to the plaintiff’s and the FLSA
Collective’s unpaid back wages at the applicable overtime rates;
e) A finding that Defendants’ violations of the FLSA are willful;
7
f) An amount equal to the plaintiff’s and the FLSA Collective’s damages as liquidated
damages;
g) All costs and attorneys’ fees incurred prosecuting this claim;
h) An award of any pre- and post-judgment interest;
i) Leave to add additional plaintiffs or claims by motion, the filing of written consent forms,
or any other method approved by the Court; and
j) All further relief as the Court deems just and equitable
Respectfully submitted:
Simien & Simien, L.L.C.
Attorneys and Counselors at Law
7908 Wrenwood Boulevard
Baton Rouge, Louisiana 70809
Telephone: (225) 932-9221
FAX: (225) 932-9286
/s/Roy Bergeron, Jr.
By:
Eulis Simien, Jr. (T.A.), Bar # 12077
Jimmy Simien, Bar # 1598
Roy Bergeron, Jr., Bar # 33726
8
EXHIBIT A
PIT STOP EATERY OF HOUMA, LLC
PLAINTIFF CONSENT FORM
Consent to sue under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 216(b)
1.
I consent to make a claim under the Fair Labor Standards Act, 29 U.S.C. § 201, et seq.,
against my current/former employer, Pit Stop Eatery of Houma, LLC, and any other
related entities or affiliates (“Pit Stop”) to recover overtime pay.
2.
During the past three years, there were occasions when I worked over 40 hours per week
for Pit Stop and did not receive proper compensation for all of my hours worked,
including overtime pay.
3.
If this case does not proceed collectively, then I also consent to join any subsequent
action to assert these claims against Pit Stop and any other related entities or affiliates.
4.
I choose to be represented in this matter by the named plaintiff and counsel, Simien &
Simien, LLC, in this action.
5.
I understand that I may withdraw my consent to proceed with my claims at any time by
notifying the attorneys handling the matter.
Date: 06/03/2020
Signature
Christina Dardar
Print Name
Return this form by
mail, e-mail, or fax to:
Simien & Simien, LLC
Attn: Dawn Davide
7908 Wrenwood Boulevard
Baton Rouge, LA 70809
E-mail: dawndavide@simien.com
Fax: (225) 932-9286
| employment & labor |
gsDvDIcBD5gMZwczoMrQ | IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN SECTION
JANE DOE,
INDIVIDUALLY AND AS CLASS REPRESENTATIVE
OF ALL OTHERS SIMILARLY SITUATED,
Plaintiff,
vs.
Docket No.: 2:13-cv-03002
CITY OF MEMPHIS,
Defendant.
______________________________________________________________________
CLASS ACTION COMPLAINT
______________________________________________________________________
COMES NOW, Plaintiff Jane Doe, by and through undersigned counsel of record
and on behalf of herself individually and others similarly situated, and states as follows:
I.
NATURE OF ACTION
Plaintiff and the putative class members are female individuals who reported
sexual assaults to third parties, had bodily fluid samples removed from their bodies and
placed within sexual assault evidence kits, and whose sexual assault kits were
subsequently transported to the Memphis Police Department for testing, evidentiary and
custodial purposes. The City of Memphis failed to submit over 15,000 such sexual
assault kits for further testing and caused the spoliation of the sexual assault kits all of
which resulted in damages to the Plaintiff and the putative class which constitutes a
violation of the equal protection clauses of the Tennessee and United States
constitutions.
II.
PARTIES
1.
Class Representative, Plaintiff Jane Doe (hereinafter referred to as “Class
Representative” or “Plaintiff Doe”), is an adult female resident of Memphis, Shelby
County, Tennessee.
2.
Defendant City of Memphis (hereinafter referred to as “Defendant” or “City
of Memphis”) is a municipal entity, located in Shelby County, Tennessee, recognized by
the State of Tennessee as a properly organized and legal municipal entity, operated the
Memphis Police Department and can be served with process through its city attorney,
Herman Morris at his office located at 125 North Main Street, Suite 336, Memphis,
Tennessee 38103.
III.
JURISDICTION AND VENUE
3.
The wrongful acts, omissions and injuries described in the body of this
Complaint all occurred in Memphis, Shelby County, Tennessee and venue is
appropriate in this judicial district pursuant to 28 U.S.C § 1391.
4.
The jurisdiction of this lawsuit is proper in the United States District Court
for the Western District of Tennessee, Western Division. Jurisdiction lies with this Court
pursuant to 28 U.S.C. § 1331 and 1343 and supplemental jurisdiction pursuant to 28
U.S.C. § 1367.
5.
This action is brought pursuant to 42 U.S.C. §§ 1983 and 48 U.S.C. §
1985 and various other state laws and the common law.
IV.
CLASS ACTION
6.
Pursuant to Fed. R. Civ. P. Rule 23(a) and 23(b)(1) and (2), Class
Representative Plaintiff Doe brings this class action on her behalf and on behalf of other
similarly situated sexually assaulted citizens in Memphis, Shelby County, Tennessee
(“Class”).
7.
The exact number of members in the Class identified in the preceding
paragraph is not presently known, but upon information and belief, the Class includes
over fifteen thousand (15,000) individuals, and is therefore so numerous that joinder of
individual members in this action is impracticable.
8.
There are common questions of law and fact in the action that relate to
and affect the rights of each member of the Class. The relief sought is common to the
entire Class, as set forth below in this Complaint.
9.
The claims of the Class Representative are typical of the Class she
represents as the Class Representative claims that the City of Memphis violated the
rights held by the Class members under the Fourteenth Amendment to the United
States Constitution, Tennessee Constitution, 42 U.S.C. §1983 and state law. There is
no conflict between the Class Representative and any other members of the Class with
respect to this action.
10.
The Class Representative is the representative party for the Class, and is
able to fairly and adequately protect the interests of the Class, and will so represent the
11.
The attorneys for the Class Representative are experienced and capable
in the field of constitutional law.
12.
The City of Memphis has acted on grounds generally applicable to the
Class, thereby making final injunctive relief or corresponding injunctive relief appropriate
with respect to the Class as a whole.
13.
This action is properly maintained as a class action in that the prosecution
of separate actions by individual Class members would create a risk of different
adjudications with respect to individual members of the Class that would establish
incompatible standards of conduct for the City of Memphis.
14.
The Class consists of females who reported sexual assaults to third
parties, had body fluid samples removed from their bodies and placed within sexual
assault evidence kits, and whose sexual assault kits were subsequently transported to
the Memphis Police Department for testing, evidentiary and custodial purposes. Plaintiff
Doe is a member of the class.
15.
During the relevant time period more than fifteen thousand (15,000)
individuals reported sexual assaults to third parties, had body fluid samples removed
from their bodies and placed within sexual assault evidence kits, and whose sexual
assault kits were subsequently transported to the Memphis Police Department for
testing, evidentiary and custodial purposes.
16.
Pursuant to Fed. R. Civ. P. 23(a)(1), based on the number of Class
members, the Class is so numerous that joinder of all members is impracticable.
17.
All Class members were exposed to the same type of conduct by the
Defendant and experienced the same due process, equal protection and statutory
violations by the Defendant. Accordingly, pursuant to Fed. R. Civ. P. 23(a)(2), there are
questions of law and fact common to the Class.
18.
Plaintiff Doe experienced the same type of conduct by the Defendant as
the Class and experienced the same due process, equal protection and statutory
violations by the Defendant as the rest of the class. Accordingly, pursuant to Fed. R.
Civ. P. 23(a)(3) the claims of the Class Representative are typical of the claims of the
19.
Plaintiff Doe is an adequate representative of the Class because her
interests do not conflict with the interests of the Class that she seeks to represent, she
has retained counsel competent and experienced in class action and civil rights litigation
and she intends to prosecute this action vigorously. Accordingly, pursuant to Fed. R.
Civ. P. 23(a)(4), the Class Representative will fairly and adequately protect the interests
of the Class.
20.
This action is properly maintained as a class action in that the prosecution
of separate actions by individual Class members would create a risk of different
adjudications with respect to individual members of the Class that, as a practical matter,
would be dispositive of the interests of other members not party to the adjudication, or
would substantially impair or impede their ability to protect their interests.
21.
This action is properly maintainable under both Fed. R. Civ. P. 23(b)(2)
and 23(b)(3) because the City of Memphis has acted or refused to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive relief or
corresponding declaratory relief with respect to the Class as a whole and because
questions of law and fact predominate over questions affecting individual members and
a class action is superior to other available methods for the fair and efficient
adjudication of this case. This action is also maintainable under Fed. R. Civ. P.
23(c)(4)(A) for all class issues alleged herein.
22.
The questions of law or fact common to the Class and which predominate
over any other questions affecting individual class members, include without limitation:
a.
Whether the Defendant City of Memphis had a custom, policy and
practice of failing to submit sexual assault evidence kits for testing;
b.
Whether the Defendant City of Memphis’s custom, policy and
practice with respect to its treatment of sexual assault evidence kits
violated constitutionally protected rights of the Class under 42
U.S.C. §1983 and the due process clause with respect to their
liberty and property interests;
c.
Whether the Defendant City of Memphis’s custom, policy and
practice with respect to its treatment of sexual assault evidence kits
violated constitutionally protected rights of the Class under 42
U.S.C. §1983 and the equal protection clause by treating sexual
assault reports from women with less priority than other crimes not
involving women or domestic violence;
d.
Whether Defendant City of Memphis’s treatment of female rape
victims and sexual assault kits was consistent with ordinary and
reasonable law enforcement practices or whether such treatment
was reckless and/or intentional; and
e.
Whether Defendant City of Memphis’s treatment of female rape
victims the sexual assault kits they submitted was reckless and/or
intentional.
23.
This action is superior to any other available means for the fair and
efficient adjudication of this controversy, and no unusual difficulties are likely to be
encountered in the management of this class action. Individual litigation would increase
the delay and expense to all parties and the court system, would create the potential for
inconsistent or contradictory judgments and would possibly impair or impeded the ability
of individual class members to protect their interests. By contrast, this class action
presents far fewer management difficulties and provides the benefits of a single
adjudication, economy of scale and comprehensive supervision by a single court.
V.
FACTS PERTAINING TO THE WRONGFUL TREATMENT OF JANE DOE
24.
Plaintiff Doe was born on XXXXX XX, 19XX.
25.
At all times relevant herein, Plaintiff Doe was a single parent and resided
with her minor children.
26.
In the early morning of March 30, 2001 Plaintiff Doe was asleep at home
in her bedroom and her minor children were asleep in an adjacent bedroom.
27.
At approximately 2:00a.m. on March 30, 2001 an intruder violently broke
into Plaintiff Doe’s home by kicking in a window.
28.
After the intruder broke into Plaintiff Doe’s home, her arms and feet were
bound and she was sexually assaulted multiple times by the intruder.
29.
On March 30, 2001 Plaintiff Doe reported the sexual assault to the
Memphis Police Department.
30.
On March 30, 2001, Plaintiff Doe was transported to the Rape Crisis
Center for treatment and the collection of evidence. While at the Rape Crisis Center
medical personnel took body fluid samples from Jane Doe and placed them into a
Memphis Police Department Sexual Assault Evidence Kit (hereinafter referred to as
“Sexual Assault Evidence Kit”).
31.
An officer from the Memphis Police Department transported the Sexual
Assault Evidence Kit to the Memphis Police Department ostensibly for testing and to be
used as evidence against the intruder.
32.
Over the next thirteen (13) years Defendant City of Memphis never
submitted Plaintiff Doe’s Sexual Assault Evidence Kit for testing.
33.
Unknown to Plaintiff Doe, the City of Memphis had a policy, practice
and/or custom of discarding sexual assault evidence kits.
34.
Unknown to Plaintiff Doe, the City of Memphis had a policy, practice
and/or custom of failing to submit sexual assault evidence kits for testing:
a.
Over fifteen thousand (15,000) Sexual Assault Evidence Kits went
untested over a period of several decades; and
b.
A disproportionate number of the victims whose body fluids were
taken and located in the Sexual Assault Evidence Kits were
women.
35.
Defendant City of Memphis failed to:
a.
Arrange for the timely analysis and evaluation of the evidence
contained in the Sexual Assault Evidence Kit;
b.
Affect an arrest of the intruder;
c.
Determine if other crimes may have been committed by the
intruder; and
d.
Prevent future rapes by the intruder.
36.
On information and belief, the failure to submit Plaintiff Doe’s Sexual
Assault Evidence Kit for testing was consistent with an institutional practice of the City
of Memphis Police Department, was known to policy makers within the City of Memphis
Police Department, was ratified by multiple policymakers within the City of Memphis
Police Department, and the Defendant failed to take any effective action to prevent the
personnel within the Memphis Police Department from continuing to engage in such
misconduct.
37.
On information and belief, Defendant City of Memphis authorized,
tolerated as institutional practices and ratified the misconduct above by:
a.
Failing to properly supervise the Memphis Police Department;
b.
Failing to properly train the Memphis Police Department;
c.
Failing to forward to the District Attorney General of Shelby County
evidence of criminal acts committed in Shelby County;
d.
Failing to protect and ensure evidence is not lost or mishandled;
and
e.
Failing to discipline, restrict and control Memphis Police
Department employees for failing to investigate crimes of sexual
assault of females.
38.
Plaintiff Doe suffered injuries, including but not limited to:
a.
Physical injuries from the sexual assault, and
b.
Severe emotional and psychological injuries.
VI.
42 U.S.C. § 1983 EQUAL PROTECTION AGAINST THE CITY OF MEMPHIS
39.
Plaintiff Doe repeats, realleges, and incorporates herein each of the
preceding paragraphs 1-38 as if fully set forth herein.
40.
At all relevant times herein, the Memphis Police Department acted under
color of law.
41.
At all relevant times herein, the Defendant City of Memphis with deliberate
indifference, intentionally, willfully and wantonly and/or with reckless disregard deprived
Plaintiff Doe and the Class of rights and/or privileges secured by the constitution,
including but not limited to:
a.
Defendant violated Plaintiff Doe and Class members of Due
Process Clause property interests in their DNA samples, which had
been provided and stored at the City of Memphis facility, and their
right to redress in the courts, by failing to investigate, submit sexual
evidence kits or arrest the accused; and
b.
Defendant violated Plaintiff Doe and Class members of Due
Process Clause property interests in their persons, by failing to
investigate, submit sexual assault evidence kits or arrest the
accused.
42.
Defendant with deliberate indifference, failed to train its police officers as
to the rights of persons with whom the police come into contact, including but not limited
to Plaintiff Doe and other Class members.
43.
Defendant’s deliberate indifference, willful and wanton conduct created a
danger of an increased risk of harm of sexual abuse, and/or fostered an environment to
exist and continue in which a victim was sexually abused and/or in fear of sexual
assault.
44.
Defendant’s deliberate indifference, willful and wanton conduct created a
danger of an increased risk of harm to the victims of sexual abuse, which are
disproportionately females, by failing to investigate sexual assault crimes.
45.
Defendant’s deliberate indifference, willful and wanton conduct created a
danger of an increased risk of harm to the victims of sexual abuse, which are
disproportionately females, by fostering an environment whereby the perpetrators of
sexual assault were allowed to continue to prey on victims without fear of investigation
by the Memphis Police Department.
46.
Defendant’s conduct was motivated by gender.
47.
Defendant’s conduct was intentional and due to Plaintiff Doe’s and the
Class members’ female gender.
48.
Defendant has a history of discriminating against females. Defendant
treats domestic violence abuse reports from women with less priority than other crimes
not involving women reporting domestic violence abuse.
49.
Defendant violated Plaintiff Doe’s and the Class members’ civil rights by
having an express policy that, when enforced, caused a constitutional deprivation to
Plaintiff Doe and the Class members, or by having a wide-spread practice and/or
custom that, although not authorized by written law or express municipal policy was so
permanent and well settled as to constitute a custom or usage with the force of law.
50.
The constitutional injury inflicted by the Defendant was caused by a
person with final policymaking authority for the City of Memphis.
51.
Defendant knew about the herein described conduct and facilitated it,
approved it, condoned it and/or turned a blind eye to it.
52.
The above described conduct of the City of Memphis constitutes a
violation of 42 U.S.C. § 1983. Plaintiff Doe and the Class members are entitled to
compensatory damages and other non-pecuniary losses.
53.
As a direct and proximate result of the actions the Plaintiff Doe and the
Class members suffered deprivation of their constitutional rights.
VII.
REQUEST FOR PRELIMINARY AND PERMANENT INJUNCTIONS
54.
Plaintiff Doe repeats, realleges, and incorporate herein each of the
preceding paragraphs 1-53 as if fully set forth herein.
55.
The Plaintiffs seek a preliminary injunction restraining and prohibiting
Defendants from continuing its policy and/or custom of failing to test sexual assault
evidence kits.
56.
In the absence of the issuance of a preliminary injunction, the Defendant
will cause immediate and irreparable harm including, but not limited to, violation of
citizens’ exercise of constitutional rights, physical and mental harm.
57.
There is no harm to the public interest if an injunction issues, and, in fact,
the issuance of an injunction under the circumstances and facts of this case protects the
public interest.
58.
The harm to the females who submit sexual assault evidence kits to the
City of Memphis outweighs any harm to the Defendant, thus injunctive relief is
appropriate.
WHEREFORE, PREMISES CONSIDERED, Plaintiffs demand that the court
issue a Declaratory Order declaring the policy of the Defendant with respect to the
handling of the sexual assault evidence kits to be unconstitutional; issue the injunctions
as prayed for in the Complaint, empanel a jury to try the issues raised herein which are
properly triable before a jury and pray for a monetary judgment against the Defendant in
an amount to be determined at trial and any other relief the Court deems just and
proper, including by not limited to: i) Attorney’s fees and costs pursuant to 42 U.S.C.
§1988; (ii) Pre- and post- judgment interest; (iii) Discretionary costs; and (iv) All such
further relief, both general and specific, to which Plaintiffs may be entitled or to which
they may show themselves entitled.
Respectfully submitted,
SPENCEWALK, PLLC
By:
s/ Robert L. J. Spence, Jr.
Robert L. J. Spence, Jr. (BPR# 12256)
Kristina A. Woo (BPR #22349)
Bryan M. Meredith (BPR 26876)
One Commerce Square, Suite 2200
Memphis, Tennessee 38103
Office: (901) 312-9160
Facsimile: (901) 521-9550
rspence@spencewalk.com
kwoo@spencewalk.com
bmeredith@spencewalk.com
Attorneys for Plaintiffs
| products liability and mass tort |
4q2ZCocBD5gMZwczCfQB | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
G. NEIL GARRETT, D.D.S., P.C.,
)
on behalf of plaintiff and
)
the class members defined herein,
)
)
Plaintiff,
)
)
v.
)
)
HEALTH CARE EQUIPMENT
)
SPECIALTY, INC.,
)
and JOHN DOES 1-10,
)
)
Defendants.
)
COMPLAINT – CLASS ACTION
MATTERS COMMON TO MULTIPLE COUNTS
INTRODUCTION
1.
Plaintiff G. Neil Garrett, D.D.S., P.C., brings this action to secure redress for the
actions of defendant Health Care Equipment Specialty, Inc., in sending or causing the sending of
unlawful advertisements to telephone facsimile machines in violation of the Telephone
Consumer Protection Act, 47 U.S.C. §227 (“TCPA”), the Illinois Consumer Fraud Act, 815
ILCS 505/2 (“ICFA”), and the common law.
PARTIES
2.
Plaintiff G. Neil Garrett, D.D.S., P.C., is a corporation with offices in the Chicago
metropolitan area, where it maintains telephone facsimile equipment.
3.
Defendant Health Care Equipment Speciality, Inc., is a Texas corporation. Its
registered agent and office is James W. Oliver, 900 Indiana Avenue, Wichita Falls, Texas 76301.
1
4.
Defendants John Does 1-10 are other natural or artificial persons that were
involved in the sending of the facsimile advertisements described below. Plaintiff does not know
who they are.
JURISDICTION AND VENUE
5.
This Court has jurisdiction under 28 U.S.C. §§1331 and 1367. Mims v. Arrow
Financial Services, LLC, 132 S. Ct. 740, 751-53 (2012); Brill v. Countrywide Home Loans, Inc.,
427 F.3d 446 (7th Cir. 2005).
6.
Personal jurisdiction exists under 735 ILCS 5/2-209, in that defendants:
a.
Have committed tortious acts in Illinois by causing the transmission of
unlawful communications into the state.
b.
Have transacted business in Illinois.
7.
Venue in this District is proper for the same reason.
FACTS
8.
On December 18, 2009, plaintiff G. Neil Garrett, D.D.S., P.C., received the
unsolicited fax advertisement attached as Exhibit A on its facsimile machine.
9.
On December 21, 2009, plaintiff G. Neil Garrett, D.D.S., P.C., received the
unsolicited fax advertisement attached as Exhibit B on its facsimile machine.
10.
On January 21, 2010, plaintiff G. Neil Garrett, D.D.S., P.C., received the
unsolicited fax advertisement attached as Exhibit C on its facsimile machine.
11.
Discovery may reveal the transmission of additional faxes as well.
12.
Defendant Health Care Equipment Specialty, Inc., is responsible for sending or
causing the sending of the faxes.
2
13.
Defendant Health Care Equipment Specialty, Inc., as the entity whose products or
services were advertised in the faxes, derived economic benefit from the sending of the faxes.
14.
Defendant Health Care Equipment Specialty, Inc., either negligently or wilfully
violated the rights of plaintiff and other recipients in sending the faxes.
15.
The fax refers to a website registered to defendant Health Care Equipment
Specialty, Inc.
16.
The TCPA makes unlawful the “use of any telephone facsimile machine,
computer or other device to send an unsolicited advertisement to a telephone facsimile machine
...” 47 U.S.C. §227(b)(1)(C).
17.
The TCPA provides for affirmative defenses of consent or an established business
relationship. Both defenses are conditioned on the provision of an opt out notice that complies
with the TCPA. Holtzman v. Turza, 728 F.3d 682 (7th Cir. 2013); Nack v. Walburg, 715 F.3d
680 (8th Cir. 2013).
18.
The faxes do not contain an “opt out” notice in the form required by 47 U.S.C. §
19.
On information and belief, the faxes attached hereto were sent as part of a mass
broadcasting of faxes.
20.
On information and belief, defendants have transmitted similar fax advertisements
to at least 40 other persons in Illinois.
21.
There is no reasonable means for plaintiff or other recipients of defendants’
advertising faxes to avoid receiving illegal faxes. Fax machines must be left on and ready to
receive the urgent communications authorized by their owners.
3
COUNT I – TCPA
22.
Plaintiff incorporates ¶¶ 1-21.
23.
The TCPA, 47 U.S.C. §227(b)(3), provides:
Private right of action.
A person or entity may, if otherwise permitted by the laws or rules of court
of a State, bring in an appropriate court of that State–
(A) an action based on a violation of this subsection or the regulations
prescribed under this subsection to enjoin such violation,
(B) an action to recover for actual monetary loss from such a
violation, or to receive $500 in damages for each such violation,
whichever is greater, or
(C) both such actions.
If the Court finds that the defendant willfully or knowingly violated this
subsection or the regulations prescribed under this subsection, the court
may, in its discretion, increase the amount of the award to an amount equal
to not more than 3 times the amount available under the subparagraph (B) of
this paragraph.
24.
Plaintiff and each class member suffered damages as a result of receipt of the
faxes, in the form of paper and ink or toner consumed as a result. Furthermore, plaintiff’s
statutory right of privacy was invaded.
25.
Plaintiff and each class member is entitled to statutory damages.
26.
Defendants violated the TCPA even if their actions were only negligent.
27.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
28.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of
a class, consisting of (a) all persons with fax numbers (b) who, on or after a date four years prior
4
to the filing of this action (28 U.S.C. §1658), (c) were sent faxes by or on behalf of defendant
Health Care Equipment Specialty, Inc., promoting its goods or services for sale (d) which did not
contain an opt out notice as described in 47 U.S.C. §227.
29.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
30.
There are questions of law and fact common to the class that predominate over
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unlawful fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
31.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff's counsel have any interests which might cause them not
to vigorously pursue this action.
32.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
5
33.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of
separate claims against defendants is small because it is not economically feasible to bring
individual actions.
34.
Several courts have certified class actions under the TCPA. Holtzman v. Turza, 08
C 2014, 2009 U.S. Dist. LEXIS 95620 (N.D.Ill., Oct. 14, 2009), affirmed in pertinent part, 728
F.3d 682 (7th Cir. 2013); Sadowski v. Med1Online, LLC, 07 C 2973, 2008 U.S. Dist. LEXIS
41766 (N.D.Ill., May 27, 2008); CE Design Ltd. v Cy's Crabhouse North, Inc., 259 F.R.D. 135
(N.D.Ill. 2009); Targin Sign Sys. v Preferred Chiropractic Ctr., Ltd., 679 F. Supp. 2d 894
(N.D.Ill. 2010); Garrett v. Ragle Dental Lab, Inc., 10 C 1315, 2010 U.S. Dist. LEXIS 108339,
2010 WL 4074379 (N.D.Ill., Oct. 12, 2010); Hinman v. M & M Rental Ctr., 545 F.Supp. 2d 802
(N.D.Ill. 2008); Clearbrook v. Rooflifters, LLC, 08 C 3276, 2010 U.S. Dist. LEXIS 72902 (N.D.
Ill. July 20, 2010) (Cox, M.J.); G.M. Sign, Inc. v. Group C Communs., Inc., 08 C 4521, 2010
U.S. Dist. LEXIS 17843 (N.D. Ill. Feb. 25, 2010); Kavu, Inc. v. Omnipak Corp., 246 F.R.D. 642
(W.D.Wash. 2007); Display South, Inc. v. Express Computer Supply, Inc., 961 So.2d 451, 455
(La. App. 1st Cir. 2007); Display South, Inc. v. Graphics House Sports Promotions, Inc., 992 So.
2d 510 (La. App. 1st Cir. 2008); Lampkin v. GGH, Inc., 146 P.3d 847 (Ok. App. 2006); ESI
Ergonomic Solutions, LLC v. United Artists Theatre Circuit, Inc., 203 Ariz. (App.) 94, 50 P.3d
844 (2002); Core Funding Group, LLC v. Young, 792 N.E.2d 547 (Ind.App. 2003); Critchfield
Physical Therapy v. Taranto Group, Inc., 293 Kan. 285; 263 P.3d 767 (2011); Karen S. Little,
L.L.C. v. Drury Inns. Inc., 306 S.W.3d 577 (Mo. App. 2010); Travel 100 Group, Inc. v. Empire
Cooler Service, Inc., 03 CH 14510 (Cook Co. Cir. Ct., Oct. 19, 2004); Rawson v. C.P. Partners
6
LLC, 03 CH 14510 (Cook Co. Cir. Ct., Sept. 30, 2005); Nicholson v. Hooters of Augusta, Inc.,
245 Ga.App. 363, 537 S.E.2d 468 (2000).
35.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of
plaintiff and the class and against defendants for:
a.
Actual damages;
b.
Statutory damages;
c.
An injunction against the further transmission of unlawful fax advertising;
d.
Costs of suit;
e.
Such other or further relief as the Court deems just and proper.
COUNT II – ILLINOIS CONSUMER FRAUD ACT
36.
Plaintiff incorporates ¶¶ 1-21.
37.
Defendants engaged in unfair acts and practices, in violation of ICFA § 2, 815
ILCS 505/2, by sending fax advertising to plaintiff and others.
38.
Defendants engaged in an unfair practice by engaging in conduct that is contrary
to public policy, unscrupulous, and caused injury to recipients of their advertising.
39.
Plaintiff and each class member suffered damages as a result of receipt of the
unlawful faxes, in the form of paper and ink or toner consumed as a result.
40.
Defendants engaged in such conduct in the course of trade and commerce.
41.
Defendants’ conduct caused recipients of their advertising to bear the cost thereof.
This gave defendants an unfair competitive advantage over businesses that advertise lawfully,
7
such as by direct mail. For example, an advertising campaign targeting one million recipients
would cost $500,000 if sent by U.S. mail but only $20,000 if done by fax broadcasting. The
reason is that instead of spending $480,000 on printing and mailing his ad, the fax broadcaster
misappropriates the recipients’ paper and ink. “Receiving a junk fax is like getting junk mail
with the postage due”. Remarks of Cong. Edward Markey, 135 Cong Rec E 2549, Tuesday, July
18, 1989, 101st Cong. 1st Sess.
42.
Defendants’ shifting of advertising costs to plaintiff and the class members in this
manner makes such practice unfair. In addition, defendants’ conduct was contrary to public
policy, as established by the TCPA and Illinois statutory and common law.
43.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
44.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers (b) who, on or after a date three years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant Health Care
Equipment Specialty, Inc., promoting its goods or services for sale (d) which did not contain an
opt out notice as described in 47 U.S.C. §227.
45.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
46.
There are questions of law and fact common to the class that predominate over any
questions affecting only individual class members. The predominant common questions include:
a.
Whether defendants engaged in a pattern of sending unlawful fax
advertisements;
8
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
47.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff's counsel have any interests which might cause them not
to vigorously pursue this action.
48.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
49.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of separate
claims against defendants is small because it is not economically feasible to bring individual
50.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of plaintiff
and the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unlawful fax advertising;
9
c.
Attorney’s fees, litigation expenses and costs of suit;
d.
Such other or further relief as the Court deems just and proper.
COUNT III – CONVERSION
51.
Plaintiff incorporates ¶¶ 1-21.
52.
By sending plaintiff and the class members unlawful faxes, defendants converted
to their own use ink or toner and paper belonging to plaintiff and the class members.
53.
Immediately prior to the sending of the unlawful faxes, plaintiff and the class
members owned and had an unqualified and immediate right to the possession of the paper and
ink or toner used to print the faxes.
54.
By sending the unlawful faxes, defendants appropriated to their own use the paper
and ink or toner used to print the faxes and used them in such manner as to make them unusable.
Such appropriation was wrongful and without authorization.
55.
Defendants knew or should have known that such appropriation of the paper and
ink or toner was wrongful and without authorization.
56.
Plaintiff and the class members were deprived of the paper and ink or toner, which
could no longer be used for any other purpose. Plaintiff and each class member thereby suffered
damages as a result of receipt of the unlawful faxes.
57.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
58.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers (b) who, on or after a date five years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant Health Care
10
Equipment Specialty, Inc., promoting its goods or services for sale (d) which did not contain an
opt out notice as described in 47 U.S.C. §227.
59.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
60.
There are questions of law and fact common to the class that predominate over any
questions affecting only individual class members. The predominant common questions include:
a.
Whether defendants engaged in a pattern of sending unlawful fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
61.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff’s counsel have any interests which might cause them not
to vigorously pursue this action.
62.
Plaintiff’s claims are typical of the claims of the class members. All are
based on the same factual and legal theories.
63.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of separate
11
claims against defendants is small because it is not economically feasible to bring individual
64.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of
plaintiff and the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unlawful fax advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
COUNT IV – PRIVATE NUISANCE
65.
Plaintiff incorporates ¶¶ 1-21.
66.
Defendants’ sending plaintiff and the class members unlawful faxes was an
unreasonable invasion of the property of plaintiff and the class members and constitutes a private
nuisance.
67.
Congress determined, in enacting the TCPA, that the prohibited conduct was a
“nuisance.” Universal Underwriters Ins. Co. v. Lou Fusz Automotive Network, Inc., 401 F.3d
876, 882 (8th Cir. 2005).
68.
Defendants acted either intentionally or negligently in creating the nuisance.
69.
Plaintiff and each class member suffered damages as a result of receipt of the
unlawful faxes.
70.
Defendants should be enjoined from continuing its nuisance.
12
CLASS ALLEGATIONS
71.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers, (b) who, on or after a date five years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant Health Care
Equipment Specialty, Inc., promoting its goods or services for sale (d) which did not contain an
opt out notice as described in 47 U.S.C. §227.
72.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
73.
There are questions of law and fact common to the class that predominate over any
questions affecting only individual class members. The predominant common questions include:
a.
Whether defendants engaged in a pattern of sending unlawful fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
74.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff’s counsel have any interests which might cause them not
to vigorously pursue this action.
13
75.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
76.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of separate
claims against defendants is small because it is not economically feasible to bring individual
77.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of
plaintiff and the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unlawful fax advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
COUNT V – TRESPASS TO CHATTELS
78.
Plaintiff incorporates ¶¶ 1-21.
79.
Plaintiff and the class members were entitled to possession of the equipment they
used to receive faxes.
80.
Defendants’ sending plaintiff and the class members unlawful faxes interfered with
their use of the receiving equipment and constitutes a trespass to such equipment. Chair King v.
Houston Cellular, 95cv1066, 1995 WL 1693093 at *2 (S.D. Tex. Nov. 7, 1995) (denying a
motion to dismiss with respect to plaintiff's trespass to chattels claim for unlawful faxes), vacated
14
on jurisdictional grounds 131 F.3d 507 (5th Cir. 1997).
81.
Defendants acted either intentionally or negligently in engaging in such conduct.
82.
Plaintiff and each class member suffered damages as a result of receipt of the
unlawful faxes.
83.
Defendants should be enjoined from continuing trespasses.
CLASS ALLEGATIONS
84.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers (b) who, on or after a date five years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant Health Care
Equipment Specialty, Inc., promoting its goods or services for sale (d) which did not contain an
opt out notice as described in 47 U.S.C. §227.
85.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
86.
There are questions of law and fact common to the class that predominate over any
questions affecting only individual class members. The predominant common questions include:
a.
Whether defendants engaged in a pattern of sending unlawful fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
15
f.
Whether defendants thereby committed a trespass to chattels.
87.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff’s counsel have any interests which might cause them not
to vigorously pursue this action.
88.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
89.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of separate
claims against defendants is small because it is not economically feasible to bring individual
90.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of
plaintiff and the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unlawful fax advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
16
/s/ Daniel A. Edelman
Daniel A. Edelman
Daniel A. Edelman
Cathleen M. Combs
James O. Latturner
Heather A. Kolbus
EDELMAN, COMBS, LATTURNER & GOODWIN, LLC
120 S. LaSalle Street, 18th floor
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
17
NOTICE OF LIEN AND ASSIGNMENT
Please be advised that we claim a lien upon any recovery herein for 1/3 or such
amount as a court awards. All rights relating to attorney’s fees have been assigned to counsel.
/s/ Daniel A. Edelman
Daniel A. Edelman
Daniel A. Edelman
EDELMAN, COMBS, LATTURNER
& GOODWIN, LLC
120 S. LaSalle Street, 18th Floor
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
18
| privacy |
gNjfD4cBD5gMZwczc3jU | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
__________________________________________
)
RGOI ASC, LTD. d/b/a RIO GRANDE
)
ORTHOPAEDIC INSTITUTE
)
AMBULATORY SURGERY
)
CENTER
)
Case No. _____
)
Plaintiff, Individually
)
COMPLAINT -
and as a Member of
)
CLASS ACTION
Classes
)
)
Sherman Act § 2
)
15 U.S.C. § 2
)
)
Clayton Act §§ 4(a), 16
v.
)
15 U.S.C. §§ 15(a), 26
)
)
GENERAL ELECTRIC COMPANY,
)
JURY TRIAL DEMANDED
GE HEALTHCARE INC., a subsidiary of
)
GENERAL ELECTRIC COMPANY;
)
and DATEX-OHMEDA, INC., a subsidiary of
)
GENERAL ELECTRIC COMPANY.
)
)
Defendants.
)
_________________________________________ )
Table of Contents
NATURE OF ACTION............................................................................................................. 1
PARTIES ................................................................................................................................... 3
JURISDICTION AND VENUE ................................................................................................ 3
TRADE AND COMMERCE AFFECTED .............................................................................. 4
RELEVANT MARKETS .......................................................................................................... 4
Relevant Product Market for the Sale of Parts for GE Gas Anesthesia Machines ......................... 4
Relevant Product Market for the Sale of Service Training for GE Gas Anesthesia
Machines..................................................................................................................................... 5
Relevant Product Market for Sale of Service for GE Gas Anesthesia Machines ........................... 5
Relevant Geographic Markets ..................................................................................................... 7
MONOPOLY POWER ............................................................................................................. 8
Relevant Market for the Sale of Service for GE Gas Anesthesia Machines .................................. 8
Relevant Product Market for the Sale of Parts for GE Gas Anesthesia Machines ......................... 9
Relevant Product Market for the Sale of Service Training for GE Gas Anesthesia Machines ..... 10
Relevant Market for GE Service ................................................................................................ 10
GE EXCLUSIONARY CONDUCT TO MAINTAIN A SERVICE MONOPOLY .............. 12
Collateral Estoppel .................................................................................................................... 12
Long-Term GE Exclusionary Conduct Contributing to Antitrust Price Injury in the
Damage Period Is Actionable .................................................................................................... 12
GE’s Exclusionary Conduct Is Evaluated in Its Entirety Rather Than Piecemeal ....................... 13
GE’s Use of Its Parts Monopoly to Monopolize Service ............................................................ 13
For a Decade and One-Half GE Profitably Sold Parts Directly to Its ISO Service
Competitors Allowing National ISO Service Competition ......................................................... 14
i
Beginning in 2011 GE Ended Its Direct Parts Sales with the Effect of Eliminating
Reliable ISO Parts Access and Substantially Suppressing Its
Service Competition .................................................................................................................. 14
GE’s Use of Its Service-Training Monopoly to Monopolize Service .......................................... 15
For Years GE Profitably Sold Service Training to Its ISO Competitors ..................................... 16
Denial of ISO Training on Both Older and Newer Machines ..................................................... 16
GE Conditions Make ISO Training Economically Infeasible ..................................................... 17
INJURY TO COMPETITION ............................................................................................... 18
CLASS ACTION ALLEGATIONS........................................................................................ 19
Class of Direct Purchasers of GE Service .................................................................................. 19
Federal Rule of Civil Procedure 23(a) Prerequisites .................................................................. 19
Federal Rule of Civil Procedure 23(b)(3) Prerequisites .............................................................. 20
Federal Rule of Civil Procedure 23(b)(2) Prerequisites .............................................................. 20
COUNT I (Monopolization - Section 2 of the Sherman Act) .................................................... 21
PRAYER FOR RELIEF ......................................................................................................... 21
JURY DEMAND ..................................................................................................................... 22
ii
NATURE OF ACTION
1.
Plaintiff RGOI ASC, LTD. d/b/a Rio Grande Orthopedic Institute Ambulatory
Surgery Center individually and as a proposed representative of direct purchasers of service for
GE gas anesthesia machines will show the Court as follows.
2.
Defendants General Electric Company, GE Healthcare, and Datex-Ohmeda d/b/a
GE Medical Systems (hereinafter collectively referred to as “GE”) sell service for complex and
durable GE gas anesthesia machines primarily to hospitals, clinics, physician groups, and asset
management companies (collectively referred to herein as “purchasers” or “hospitals”) GE
possesses monopoly power in the markets for parts and service training for GE gas anesthesia
machines and uses its monopoly power in the parts and service-training markets to maintain its
monopoly in the market for servicing GE gas anesthesia machines, allowing GE to charge supra
competitive prices for its servicing of these machines.
3.
The GE equipment is unique and the GE parts and GE service training are not
compatible with, or reasonably interchangeable with, parts and training associated with
anesthesia gas machines manufactured by others.
4.
In providing service for these complex GE machines, GE competes with third
party service vendors (“independent service organizations” or “ISOs”) in a national relevant
market for the sale of such service. To perform service on the GE machines GE technicians and
ISOs need reliable, rapid, and cost-effective access to GE parts and GE service training.
5.
In the past those ISOs able to gain access to parts and service training have nearly
always priced their service substantially below that of GE for comparable service quality.
1
6.
For nearly a decade and one-half GE profitably sold GE parts directly to ISOs, as
well as GE service training. In 2011, however, GE changed its parts policies under which it
profitably sold parts to ISOs to leverage unlawfully its monopoly control over these parts to
disadvantage severely ISOs as they seek to provide rapid, cost-effective and efficient service at
competitive prices for critical and complex GE gas anesthesia machines.
7.
Thereafter in 2014 GE also changed its policies under which it profitably sold
service training to ISOs to leverage unlawfully its monopoly control over this training also to
disadvantage severely ISOs seeking to provide rapid, cost-effective and efficient service for this
critical and complex medical equipment.
8.
With these exclusionary parts and service training policies GE has monopolized
the relevant market for service of GE gas anesthesia machines.
9.
By virtue of the express and detailed findings in a verdict form entered in Red
Lion Medical Safety Inc. et al v. General Electric Company, Inc. et al., No. 2:15-cv-00308 (E.D.
Tex.) (action brought by 14 ISOs), GE has been found to have monopolized service for a
relevant market for service for GE gas anesthesia machines using parts and service training
exclusionary practices. Ex. A attached (verdict form); Ex. B (jury instructions). The District
Court has denied GE’s post-trial motions seeking to set aside these findings as to unlawful
monopolization. Memorandum and Order (Dkt. No. 247, filed March 30, 2018). It has ordered a
new trial as to the ISOs’ lost-profit damages. (The latter vary from the class overcharge damages
sought here, which are computed as the difference from the estimated pricing purchasers would
have paid with competition and the monopoly price actually paid.).
2
10.
When this judgment as to violation is entered upon the conclusion of the retrial of
damages, GE will be collaterally estopped from contesting here that it has violated the antitrust
laws by using its monopolies in the relevant markets for the sale of GE parts and GE service
training to acquire and maintain a monopoly in a distinct and separate relevant market for the
sale of service for GE gas anesthesia machines to the date of the judgment.
11.
As a consequence, direct purchasers of GE service in the proposed Class need
only show this Court that they have been materially injured by GE service monopolization in
their business or property by paying monopoly pricing to GE and the amount of their actual
damages.
12.
Should this Court determine in some respect that collateral estoppel does not
pertain as to monopolization, Plaintiff would show the Court as follows.
PARTIES
13.
Plaintiff RGOI ASC, LTD. d/b/a Rio Grande Orthopedic Institute Ambulatory
Surgery Center is a Texas corporation primarily providing arthroscopic treatment of knee and
shoulder injuries in McAllen, Texas. In its practice it employs GE gas anesthesia machines and
has purchased GE service for those machines in the last four years.
14.
Defendant General Electric Company is a New York corporation with a principal
place of business in Boston, Massachusetts.
15.
Defendant GE Healthcare Inc. is a subsidiary of General Electric Company
incorporated in the state of Delaware with a principal place of business in Chicago, Illinois.
3
16.
Defendant Datex-Ohmeda, Inc. d/b/a GE Medical Systems is a subsidiary of
General Electric Company incorporated in the state of Delaware with a principal place of
business in Madison, Wisconsin.
JURISDICTION AND VENUE
17.
This Court has subject matter jurisdiction under 28 U.S.C. § 1337 (commerce and
antitrust regulation), Section 2 of the Sherman Act (15 U.S.C. § 2), and Sections 4(a) and 16 of
the Clayton Act (15 U.S.C. §§ 15(a) and 26).
18.
Venue is proper because GE is headquartered in this judicial district and thus
resides herein as provided in 28 U.S.C. § 1391(b) and (c), and as provided in Sections 4 and 12
of the Clayton Act (15 U.S.C. §§ 15 and 22).
TRADE AND COMMERCE AFFECTED
19.
Defendants are in the business of selling, among other things, the servicing of
GE-manufactured gas anesthesia machines.
20.
At all times pertinent to this Complaint, Defendants have sold a substantial
amount of servicing of GE-manufactured gas anesthesia machines in interstate commerce in
numerous states around the United States.
21.
Defendant’s conduct has affected a substantial amount of interstate trade and
commerce in the United States with respect to the sale of servicing of GE manufactured gas
anesthesia machines.
RELEVANT MARKETS
Relevant Product Market for the Sale of Parts
for GE Anesthesia Gas Machines
4
22.
This market encompasses the sale of parts, service manuals, and other
documentation (collectively “parts”) necessary to service GE gas anesthesia machines. The
market includes the sellers of parts fully compatible with GE gas anesthesia machines to which
ISOs and others can reasonably turn for alternative supplies to service these GE machines.
23.
Because the parts needed to service the GE machines are not reasonably
interchangeable with those used with other brands of gas anesthesia machines, the relevant parts
market is composed only of sales of parts for use in the GE machines.
24.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here that
there exists a distinct parts relevant product market as defined. This jury heard and decided (1)
identical market definition issues; (2) and this definition was necessary to its decision. Ex. A at 2
¶ 1.2; Ex. B at 23 ¶¶ 1, 3.
Relevant Product Market for the Sale of Service
Training for GE Gas Anesthesia Machines
25.
This market encompasses the sale of training necessary for the service of GE gas
anesthesia machines. The market includes the sellers to which GE and ISO technicians and others
can reasonably turn for alternative supply of training necessary to service these GE machines.
26.
Because training for this service is not reasonably interchangeable with training
used for service of other brands of gas anesthesia machines, the relevant service-training market
is composed of sales of service training for the service of GE gas anesthesia machines only.
27.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here that
there exists a distinct relevant market for GE service training as defined. This jury heard and
5
decided (1) identical market definition issues; (2) and this definition was necessary to its
decision. Ex. A at 2 ¶ 1.2; Ex. B at 23 ¶¶ 1,3.
Relevant Product Market for Sale of Service
for GE Gas Anesthesia Machines
28.
This market encompasses the sale of service for GE gas anesthesia machines. The
market includes the sale by GE and ISOs providing service for these machines to which hospitals
and other operators of these machines may reasonably turn for their service. The market does not
include service that hospitals and other operators provide on their own machines because they do
not compete with GE and ISO technicians to provide service to other operators. A large majority
of operators do not employ in-house technicians servicing their GE machines.
29.
The fact that a hospital may service its own GE anesthesia machine does not act as
a price constraint on external servicers such as GE and ISOs. A ten percent increase in price of an
anesthesia servicing contract would not be sufficient for a hospital to integrate vertically that
contract, suggesting that in-house technician service is not interchangeable with ISO, GE, or asset-
manager service.
30.
Hospitals are the largest purchasers of service for GE anesthesia gas machines.
Service is also purchased by out-patient surgery centers, individual physicians, and physician
groups. Hospitals generally may own anywhere from two to twenty-five GE machines. An
average-size hospital, one with approximately 400 beds, may own eight to ten machines.
31.
Gas anesthesia machines are very durable and, with proper servicing, can have a
useful life of ten to fifteen years or more. They require regular service.
32.
To provide full, competitive service for all these GE machines GE and ISOs must
have immediate access to a near-complete inventory of GE parts and employ trained technicians
6
skilled in the service of this complex equipment. An ISO without reliable GE parts access is
unable to respond adequately, rapidly, and reliably to many types of service problems. Its service
customers require such response.
33.
Sales of service for GE gas anesthesia machines are in a relevant market distinct
from the relevant markets for the sale of GE parts and GE service training. There is sufficient
operator service demand such that it is efficient for GE to provide service separately from its
sales of GE parts and GE service training. Some operators buy GE service without GE parts
because some service does not require parts, and hospitals and other operators which maintain
their GE machines buy parts and service training without service.
34.
The proper service market definition for GE gas anesthesia machines necessarily
excludes technicians who are only capable of servicing non-GE brands.
35.
GE does not sell a complete system comprising the sale of the GE machine,
lifetime service, and lifetime parts for a single price.
36.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered, GE will be collaterally estopped from contesting here the
existence of a distinct and separate relevant market for service of GE anesthesia gas machines as
defined. This jury heard and decided (1) identical market definition issues; (2) and this definition
was necessary to its decision. Ex. A at 2 ¶ 1.2; Ex. B at 23 ¶¶ 1,3.
Relevant Geographic Markets
37.
Along with asset managers and numerous ISOs, GE services a national market.
Customers can and do turn to providers nationwide for timely service, at least because ISOs and
7
GE are able to provide service far from their home offices by stationing technicians around the
country at minimal cost.
38.
Thus, the geographic relevant market for service of GE gas anesthesia machines is
nationwide, as customers turn to a national market when seeking service, and both the ISOs and
GE are able to provide those services nationwide.
39.
The relevant geographic markets for sales of GE parts and GE service training
also encompass the United States.
40.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here the
existence of these relevant geographic markets as defined. This jury heard and decided (1)
identical market definition issues; (2) and this definition was necessary to its decision. Ex. A at 1
¶ 1.1; Ex. B at 12-13.
MONOPOLY POWER
Relevant Market for the Sale of Service for
GE Gas Anesthesia Machines
41.
There is direct and circumstantial evidence of GE monopoly power in the relevant
market for service of GE gas anesthesia machines.
42.
There is direct evidence of GE’s ability to control prices or exclude service
competition by virtue of its control of two essential inputs for GE anesthesia-machine service --
GE parts and training. GE is the only source for GE parts, and alternative sources for parts are
unreliable and insufficient to provide service. Training is necessary for competition in the
market. GE directly controls access to training and that GE is the only source for training.
Technicians can work on GE anesthesia machines only if they use GE parts and have been GE-
8
trained.
43.
There is also circumstantial evidence as well that GE possesses monopoly power,
that is, GE controls 70 percent of the service product market protected by high barriers to entry.
44.
Even though GE’s service pricing is above-competitive levels due to its
exclusionary practices, the customer’s cost of switching anesthesia machines is high and the
machine operators will tolerate some level of above-competitive pricing and price increases
before changing equipment brands to obtain better service pricing.
45.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here the
existence of its monopoly power in the relevant market for the sale of service for GE anesthesia
gas machines as defined. This jury heard and decided (1) identical monopoly power issues; (2)
and this finding of monopoly power was necessary to its decision. Ex. A at 2 ¶ 2.1; Ex. B at 23
Relevant Product Market for the Sale of Parts
For GE Gas Anesthesia Machines
46.
GE also has monopoly power in each of the distinct relevant markets for (a) the
sale of GE parts essential for the service of GE anesthesia gas machines; and (b) the sale of
service training essential for the service of these machines.
47.
GE has the power to control prices or exclude competition in the parts relevant
market. Through its manufacture of the parts, its exclusive dealing arrangements with its parts
suppliers, and its agreements with self-maintaining machine operators (that they will not re-sell
GE parts to ISOs). GE controls nearly 100% of the supply of GE parts in the relevant market
with no readily available substitutes for GE parts for use with GE anesthesia gas machines.
9
48.
There are multiple barriers to entry in the GE parts relevant market facing actual or
potential parts competitors, including substantial economies of scale and scope enjoyed only by
GE; GE exclusive dealing arrangements with its parts suppliers; and GE patents on some GE
parts. GE maintenance manuals, technical service bulletins, technical service procedures and
other documentation are protected under the federal copyright laws and GE does not allow them
to be reproduced.
49.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here the
existence of its monopoly power in the relevant market for the sale of parts for GE anesthesia gas
machines as defined. This jury heard and decided (1) identical monopoly power issues; (2) and
this finding of monopoly power was necessary to its decision. Ex. A at 2 ¶ 2.1; Ex. B at 23 ¶¶
1,3,4,5.
Relevant Product Market for the Sale of Service
Training for GE Gas Anesthesia Machines
50.
GE has the power to control prices or exclude competition in the service-training
relevant market. It controls nearly 100% of sales in this relevant market with no readily available
substitutes for training on the full range of GE anesthesia machines.
51.
Barriers to entry face actual or potential GE service-training competitors. As the
manufacturer and service provider for its gas anesthesia machines, GE enjoys substantial
learning by doing not enjoyed by its actual or potential competitors which would be prohibitively
costly for them to replicate. Further GE maintenance manuals, technical service bulletins,
technical service procedures and other documentation cannot be reproduced without violating
federal copyright law.
10
52.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here the
existence of its monopoly power in the relevant market for the sale of service training for GE
anesthesia gas machines as defined. This jury heard and decided (1) identical monopoly power
issues; (2) and a finding of monopoly power was necessary to its decision. Ex. A at 2 ¶ 2.1; Ex.
B at 23 ¶¶ 1,3,4,5.
Relevant Market for GE Service
53.
GE has the power to control prices or exclude competition in the relevant market
for service of GE gas anesthesia machines. It has leveraged its monopoly control over the
relevant markets for GE parts and GE service training to control price or exclude competition in
the relevant market for service of GE gas anesthesia machines. It has acquired and maintained
between 60% and 70% shares in this highly-concentrated market which are protected by high
barriers to entry, including GE’s control over GE parts and GE service training essential for the
service of its machines.
54.
GE’s nationwide and persistent exclusion of service competition has suppressed
the presence and capacity of its ISO competitors nationwide such that they cannot take sufficient
market share from GE to make its monopoly service pricing unprofitable and bid this pricing
down to competitive levels.
55.
Nor does the loss of prospective machine sales by GE due to its aftermarket
monopoly service pricing prevent GE’s monopoly service pricing. Its machine purchasers are not
able to engage in effective, accurate, and long-term “life cycle” pricing with which they are able
to determine the total cost of operating a machine (including monopoly service and parts pricing)
11
over its lifetime due to very substantial information costs. This lifetime may encompass ten to
fifteen years a machine operates. GE does not sell for one price the cost of the machine, GE parts
and GE service.
56.
Nor can machine operators reasonably switch to alternative brands of gas
anesthesia machines once they purchase a GE machine to prevent the cost of GE monopoly
service pricing. GE machines are durable and require a substantial financial investment of
between $35,000 to $90,000. Thus, for the most part, it is not feasible for an operator to forgo
much of this investment to switch to another brand in response to GE service monopoly pricing
with the effect of disciplining and preventing this monopoly pricing.
57.
Further, direct evidence of GE monopoly power over the sale of GE service is its
persistent ability to set its service pricing substantially above the service pricing of its ISO
competitors for comparable service (where ISOs have been able to obtain the necessary parts and
service training typically for older machines).
58.
By virtue of the express and detailed findings by the jury in Red Lion Medical
Safety Inc., when judgment is entered GE will be collaterally estopped from contesting here the
existence of its monopoly power in the relevant market for the sale of service for GE anesthesia
gas machines as defined. This jury heard and decided (1) identical service monopoly power
issues; (2) and a finding of this monopoly power was necessary to its decision. Ex. A at 2 ¶ 2.1;
Ex. B at 23 ¶¶ 1,3,4, 5
GE EXCLUSIONARY CONDUCT TO
MAINTAIN A SERVICE MONOPOLY
Collateral Estoppel
59.
By virtue of the express findings by the jury in Red Lion Medical Safety Inc.,
12
when a violation judgment is entered, GE will be collaterally estopped from contesting here that
it has used its monopolies over the relevant markets for GE parts and GE service training to
acquire and maintain a monopoly over the relevant market for sale of service for its anesthesia
gas machines. The jury heard and decided (1) identical monopoly violation issues presented here;
(2) and a finding of this violation was necessary to its decision. Ex. A at 3 ¶¶ 2.2,2.3; Ex. B at 23
¶¶ 4,5. In the alternative, should estoppel be found not to pertain, Plaintiff would show the Court
as follows.
Long-Term GE Exclusionary Conduct Contributing to
Antitrust Price Injury in the Damage
Period Is Actionable
60.
All GE exclusionary acts before and after the beginning of the four-year damage
period which materially contribute in combination to GE monopoly power, monopoly pricing in
the relevant service market, and antitrust price injury in the damage period are all actionable.
Much of GE’s exclusionary conduct continues to the present and occurs in the damage period.
Nonetheless, as a matter of law, exclusionary acts occurring before the beginning of the damage
period in 2014 are also actionable to the extent they contribute to antitrust price injury in the
damage period. As long as GE continues to use monopoly power it has gained unlawfully over
time to overcharge purchasers of its service, it has no claim on the repose that a statute of
limitations is intended to provide. The taint of anticompetitive origin does not dissipate after four
years if the exclusionary conduct continues to cause antitrust price injury in the damage period.
GE’s Exclusionary Conduct Is Evaluated in
Its Entirety Rather Than Piecemeal
61.
Plaintiff need not demonstrate how each of GE’s several exclusionary acts
leveraging its parts and service-training monopolies have alone materially contributed to the
13
acquisition and maintenance of its monopoly power in the relevant service market. As a matter
of law, the combined effect of GE’s exclusionary practices must be evaluated to determine
whether in combination they have materially contributed to monopoly power and above-
competition pricing for its service. Each exclusionary act alone need not constitute
monopolization of the relevant service market. Further, Plaintiff need not demonstrate how much
each exclusionary act alone has contributed to the level of GE monopoly pricing.
GE’s Use of Its Parts Monopoly to
Monopolize Service
62.
While GE’s exclusionary conduct must be viewed as a whole, each of its
exclusionary practices even when viewed in isolation is anticompetitive.
63.
Timely access to GE parts is essential for ISOs to compete fully and vigorously
for service of GE gas anesthesia machines. GE has used its monopoly power in the parts market
to refuse to sell parts to ISOs, thus denying them access to inputs essential to compete in the
service relevant market.
64.
This has severely disadvantaged its ISO competition. Timely and reliable ISO
access to GE’s parts is essential if ISOs are to be full and vigorous competitors for GE service
technicians. ISOs’ customers demand that they be able to obtain repair parts rapidly at
reasonable cost to enable rapid and efficient repair of critical medical equipment.
65.
A monopolist in one market, here the GE parts relevant market, may not leverage
its control over access to these parts to monopolize an adjacent market, here the service relevant
market, by refusing to deal. Further, because GE has a history of selling parts profitably and
directly to ISOs for nearly a decade and one half, it may not thereafter lawfully sacrifice those
profits effectively to refuse to deal to gain a competitive advantage and obtain monopoly service
14
66.
For a Decade and One-Half GE Profitably Sold Parts Directly to Its ISO
Service Competitors, Allowing National ISO Service Competition. Between 1997 and 2011
Ohmeda/GE implemented a policy under which ISOs with technicians certified by Ohmeda/GE
training schools could buy parts directly from Ohmeda/GE. (Ohmeda was purchased by GE in
2003). Thus for nearly a decade and one-half Ohmeda/GE made substantial profits from its direct
sales to ISOs of parts.
67.
Beginning in 2011 GE Ended Its Direct Parts Sales with the Effect of
Eliminating Reliable ISO Parts Access and Substantially Suppressing Service Competition.
In 2011 GE began to refuse to sell parts directly to ISOs. It did so not because the sales had
become unprofitable. It profitably continues to provide parts directly to (a) GE service
technicians competing with the ISOs; and (b) hospitals and others maintaining their own
machines; including its government customers.
68.
In 2011 GE appointed an exclusive distributor for its parts, Alpha Source. Inc.,
and announced that ISOs could only buy its parts indirectly through this distributor. As
opportunistically and anticompetitively implemented by GE and Alpha Source, this new
distribution has inflicted seven competitive disadvantages on ISO service technicians
substantially impeding their attempt to compete with unencumbered GE technicians.
69.
GE’s appointment of Alpha Source was a scheme to stifle a competitive threat to
GE’s competitive position. Prior to 2011 ISO were achieving double-digit growth. GE’s
appointment of a parts distributor to supply its competitors was in response to this threat. GE
internally states that the Alpha Source appointment would “dis(enable)” competitors by slowing
15
down competitor fulfillment capability and adding to their costs with the end result that ISO
customers would return to GE. A GE executive found that the parts policy had this very effect.
70.
GE sacrificed profits in pursuing this parts policy. Internally it found that its
reduced profits from the parts policy were “as hoped for the most part -- flat with decline.”
71.
Not only did GE’s appointment of Alpha Source “disenable” competitors by
slowing down their fulfillment capabilities and increasing their costs, GE also admits that the
parts policy harms customers, and that it has sacrificed short-term profits on the sale of parts for
an anticompetitive reason. Internally it confirmed it had “hoped for” and achieved reduced
profits on the sale of its GE parts as a result of the parts policy.
72.
An ISO’s ability to pick up stray parts in some unreliable manner, or to acquire
parts for older machines, does not translate to fully-vigorous and viable competition in the
market for service of GE gas anesthesia machines.
GE’s Use of Its Service-Training
Monopoly to Monopolize Service
73.
Three years after it began its exclusionary parts monopoly placing ISO
technicians at a severe competitive disadvantage, GE dropped the other exclusionary shoe. It
began using its monopoly over service-training to the same end, thereby increasing the potency
of its service exclusion.
74.
By virtue of its monopoly in the relevant market for service-training GE has
control over access to unique GE knowledge and knowhow as to the operation and service of its
machines. GE has leveraged its training monopoly to exclude ISOs from the relevant service
market.
75.
ISOs must have this training if they are to compete to provide a full range of
16
service on both older and newer GE machines; and ISOs have in the past compensated GE
adequately and profitably for such training when available. GE has denied the ISOs this
essential input they need to compete.
76.
For Years GE Profitably Sold Service Training to Its ISO Competitors.
Except for a period of four months in late 2006 and early 2007 (when GE implemented – and
then rolled back – prohibitive, discriminatory price increases for ISO training) Ohmeda/GE
between 1997 and 2014 dealt profitably with ISOs to provide their technicians service training
comparable to that provided to its own technicians.
77.
Denial of ISO Training. GE closed its training facility in 2013 and did not train
ISOs for nearly a year, Then, reversing its profitable course of dealing with ISOs as to training
on all GE machines, GE informed them that only the Jupiter, Florida GE training facility, which
largely provides training only on GE’s older machines, would be open for ISO enrollment.
78.
Nonetheless, it has effectively denied ISO access here as well. It takes the
position that at Jupiter “scheduling, frequency, and location of courses will remain at GE
Healthcare discretion” and has used this discretion to curtail sharply, or eliminate for periods of
time, effective ISO training access.
79.
Frequently ISOs have been told that Jupiter-scheduled courses of interest have
been canceled or overbooked and, hence, unavailable.
80.
GE also effectively denies training access for its newer, more technically-
sophisticated GE machines. ISOs have made repeated requests to attend the relevant training
schools for three newer GE machines (the Aespire, the Avance, and the Aisys). They have been
denied this access for the most part because this training is largely done at GE’s Waukesha,
17
Wisconsin location which has been made off limits for ISO training.
81.
GE Conditions Make ISO Training Economically Infeasible. GE also imposes
training conditions further placing an ISO at a substantial competitive disadvantage. It compels
an ISO to disclose to GE its service customers using the machines for which training is sought.
Thus, GE is effectively demanding highly-confidential and sensitive customer lists as a condition
of ISO training.
82.
Further, GE demands a verification from an ISO’s customer which has the effect,
in many instances, of preventing training access. For each training class desired by an ISO it has
to present a customer certification to the effect: “[y]our signature below verifies that the ISO
individual seeking to register for a GE Healthcare clinical systems technical training class
performs services on GE Healthcare equipment that is the subject of the requested class and does
so exclusively at your site/network of sites.” (emphasis in the original). Since the ISO
customer often is aware that the technician will work on similar machines for other customers, it
cannot provide in good faith the certification and this condition often prevents access. No similar
certification is required from a GE technician’s customer to obtain comparable training. The
customer endorsement policy was one final step in GE’s scheme to “phase-out” third party
training.
83.
Further, the requested verification also apparently disallows remote diagnosis and
service by the ISO technician, whereas the competing GE technician can provide this service,
which often allows more efficient and rapid diagnosis and service. The earlier the GE
technician’s diagnosis the earlier the necessary parts and software can be acquired from GE,
thereby deepening the ISO’s competitive problem of lack of reliable parts access.
18
84.
In pursuit of its exclusionary training policies GE has sacrificed profits. It
typically earns a 70% profit margin on training sales to ISOs, and that numerous ISO have
applied for training and were rejected. GE admits that it was “giving up the money it could be
making by training as many third parties as it … possibly could[.]”
INJURY TO COMPETITION
85.
Before GE’s implementation of its exclusionary parts and service training policies
ISOs, the low-cost providers in the market, were growing by double-digits. Thereafter they were
severely hampered competitively by the GE policies, and the ISOs exclusion from the market has
harmed competition.
86.
As a consequence of GE’s exclusionary parts and service training policies, its ISO
competitors have been prevented from obtaining a sufficient presence and capacity in the
national service market to enable them to bid down GE’s monopoly service pricing charged to its
service customers in the proposed Class to competitive levels by taking service market share
from GE sufficient to make its pricing unprofitable.
87.
The harm to competition due to GE parts and service training policies hurts its
own service customers. The GE policies have led to antitrust price injury inflicted on these
customers by raising and maintaining prices to above-competitive levels, causing deterioration in
service quality, and limiting customer choice as to service.
CLASS ACTION ALLEGATIONS
19
Class of Direct Purchasers of GE Service
Federal Rule of Civil Procedure 23(a) Prerequisites
88.
Plaintiff (“Class Representative”) is a representative of a Class of United States
direct purchasers from GE of service for GE anesthesia gas machines on or after December 21,
2014 to the entry of judgment in Red Lion Medical Safety Inc. et al v. General Electric
Company, Inc. et al., No. 2:15-cv-00308 (E.D. Tex..) “Purchasers” include without limitation
hospitals, hospital systems, clinics, physician groups, and asset management companies.
89.
Prosecution of the claims of the Class as a class action is appropriate because the
prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure are met:
(a)
The number of persons in the Class is in the thousands and the members of
the Class are therefore so numerous that joinder of all members of the Class is impracticable.
Joinder also is impracticable because of the geographic diversity of the members of the Class, the
need to expedite judicial relief, and the Class Representative’s lack of knowledge of the identity
and addresses of all members of the Class.
(b)
There are numerous questions of law and fact which are common to the
members of the Class. These include, but are not limited to, common issues as to (1) the existence
of collateral estoppel; (2) whether there has been service monopolization; (3) the existence of
distinct and separate GE parts, GE service-training, and service relevant markets; and (4) whether
GE’s monopolization has caused antitrust price injury to be inflicted on purchasers of GE service
in the Class. In addition, there are common issues as to the nature and extent of the injunctive and
monetary relief available to the members of the Class.
90.
The claims of the Class Representative are typical of the claims of the members of
20
the Class and fairly encompass the claims of the members of the Class. The Class Representative
and the members of the Class are similarly or identically harmed by the same systematic and
pervasive concerted action and monopoly service pricing.
91.
The Class Representative and its counsel will fairly and adequately protect the
interests of the members of the Class. There are no material conflicts between the claims of the
Class Representative and the members of the Class that would make class certification
inappropriate. Counsel for the Class will vigorously assert the claims of the Class Representative
and the other members of the Class.
Federal Rule of Civil Procedure 23(b)(3) Prerequisites
92.
In addition, the prosecution of the claims of the Class as a class action pursuant to
Rule 23(b)(3) is appropriate because:
(a)
Questions of law or fact common to the members of the Class predominate
over any questions affecting only its individual members; and
(b)
A class action is superior to other methods for the fair and efficient
resolution of the controversy.
Federal Rule of Civil Procedure 23(b)(2) Prerequisites
93.
The prosecution of the claims of the Class as a class action pursuant to Rule
23(b)(2) is appropriate because GE has acted, or refused to act, on grounds generally applicable to
the Class, thereby making appropriate final injunctive relief, or corresponding declaratory relief,
for the Class as a whole.
21
COUNT I
Monopolization
(Section 2 of the Sherman Act)
94.
All foregoing paragraphs incorporated herein by reference.
95.
GE has monopolized the relevant market for sale of service for GE gas anesthesia
machines as alleged.
96.
It has used its monopolies over the relevant market for sale of parts for GE gas
anesthesia machines and for the sale of service training for these machines to acquire and
maintain monopoly power and monopoly pricing in the relevant service market.
97.
GE’s exclusionary conduct has been a material cause of substantial price injury
and actual damages to members of the proposed Class of direct purchasers of GE service and has
denied them competitive choice.
98.
GE’s conduct is unlawful under Section 2 of the Sherman Act, 15 U.S.C. § 2.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff individually and as a member of the proposed Class alleged
prays that:
A.
This Court declare that Defendants’ conduct constitutes a violation of the
Sherman Act, 15 U.S.C. § 2 allowing treble damage relief to members of the proposed Class.
B.
This Court permanently enjoin Defendants from continuing the practices which in
combinations are found unlawful under Section 16 of the Clayton Act, 15 U.S.C. § 26.
C.
Plaintiff recover reasonable attorneys’ fees and costs as allowed by law;
22
D.
Plaintiff recover pre-judgment and post-judgment interest at the highest rate
allowed by law; and
E.
Plaintiff be granted such other and further relief as the Court deems just and
equitable.
JURY DEMAND
Plaintiff requests a trial by jury in this matter.
Dated: December 21, 2018
Respectfully submitted,
Whatley Kallas LLP
By: /s/ Patrick J. Sheehan
Patrick J. Sheehan (BBO #639320)
Whatley Kallas, LLP
60 State Street, 7th Floor
Boston, MA 02109
Telephone: (617) 573-5118
Facsimile: (800) 922-4851
Email: psheehan@whatleykallas.com
Joe R. Whatley, Jr.
(pro hac vice petition forthcoming)
Edith M. Kallas
(pro hac vice petition forthcoming)
1180 Avenue of the Americas, 20th Floor
New York, NY 10036
Telephone: (212) 447-7060
Facsimile: (800) 922-4851
jwhatley@whatleykallas.com
ekallas@whatleykallas.com
23
Henry C. Quillen
(pro hac vice petition forthcoming)
159 Middle St., Suite 2C
Portsmouth, NH 03801
Telephone: (603) 294-1591
Facsimile: (800) 922-4851
hquillen@whatleykallas.com
Weitz Morgan, PLLC
Mark A. Weitz
(pro hac vice petition forthcoming)
Kristi Morgan Aronica
(pro hac vice petition forthcoming)
100 Congress Avenue
Suite 2000
Austin, Texas 78701
Telephone: (512) 370-5211
mweitz@weitzmorgan.com
Berry Law PLLC
R. Stephen Berry
(pro hac vice petition forthcoming)
1717 Pennsylvania Avenue, N.W.
Suite 850
Washington, D.C. 20006
Telephone: (202) 296-3020
Facsimile: (202) 296-3038
sberry@berrylawpllc.com
Attorneys for Plaintiff
24
| antitrust |
QVKn_ogBF5pVm5zYmhvQ | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
CASE NO.
JUDGE
PLAINTIFF’S COMPLAINT
(Jury Demand Endorsed Herein)
CIERA CONNER
1122 Park Avenue SW
Canton, OH 44706
on behalf of herself and all others similarly
situated,
Plaintiff,
vs.
Defendant.
TRUBRIDGE, INC.
c/o Statutory Agent Corporation Service
Company
50 West Broad Street, Suite 1330
Columbus, OH 43215
)
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Now comes Plaintiff Ciera Conner, by and through undersigned counsel, and for her
Complaint against TruBridge, Inc. (“Defendant” or “TruBridge”), states and alleges the following:
INTRODUCTION
1.
This is a “collective action” instituted by Plaintiff as a result of Defendant’s
practices and policies of not paying its non-exempt employees, including Plaintiff and other
similarly situated employees, for all hours worked, including overtime compensation in violation
of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-219, as well as a “class action”
pursuant to Fed. R. Civ. P. 23 to remedy violations of the Ohio Minimum Fair Wage Standards
Act (“OMFWSA”), R.C. § 4111.03.
JURISDICTION AND VENUE
2.
The Court has jurisdiction over Plaintiff’s FLSA claims pursuant to 28 U.S.C. §
1331 and 29 U.S.C. § 216(b).
3.
The Court has supplemental jurisdiction over Plaintiff’s OMFWSA claims pursuant
to 28 U.S.C. § 1367 because the claims are so related to the FLSA claims as to form part of the
same case or controversy.
4.
Venue is proper pursuant to 28 U.S.C. § 1391(b) because Defendant conducts
business throughout this District and Division and because a substantial part of the events and
omissions giving rise to the claims occurred in this District and Division.
PARTIES
5.
At all times relevant herein, Plaintiff was a citizen of the United States and a
resident of Stark County, Ohio.
6.
At all times relevant herein, Plaintiff was an employee within the meaning of 29
U.S.C. § 203(e) and R.C. § 4111.03(D)(3).
7.
At all times relevant herein, Defendant was a for profit corporation, organized and
existing under the laws of the State of Ohio.
8.
At all times relevant herein, Defendant was an employer within the meaning of 29
U.S.C. § 203(d) and R.C. § 4111.03(D)(2).
9.
At times relevant herein, Defendant was an enterprise within the meaning of 29
U.S.C. § 203(r).
10.
At all times relevant herein, Defendant was an enterprise engaged in commerce or
in the production of goods for commerce within the meaning of 29 U.S.C. § 203(s)(1).
11.
At all times relevant herein, Plaintiff was an employee engaged in commerce or in
the production of goods for commerce within the meaning of 29 U.S.C. §§ 206-207.
2
12.
Written consents to join this action as to Count One, as and when executed by other
individual plaintiffs, will be filed pursuant to 29 U.S.C. § 216(b).
FACTUAL ALLEGATIONS
13.
Defendant offers insurance services to its customers.
14.
Defendant employed Plaintiff between September 2018 and December 2020 as a
health insurance sales agent at its North Canton call center.
15.
Other similarly situated employees were employed as sales agents at Defendant’s
North Canton call center.
16.
Defendant classified Plaintiff and other similarly situated employees as non-exempt
employees.
17.
Defendant paid Plaintiff and other similarly situated employees on an hourly basis.
18.
Defendant paid Plaintiff and other similarly situated employees monthly bonuses.
19.
Plaintiff and other similarly situated employees frequently worked over 40 hours
per week.
20.
Plaintiff worked on average over 40 hours each week.
Failure to Pay For Time Spent Starting and Logging Into
Computer Systems, Applications, and Phone System)
21.
Plaintiff and other similarly situated employees were required by Defendant to
perform unpaid work before clocking in each day, including, but not limited to, starting, booting
up, and logging into Defendant’s computer systems, numerous software applications, and phone
systems. Booting up and logging into the computer systems and numerous software applications
required entering unique and frequently changing passwords for each of the numerous programs.
22.
By common policy and practice, Plaintiff and other similarly-situated employees
were required to have their computers booted up and have several applications running before the
3
start of their shifts so that they could take their first call promptly upon commencing work at their
scheduled start times.
23.
Defendant arbitrarily failed to count this work performed by Plaintiff and other
similarly situated employees as “hours worked.”
24.
Plaintiff and other similarly situated employees performed this unpaid work every
workday, and it constituted a part of their fixed and regular working time.
25.
Plaintiff estimates that they spent approximately 10 to 20 minutes before their shifts
start times clocking in each day, including but not limited to starting and logging into Defendant’s
computer systems, numerous software applications, and phone systems.
26.
This unpaid work performed by Plaintiff and other similarly situated employees
was practically ascertainable to Defendant.
27.
There was no practical administrative difficulty of recording this unpaid work of
Plaintiff and other similarly situated employees. It could have been precisely recorded for payroll
purposes simply by allowing them to clock in before they began booting up Defendant’s computer
systems, applications, and phone systems.
28.
This unpaid work performed by Plaintiff and other similarly situated employees
constituted a part of their principal activities, was required by Defendant, and was performed for
Defendant’s benefit.
29.
Starting and logging into Defendant’s computer systems, numerous software
applications, and phone systems is an intrinsic element of their job duties. Plaintiff and other
similarly situated employees cannot dispense with these tasks if they are to be able to perform their
30.
Moreover, this unpaid work was an integral and indispensable part of other
4
principle activities performed by Plaintiff and other similarly situated employees. They could not
perform their work without booting up Defendant’s computer systems, applications, and phone
systems.
31.
Defendant knowingly and willfully failed to pay Plaintiff and other similarly
situated inbound sales representatives for starting and logging into Defendant’s computer systems,
numerous software applications, and phone systems, during which they performed work that
managers and/or other agents and/or representatives observed.
(Failure to Pay Overtime Compensation)
32.
As a result of Plaintiff and other similarly situated employees not being paid for all
hours worked, Plaintiff and other similarly situated employees were not paid overtime
compensation for all of the hours they worked over 40 each workweek.
33.
Defendant knowingly and willfully engaged in the above-mentioned violations of
the FLSA.
(Failure to Keep Accurate Records)
34.
Defendant failed to make, keep and preserve records of the unpaid work performed
by Plaintiff and other similarly situated employees before clocking in each day.
35.
The amount of time Plaintiff and other similarly situated employees spent on their
required and unpaid work before clocking in amounted to approximately 10 to 20 minutes when
Defendant’s computer systems were working properly, or longer when Defendant’s computer
systems were slow or not working.
COLLECTIVE ACTION ALLEGATIONS
36.
Plaintiff brings Count One of this action on her own behalf pursuant to 29 U.S.C. §
216(b), and on behalf of all other persons similarly situated who have been, are being, or will be
5
adversely affected by Defendant’s unlawful conduct.
37.
The class which Plaintiff seeks to represent and for whom Plaintiff seeks the right
to send “opt-in” notices for purposes of the collective action, and of which Plaintiff herself is a
member, is composed of and defined as follows:
All former and current call center employees employed by
TruBridge, Inc. at any time between March 10, 2018 and the
present.
38.
Plaintiff is unable to state at this time the exact size of the potential class, but upon
information and belief avers that it consists of several hundred persons.
39.
This action is maintainable as an “opt-in” collective action pursuant to 29 U.S.C. §
216(b) as to claims for unpaid wages, overtime compensation, liquidated damages, attorneys’ fees
and costs under the FLSA. In addition to Plaintiff, numerous current and former employees are
similarly situated with regard to their wages and claims for unpaid wages and damages. Plaintiff
is representative of those other employees and are acting on behalf of their interests, as well as her
own, in bringing this action.
40.
These similarly situated employees are known to Defendant and are readily
identifiable through Defendant’s business and payroll records. These individuals may readily be
notified of this action, and allowed to opt in pursuant to 29 U.S.C. § 216(b), for the purpose of
collectively adjudicating their claims for unpaid wages, overtime compensation, liquidated
damages, attorneys’ fees and costs under the FLSA.
CLASS ACTION ALLEGATIONS
41.
Plaintiff brings Count Two of this action pursuant to Fed. R. Civ. P. 23(a) and (b)(3)
on behalf of herself and all other members of the class (“the Ohio Class”) defined as:
All former and current call center employees employed by TruBridge, Inc.
at any time between March 10, 2018 and the present.
6
42.
The Ohio Class is so numerous that joinder of all class members is impracticable.
Plaintiff is unable to state at this time the exact size of the potential Ohio Class, but upon
information and belief, avers that it consists of at least one thousand persons.
43.
There are questions of law or fact common to the Ohio Class, including but not
limited to the following:
(a) whether Defendant failed to pay overtime compensation to its
manufacturing employees for hours worked in excess of 40 each
workweek; and
(b) what amount of monetary relief will compensate Plaintiff and other
members of the class for Defendant’s violation of R.C. § 4111.03
and § 4111.10.
44.
The claims of the named Plaintiff are typical of the claims of other members of the
Ohio Class. Named Plaintiff’s claims arise out of the same uniform course of conduct by
Defendant, and are based on the same legal theories, as the claims of the other Ohio Class
members.
45.
Named Plaintiff will fairly and adequately protect the interests of the Ohio Class.
Her interests are not antagonistic to, but rather are in unison with, the interests of the other Ohio
Class members. The named Plaintiff’s counsel has broad experience in handling class action
wage-and-hour litigation, and is fully qualified to prosecute the claims of the Ohio Class in this
46.
The questions of law or fact that are common to the Ohio Class predominate over
any questions affecting only individual members. The primary questions that will determine
Defendant’s liability to the Ohio Class, listed above, are common to the class as a whole, and
predominate over any questions affecting only individual class members.
7
47.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Requiring Ohio Class members to pursue their claims
individually would entail a host of separate suits, with concomitant duplication of costs, attorneys’
fees, and demands on court resources. Many Ohio Class members’ claims are sufficiently small
that they would be reluctant to incur the substantial cost, expense, and risk of pursuing their claims
individually. Certification of this case pursuant to Fed. R. Civ. P. 23 will enable the issues to be
adjudicated for all class members with the efficiencies of class litigation.
COUNT ONE
(Fair Labor Standards Act Violations)
48.
Plaintiff incorporates by reference the foregoing allegations as if fully rewritten
herein.
49.
Defendant’s practice and policy of not paying Plaintiff and other similarly situated
employees for work performed before clocking in each day violated the FLSA, 29 U.S.C. § 207,
29 CFR § 785.24.
50.
Defendant’s practice and policy of not paying Plaintiff and other similarly situated
employees overtime compensation at a rate of one and one-half times their regular rate of pay for
all of the hours they worked over 40 in a workweek violated the FLSA, 29 U.S.C. § 207.
51.
Defendant’s failure to keep records of all of the hours worked each workday and
the total hours worked each workweek by Plaintiff and other similarly situated employees violated
the FLSA, 29 CFR § 516.2(a)(7).
52.
By engaging in the above-mentioned conduct, Defendant willfully, knowingly
and/or recklessly violated the provisions of the FLSA.
53.
As a result of Defendant’s practices and policies, Plaintiff and other similarly
situated employees have been damaged in that they have not received wages due to them pursuant
8
to the FLSA.
COUNT TWO
(Violations of Ohio Revised Code 4111.03)
54.
Plaintiff incorporates by reference the foregoing allegations as if fully rewritten
herein.
55.
Defendant’s practice and policy of not paying Plaintiff and other similarly situated
employees for all time worked and overtime compensation at a rate of one and one-half times their
regular rate of pay for all of the hours they worked over 40 each workweek violated the OMFWSA,
R.C. § 4111.03.
56.
By engaging in the above-mentioned conduct, Defendant willfully, knowingly
and/or recklessly violated the provisions of the OMFWSA.
57.
As a result of Defendant’s practices and policies, Plaintiff and other similarly
situated employees have been damaged in that they have not received wages due to them pursuant
to the OMFWSA.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, and all those similarly situated, collectively pray that this
Honorable Court:
A.
Issue an order permitting this litigation to proceed as a collective action and
certifying the class pursuant to Fed. R. Civ. R. 23(a) and (b)(3);
B.
Order prompt notice, pursuant to 29 U.S.C. § 216(b), to all class members that this
litigation is pending and that they have the right to “opt in” to this litigation;
C.
Award Plaintiff and the classes she represents actual damages for unpaid wages;
D.
Award Plaintiff and the classes she represents liquidated damages equal in amount
to the unpaid wages found due to Plaintiff and the class;
9
E.
Award Plaintiff and the classes she represents pre- and post-judgment interest at the
statutory rate;
F.
Award Plaintiff and the classes she represents attorneys’ fees, costs, and
disbursements; and
G.
Award Plaintiff and the classes she represents further and additional relief as this
Court deems just and proper.
Respectfully submitted,
/s/ Lori M. Griffin
Lori M. Griffin (0085241)
Anthony J. Lazzaro (0077962
Chastity L. Christy (0076977)
The Lazzaro Law Firm, LLC
The Heritage Bldg., Suite 250
34555 Chagrin Boulevard
Moreland Hills, Ohio 44022
Phone: 216-696-5000
Facsimile: 216-696-7005
lori@lazzarolawfirm.com
chastity@lazzarolawfirm.com
anthony@lazzarolawfirm.com
Attorneys for Plaintiff
JURY DEMAND
Plaintiff hereby demands a trial by jury on all issues so triable.
/s/ Lori M. Griffin
One of the Attorneys for Plaintiff
10
| employment & labor |
BvNJE4cBD5gMZwczofWm | GLANCY PRONGAY & MURRAY LLP
LIONEL Z. GLANCY (#134180)
ROBERT V. PRONGAY (#270796)
LESLEY F. PORTNOY (#304851)
CHARLES H. LINEHAN (#307439)
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: info@glancylaw.com
Attorneys for Plaintiff
Case No.:
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
BABULAL TARAPARA, Individually and
On Behalf of All Others Similarly Situated,
Plaintiff,
v.
K12 INC., RONALD J. PACKARD,
NATHANIEL A. DAVIS, and JAMES J.
RHYU,
Defendants.
Plaintiff Babulal Tarapara (“Plaintiff”), by and through his attorneys, alleges the
following upon information and belief, except as to those allegations concerning Plaintiff, which
are alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among
other things, his counsel’s investigation, which includes without limitation: (a) review and
analysis of regulatory filings made by K12 Inc. (“K12” or the “Company”), with the United
States (“U.S.”) Securities and Exchange Commission (“SEC”); (b) review and analysis of press
releases and media reports issued by and disseminated by K12; and (c) review of other publicly
available information concerning K12.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that acquired K12 securities
between November 7, 2013, and October 27, 2015, inclusive (the “Class Period”), against the
Defendants,1 seeking to pursue remedies under the Securities Exchange Act of 1934 (the
“Exchange Act”).
2.
K12 is a technology-based education company that purportedly provides
technology-based educational products and solutions to public school districts, public schools,
virtual charter schools, private schools, and families.
3.
On October 27, 2015, Stanford’s Center for Research on Education Outcomes
(“CREDO”) published a study regarding online charter schools, specifically mentioning K12.
CREDO also published a press release in conjunction with the study, summarizing the results of
the study. CREDO, in the press release, stated: “Innovative new research suggests that students
of online charter schools had significantly weaker academic performance in math and reading,
compared with their counterparts in conventional schools.” Multiple news organizations
publicized the CREDO study.
4.
On the same day, October 27, 2015, the Company issued a press release entitled
“K12 Inc. Reports First Quarter Fiscal 2016 With Revenue of $221.2 Million.” Therein, the
1 “Defendants” refers to K12, Ronald J. Packard, Nathaniel A. Davis, and James J. Rhyu,
collectively.
Company reported disappointing financial results including “[r]evenues of $221.2 million,
compared to $236.7 million in the first quarter of FY 2015,” “EBITDA . . . of negative $3.9
million, compared to $3.7 million in the first quarter of FY 2015,” and an “[o]perating loss
of $20.5 million, compared to an operating loss of $13.2 million in the first quarter of FY 2015.”
5.
On this news, K12’s stock price fell $1.93 per share, or 15.8%, to close at $10.25
per share on October 27, 2015, on unusually heavy trading volume.
6.
After the market closed on October 27, 2015, K12 filed its Form 10-Q with the
SEC for the fiscal quarter ended September 30, 2015. Therein, the Company disclosed that it
received a subpoena from the Attorney General of the State of California, Bureau of Children’s
Justice in connection with an investigation styled “In the Matter of the Investigation of: For-
Profit Virtual Schools.”
7.
Though the market did not immediately react to the disclosure of the subpoena
buried in the Company’s Form 10-Q, K12’s stock price slid a cumulative $0.54 per share, or
5.2%, over three days from a close of $10.25 per share on October 27, 2015, to a close of $9.71
per share on October 30, 2015.
8.
Throughout the Class Period, Defendants made materially false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that K12 was publishing misleading advertisements about students’
academic progress, parent satisfaction, their graduates’ eligibility for University of California
and California State University admission, class sizes, the individualized and flexible nature of
K12’s instruction, hidden costs, and the quality of the materials provided to students; (2) that
K12 submitted inflated student attendance numbers to the California Department of Education in
order to collect additional funding; (3) that, as a result of the aforementioned practices, the
Company was open to potential civil and criminal liability; (4) that the Company would likely be
forced to end these practices, which would have a negative impact on K12’s operations and
prospects, and/or that K12 was, in fact, ending the practices; and (5) that, as a result of the
foregoing, Defendants’ statements about K12’s business, operations, and prospects, were false
and misleading and/or lacked a reasonable basis.
9.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
10.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
11.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. § 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
12.
Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and
Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the dissemination of materially false and/or misleading information,
occurred in substantial part in this Judicial District.
13.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
14.
Plaintiff Babulal Tarapara, as set forth in the accompanying certification,
incorporated by reference herein, purchased K12 common stock during the Class Period, and
suffered damages as a result of the federal securities law violations and false and/or misleading
statements and/or material omissions alleged herein.
15.
Defendant K12 is a Delaware corporation with its principal executive offices
located at 2300 Corporate Park Drive, Herndon, Virginia. K12’s common stock trades on the
New York Stock Exchange (“NYSE”) under the symbol “LRN.”
16.
Defendant Ronald J. Packard (“Packard”) was the Chief Executive Officer
(“CEO”) of K12 prior to the beginning of the Class Period, and during the Class Period until
December 31, 2013.
17.
Defendant Nathaniel A. Davis (“Davis”) was, at all relevant times, CEO of K12
from January 1, 2014 through the end of the Class Period. Davis relinquished his position as
CEO on February 8, 2016. Davis was also Executive Chairman of the Board of Directors
throughout the Class Period.
18.
Defendant James J. Rhyu (“Rhyu”) was, at all relevant times, Chief Financial
Officer (“CFO”) of K12.
19.
Defendants Packard, Davis, and Rhyu are collectively referred to hereinafter as
the “Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of K12’s reports to the SEC,
press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the
Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading. The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
SUBSTANTIVE ALLEGATIONS
Background
20.
K12 is a technology-based education company that purportedly provides
technology-based educational products and solutions to public school districts, public schools,
virtual charter schools, private schools, and families.
Materially False and Misleading
Statements Issued During the Class Period
21.
The Class Period begins on November 7, 2013. On that day, K12 issued a press
release entitled, “K12 Inc. Reports First Quarter Fiscal 2014 Results.” Therein, the Company, in
relevant part, stated:
HERNDON,
Va., Nov.
7,
2013 (GLOBE
NEWSWIRE)
-- K12
Inc. (NYSE:LRN), a leading provider of proprietary, technology-based
curriculum, software and education services created for individualized learning
for students primarily in kindergarten through 12th grade, today announced its
results for the first fiscal quarter ended September 30, 2013.
Financial Highlights for the Three Months Ended September 30, 2013 (First
Quarter Fiscal Year 2014)
Revenues for the first quarter of FY 2014 increased 3.3% to $228.4
million.
Revenues in Q1 were reduced by $4.5 million as a result of
changes in certain contract agreements. The revenue has been
deferred to the remainder of the current fiscal year.
Institutional Sales were lower on market pressure for some of our
product lines.
EBITDA, a non-GAAP measure (see reconciliation below), for the first
quarter of FY 2014 was $8.5 million, compared to $24.3 million from the
first quarter of FY2013.
Operating loss of $8.5 million compared to operating income of $8.7
million in the first quarter of FY 2013.
EBITDA and the operating loss in Q1 were negatively impacted by
deferral of revenue mentioned above along with higher seasonal selling,
administrative and operating expenses in anticipation of stronger
enrollments.
Net loss attributable to common and Series A stockholders of $5.0 million,
compared to net income of $4.4 million from first quarter of FY 2013.
Diluted net loss attributable to common stockholders per share was $0.13,
which includes the pro rata effect of the Series A Special shares
conversion to common shares onSeptember 3, 2013.
Stock Buyback
The Board of Directors has authorized the repurchase of up to $75 million of the
Company’s outstanding common stock. Any purchases under this buyback would
be dependent upon business and market conditions and other factors. The stock
purchases may be made from time to time and may be made through a variety of
methods including open market purchases and 10b5-1 plans.
Comments from Management
“We are clearly disappointed by our first quarter enrollment and revenue results
and the operating issues that hampered growth. However, demand for our services
remains strong and I am encouraged by the early indicators that our new programs
will make a positive difference in student academic outcomes,” said Nate Davis,
Executive Chairman of the Board. “The authorization of a stock buyback
underscores the Board’s continuing confidence in the company’s capacity for
further growth and creation of shareholder value,” added Davis.
*
*
*
Enrollment Data
The following table sets forth average enrollment data for students in Managed
Public Schools and total enrollment data for students in the International and
Private Pay Schools for the periods indicated. These figures exclude enrollments
from classroom pilot programs and consumer programs.
* The Managed Public Schools average student enrollments include enrollments
for which we receive no public funding. Q1 average student enrollments are equal
to the official count date number, which is the first Wednesday of October in a
year.
22.
On November 7, 2013, after the market closed, K12 filed its Quarterly Report
with the SEC on Form 10-Q for the fiscal quarter ended September 30, 2013. The Company’s
Form 10-Q was signed by Defendant Rhyu, and reaffirmed the Company’s financial results
previously announced in the press release issued the same day.
23.
On February 4, 2014, K12 issued a press release entitled, “K12 Inc. Reports
Second Quarter Fiscal 2014 With Revenue of $223.9 Million.” Therein, the Company, in
relevant part, stated:
HERNDON, Va., Feb. 4, 2014 (GLOBE NEWSWIRE) -- K12 Inc. (NYSE:LRN),
a technology-based education company and leading provider of proprietary
curriculum and online school programs for students in pre-K through high school,
today announced its results for the second fiscal quarter ended December 31,
2013. Financial measures are provided on a GAAP basis, followed by a summary
of results excluding the impact of specific charges which had a significant impact
on second quarter results.
Financial Highlights for the Three Months Ended December 31, 2013
(Second Quarter Fiscal Year 2014)
Revenues for the second quarter of FY 2014 increased 8.7% from the prior
year to $223.9 million.
EBITDA, a non-GAAP measure (see reconciliation below), for the second
quarter of FY 2014 was $25.6 million, compared to $32.5 million from the
second quarter of FY 2013.
Operating loss of $8.9 million compared to operating income of $16.3
million in the second quarter of FY 2013.
Net loss attributable to common stockholders of $3.7 million, compared to
net income of $9.5 million from second quarter of FY 2013.
Diluted net loss attributable to common stockholders per share was $0.09.
During the quarter ended December 31, 2013, the Company incurred the
following charges, totaling $32.2 million including $4.4 million in cash charges.
Additional reserve for excess inventory and accelerated depreciation on
software, products and computer hardware of $18.6 million.
Accelerated amortization of trade names in our Institutional business of
$5.2 million.
Severance costs associated with the departure of Ron Packard, K12’s
former CEO, and a modest workforce reduction enacted primarily at K12
headquarters, collectively $7.4 million.
The Company announced its intent to form a new company which K12
will contribute assets and its partners will contribute cash. Other charges
and expenses of $1.0 million included costs related to the formation of this
new company.
Excluding the impact of the aforementioned charges, for the three months ended
December 31, 2013 (see additional tables below).
EBITDA would have increased to $40.2 million, a 23.7% increase
compared to the $32.5 million from the second quarter of FY 2013.
Operating income would have increased to $23.3 million, a 42.9%
increase compared to operating income of $16.3 million in the second
quarter of FY 2013.
Net income attributable to common and Series A stockholders would have
increased to $14.3 million, a 50.5% increase compared to net income of
$9.5 million in the second quarter of FY 2013.
Diluted net income attributable to common stockholders per share would
have increased to $0.36 as compared to the $0.24 in the prior year.
Financial Highlights for the Six Months Ended December 31, 2013
Revenues for the six months ended December 31, 2013 increased 5.9% to
$452.3 million.
EBITDA, a non-GAAP measure (see reconciliation below), was $34.1
million, compared to $56.8 million from the first six months of FY 2013.
Operating loss of $17.4 million compared to operating income of $24.9
million for the first six months of FY 2013.
Net loss attributable to common and Series A stockholders of $8.7 million,
compared to net income of $13.9 million for the first six months of FY
2013.
Diluted net loss attributable to common stockholders per share was $0.22,
which includes the pro rata effect of the Series A Special shares
conversion to commons shares on September 3, 2013.
Excluding the impact of the aforementioned charges, for the six months ended
December 31, 2013
EBITDA would have been $48.6 million compared to $56.8 million for
the first six months of FY 2013.
Operating income would have been $14.9 million compared to operating
income of $24.9 million for the first six months of FY 2013.
Net income attributable to common and Series A stockholders would have
been $9.2 million compared to net income of $13.9 million for the first six
months of FY 2013.
Diluted net income attributable to common stockholders per share would
have been $0.24, which includes the pro rata effect of the Series A Special
shares conversion to common shares on September 3, 2013.
Comments from Management
“We continue to be focused on our primary mission to provide an individualized
and effective educational experience for our students,” said Nate Davis, Chairman
and Chief Executive Officer. “This quarter we continued to invest in new content,
programs, and infrastructure while improving internal operating efficiency. Our
Managed Schools are now in the middle of the school year using many of the new
educational programs we put in place this year which we believe will improve
educational outcomes for all engaged families,” added Davis.
24.
On February 4, 2014, after the market closed, K12 filed its Quarterly Report with
the SEC on Form 10-Q for the fiscal quarter ended December 31, 2013. The Company’s Form
10-Q was signed by Defendant Rhyu, and reaffirmed the Company’s financial results previously
announced in the press release issued the same day.
25.
On April 29, 2014, K12 issued a press release entitled, “K12 Inc. Reports Third
Quarter Fiscal 2014 With Revenue of $235.2 Million.” Therein, the Company, in relevant part,
HERNDON, Va., April 29, 2014 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the third fiscal quarter ended March
31, 2014.
Financial Highlights for the Three Months Ended March 31, 2014 (Third
Quarter Fiscal Year 2014)
Revenues for the third quarter of FY 2014 increased 7.9% from the prior
year to $235.2 million.
EBITDA, a non-GAAP measure (see reconciliation below), for the third
quarter of FY 2014 was $45.4 million, an increase of 27.5% compared to
$35.6 million from the third quarter of FY 2013.
Operating income of $27.4 million, an increase of 41.2% compared to
operating income of $19.4 million in the third quarter of FY 2013.
Net income attributable to common stockholders of $15.9 million, an
increase of 32.5% compared to net income of $12.0 million from third
quarter of FY 2013.
Diluted net income attributable to common stockholders per share was
$0.40, an increase of 29.0% compared to the year ago period.
Financial Highlights for the Nine Months Ended March 31, 2014
Revenues of $687.5 million, compared to revenues of $645.1 million for
the first nine months of FY 2013.
EBITDA, a non-GAAP measure (see reconciliation below), of $79.5
million, compared to EBITDA of $92.5 million for the first nine months of
FY 2013.
Operating income of $10.0 million, compared to operating income of
$44.3 million for the first nine months of FY 2013.
Net income attributable to common and Series A stockholders of $7.2
million, compared to net income of $25.8 million for the first nine months
of FY 2013.
Diluted net income attributable to common stockholders per share was
$0.19, which includes the pro rata effect of the Series A Special shares
conversion to commons shares on September 3, 2013.
Excluding the impact of the $32.2 million in charges relating to additional
reserves, accelerated amortization and severance costs recorded in the second
fiscal quarter, for the nine months ended March 31, 2014:
EBITDA would have been $94.0 million, compared to EBITDA of $92.5
million for the first nine months of FY 2013.
Operating income would have been $42.3 million, compared to operating
income of $44.3 million for the first nine months of FY 2013.
Net income attributable to common and Series A stockholders would have
been $26.8 million, compared to net income of $25.8 million for the first
nine months of FY 2013.
Diluted net income attributable to common stockholders per share would
have been $0.68, which includes the pro rata effect of the Series A Special
shares conversion to common shares on September 3, 2013.
Comments from Management
“Improving academic outcomes remains our number one priority,” said Nate
Davis, Chairman and Chief Executive Officer. “To support this goal, we will
continue to invest in new content, systems and tools for our students and teachers
while driving further enhancements across the schools we serve,” added Davis.
26.
On April 29, 2014, after the market closed, K12 filed its Quarterly Report with
the SEC on Form 10-Q for the fiscal quarter ended March 31, 2014. The Company’s Form 10-Q
was signed by Defendant Rhyu, and reaffirmed the Company’s financial results previously
announced in the press release issued the same day.
27.
On August 14, 2014, K12 issued a press release entitled, “K12 Inc. Reports Full
Year Fiscal 2014 With Revenue of $919.6 Million.” Therein, the Company, in relevant part,
HERNDON, Va., Aug. 14, 2014 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the fourth fiscal quarter and full fiscal
year ended June 30, 2014.
Financial Highlights for the Three Months Ended June 30, 2014 (Fourth
Quarter Fiscal Year 2014)
Revenues of $232.0 million, compared to $203.1 million in the fourth
quarter of FY 2013.
EBITDA, a non-GAAP measure (see reconciliation below), of $36.0
million, compared to $19.0 million in the fourth quarter of FY 2013.
Operating income of $12.8 million, compared to $1.4 million in the fourth
quarter of FY 2013.
Net income attributable to common stockholders of $12.4 million,
compared to $2.3 million in the fourth quarter of FY 2013.
Diluted net income attributable to common stockholders per share of
$0.32, compared to $0.06 in the fourth quarter of FY 2013.
Financial Highlights for the Year Ended June 30, 2014
Revenues of $919.6 million, compared to $848.2 million for the full fiscal
year of 2013.
EBITDA, a non-GAAP measure (see reconciliation below), of $115.5
million, compared to $111.4 million for the full fiscal year of 2013.
Operating income of $22.9 million, compared to $45.7 million for the full
fiscal year of 2013.
Net income attributable to common and Series A stockholders of $19.6
million, compared to $28.1 million for the full fiscal year of 2013.
Diluted net income attributable to common stockholders per share was
$0.50, which includes the pro- rata effect of the Series A Special shares
conversion to commons shares on September 3, 2013, compared to $0.72
for the full fiscal year of 2013.
Excluding the impact of the $32.2 million in charges relating to additional
reserves, accelerated amortization and severance costs and the $6.4 million
realized gain on sale of assets, for the year ended June 30, 2014:
EBITDA would have been $123.6 million, compared to $111.4 million for
the full fiscal year of 2013.
Operating income would have been $55.1 million, compared to $45.7
million for the full fiscal year of 2013.
Net income attributable to common and Series A stockholders would have
been $35.6 million, compared to net income of $28.1 million for the full
fiscal year of 2013.
Diluted net income attributable to common stockholders per share would
have been $0.91, which includes the pro rata effect of the Series A Special
shares conversion to common shares on September 3, 2013, compared to
$0.72 for the full fiscal year of 2013.
Comments from Management
“While I am pleased with our solid financial performance this year, I am even
more proud of our teachers, our school administrators and our employees who
have worked tirelessly to improve academic outcomes,” said Nate Davis,
Chairman and Chief Executive Officer. “The academic performance of the
students we serve has improved, but our work is far from finished. We will
continue to invest and innovate to drive further improvements for all the students
that we serve,” added Davis.
*
*
*
Enrollment Data
The following table sets forth average enrollment data for students in Managed
Public Schools and total enrollment data for students in the International and
Private Pay Schools for the periods indicated. These figures exclude enrollments
from classroom pilot programs and consumer programs.
28.
On August 15, 2014, after the market closed, K12 filed its Annual Report with the
SEC on Form 10-K for the fiscal year ended June 30, 2014. The Company’s Form 10-K was
signed by Defendant Davis, and reaffirmed the Company’s financial results previously
announced in the press release issued August 14, 2014.
29.
On October 30, 2014, K12 issued a press release entitled, “K12 Inc. Reports First
Quarter Fiscal 2015 with Revenue of $236.7 Million.” Therein, the Company, in relevant part,
HERNDON, Va., Oct. 30, 2014 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the first fiscal quarter ended
September 30, 2014.
Financial Highlights for the Three Months Ended September 30, 2014 (First
Quarter Fiscal Year 2015)
Revenues of $236.7 million, compared to $228.4 million in the first
quarter of FY 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $3.7
million, compared to $8.5 million in the first quarter of FY 2014.
Operating loss of $13.2 million, compared to an operating loss of $8.5
million in the first quarter of FY 2014.
Net loss attributable to common stockholders of $6.8 million, compared to
a net loss of $5.0 million in the first quarter of FY 2014.
Diluted net loss attributable to common stockholders per share of $0.18,
compared to a diluted net loss of $0.13 in the first quarter of FY 2014.
During fiscal year 2014, the Company sold certain businesses which, in
aggregate, were responsible for $16.9 million in revenue for the full year and
were close to breakeven for the year. Excluding the impact of these businesses,
revenue for the first quarter of FY 2014 would have been $224.9 million.
Comments from Management
“K12 continues to drive the advancement of education by developing state-of-the
art, adaptive learning programs for students,” said Chairman and CEO Nate
Davis. “We will continue to invest in emerging digital technologies that enhance
the potential of each student and empowers them to achieve the highest quality of
education possible.”
30.
On October 30, 2014, after the market closed, K12 filed its Quarterly Report with
the SEC on Form 10-Q for the fiscal quarter ended September 30, 2014. The Company’s Form
10-Q was signed by Defendant Rhyu, and reaffirmed the Company’s financial results previously
announced in the press release issued the same day.
31.
On January 29, 2015, K12 issued a press release entitled, “K12 Inc. Reports
Second Quarter Fiscal 2015 With Revenue of $231.3 Million.” Therein, the Company, in
relevant part, stated:
HERNDON, Va., Jan. 29, 2015 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the second fiscal quarter ended
December 31, 2014.
Financial Highlights for the Three Months Ended December 31, 2014
(Second Quarter Fiscal Year 2015)
Revenues of $231.3 million, compared to $223.9 million in the second
quarter of FY 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $38.1
million, compared to $25.6 million in the second quarter of FY 2014.
Operating income of $20.5 million, compared to an operating loss of $8.9
million in the second quarter of FY 2014.
Net income attributable to common stockholders of $12.3 million,
compared to a net loss of $3.7 million in the second quarter of FY 2014.
Diluted net income attributable to common stockholders per share of
$0.33, compared to a diluted net loss of $0.09 in the second quarter of FY
2014.
During fiscal year 2014, the Company sold certain businesses and incurred
charges relating to additional reserves, accelerated amortization and severance
costs. Excluding the impact of these businesses and charges, for the three months
ended December 31, 2014 (see Appendix C below).
EBITDA, a non-GAAP measure (see reconciliation below), of $38.1
million, compared to $39.7 million in the second quarter of FY 2014.
Operating income of $20.5 million, compared to $23.1 million in the
second quarter of FY 2014.
Net income attributable to common stockholders of $12.3 million,
compared to $14.2 million in the second quarter of FY 2014.
Diluted net income attributable to common stockholders per share of
$0.33, compared to $0.35 in the second quarter of FY 2014.
Financial Highlights for the Six Months Ended December 31, 2014
Revenues of $468.0 million, compared to $452.3 million for the first six
months of FY 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $41.8
million, compared to $34.1 million for the first six months of FY 2014.
Operating income of $7.3 million compared to an operating loss of $17.4
million for the first six months of FY 2014.
Net income attributable to common and Series A stockholders of $5.6
million, compared to a net loss of $8.7 million for the first six months of
FY 2014.
Diluted net income attributable to common stockholders per share of
$0.15, which includes the pro rata effect of the Series A Special shares
conversion to commons shares on September 3, 2013, compared to a
diluted net loss of $0.22 for the first six months of FY 2014.
Excluding the impact of the aforementioned charges and sold businesses, for the
six months ended December 31, 2014 (See Appendix C below).
EBITDA, a non-GAAP measure (see reconciliation below), of $41.8
million, compared to $48.7 million for the first six months of FY 2014.
Operating income of $7.3 million compared to $15.2 million for the first
six months of FY 2014.
Net income attributable to common and Series A stockholders of $5.6
million, compared to $9.4 million for the first six months of FY 2014.
Diluted net income attributable to common stockholders per share of
$0.15, which includes the pro rata effect of the Series A Special shares
conversion to commons shares on September 3, 2013, compared to $0.24
for the first six months of FY 2014.
Comments from Management
“The academic progress of our students and successes of our managed public
schools continue to drive K12 forward,” said Chairman and CEO Nate Davis.
“After years of focused investment coupled with an unrivaled commitment to
putting students first, we are beginning to see improvement in student proficiency
on State academic assessments. The K12 team remains passionate about
supporting students, teachers and our partner schools to continue this trend toward
academic excellence.”
32.
On January 29, 2015, after the market closed, K12 filed its Quarterly Report with
the SEC on Form 10-Q for the fiscal quarter ended December 31, 2014. The Company’s Form
10-Q was signed by Defendant Rhyu, and reaffirmed the Company’s financial results previously
announced in the press release issued the same day.
33.
On April 28, 2015, K12 issued a press release entitled, “K12 Inc. Reports Third
Quarter Fiscal 2015 With Revenue of $244.6 Million.” Therein, the Company, in relevant part,
HERNDON, Va., April 28, 2015 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the third fiscal quarter ended March
31, 2015.
Financial Highlights for the Three Months Ended March 31, 2015 (Third
Quarter Fiscal Year 2015)
Revenues of $244.6 million, compared to $235.2 million in the third
quarter of FY 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $45.2
million, compared to $45.4 million in the third quarter of FY 2014.
Operating income of $27.4 million, compared to $27.4 million in the third
quarter of FY 2014.
Net income attributable to common stockholders of $17.0 million,
compared to $15.9 million in the third quarter of FY 2014.
Diluted net income attributable to common stockholders per share of
$0.45, compared to $0.40 in the third quarter of FY 2014.
Financial Highlights for the Nine Months Ended March 31, 2015
Revenues of $712.6 million, compared to $687.5 million for the first nine
months of FY 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $87.0
million, compared to $79.5 million for the first nine months of FY 2014.
Operating income of $34.7 million compared to $10.0 million for the first
nine months of FY 2014.
Net income attributable to common stockholders of $22.6 million,
compared to $7.2 million for the first nine months of FY 2014.
Diluted net income attributable to common stockholders per share of
$0.60, compared to $0.19 for the first nine months of FY 2014, including
the pro rata effect of the Series A Special shares conversion to common
shares on September 3, 2013.
During fiscal year 2014, the Company sold certain businesses and incurred
charges relating to additional reserves, accelerated amortization and severance
costs. Excluding the impact of these businesses and charges, for the nine months
ended March 31, 2015 (see Appendix C below).
EBITDA, a non-GAAP measure, of $87.0 million (see reconciliation
below), compared to $94.0 million for the first nine months of FY 2014.
Operating income of $34.7 million compared to $42.1 million for the first
nine months of FY 2014.
Net income attributable to common and Series A stockholders of $22.6
million, compared to $26.7 million for the first nine months of FY 2014.
Diluted net income attributable to common stockholders per share of
$0.60, compared to $0.68 for the first nine months of FY 2014, including
the pro rata effect of the Series A Special shares conversion to common
shares on September 3, 2013.
Comments from Management
“I am extremely proud of this year’s academic accomplishments which highlight
the commitment of our dedicated teachers and school teams to put students first. I
am also pleased that K12 has delivered solid financials including the second
consecutive quarter of double digit gains in our education technology sales to
school districts and strong growth in our private schools,” said Nate Davis,
Chairman and Chief Executive Officer. “We will continue to drive value and
scale in our business and over-deliver on our commitment to improve academic
results in our managed schools,” added Davis.
34.
On April 28, 2015, after the market closed, K12 filed its Quarterly Report with
the SEC on Form 10-Q for the fiscal quarter ended March 31, 2015. The Company’s Form 10-Q
was signed by Defendant Rhyu, and reaffirmed the Company’s financial results previously
announced in the press release issued the same day.
35.
On August 4, 2015, K12 issued a press release entitled, “K12 Inc. Reports Fiscal
2015 Revenue of $948.3 Million and Operating Income of $18.4 Million.” Therein, the
Company, in relevant part, stated:
HERNDON, Va., Aug. 4, 2015 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the fourth fiscal quarter and full fiscal
year ended June 30, 2015. Financial measures are provided on a GAAP basis,
followed by a summary of results excluding the impact of specific charges which
had a significant impact on fourth quarter and full year results.
Financial Highlights for the Three Months Ended June 30, 2015 (Fourth
Quarter Fiscal Year 2015)
Revenues of $235.7 million, compared to $232.0 million in the fourth
quarter of FY 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $15.2
million, compared to $36.0 million in the fourth quarter of FY 2014.
Operating loss of $16.3 million, compared to income of $12.8 million in
the fourth quarter of FY 2014.
Net loss attributable to common stockholders of $11.6 million, compared
to net income of $12.4 million in the fourth quarter of FY 2014.
Diluted net loss attributable to common stockholders per share of $0.31,
compared to net income of $0.32 in the fourth quarter of FY 2014.
During the quarter ended June 30, 2015, the Company incurred the following
charges, totaling $28.4 million of which $0.5 million are cash charges.
Reserves and write downs related to end of life products, software and
inventory of $14.3 million.
Incremental accounts receivable reserves of $10.7 million, primarily
related to closed schools, a funding deficit in one state and the interest on
a receivable.
Severance costs of $3.4 million.
Excluding the impact of the aforementioned charges, for the three months ended
June 30, 2015 (see Appendix C below).
EBITDA would have been $26.6 million, compared to the $36.0 million
from the fourth quarter of FY 2014.
Operating income would have been $8.9 million, compared to operating
income of $12.8 million in the fourth quarter of FY 2014.
Net income attributable to common and Series A stockholders would have
been $6.8 million, compared to net income of $12.4 million in the fourth
quarter of FY 2014.
Diluted net income attributable to common stockholders per share would
have been $0.18 as compared to the $0.32 in the fourth quarter of FY
2014.
Financial Highlights for the Year Ended June 30, 2015
Revenues of $948.3 million, compared to $919.6 million for the full fiscal
year of 2014.
EBITDA, a non-GAAP measure (see reconciliation below), of $102.2
million, compared to $115.5 million for the full fiscal year of 2014.
Operating income of $18.4 million, compared to $22.9 million for the full
fiscal year of 2014.
Net income attributable to common and Series A stockholders of $11.0
million, compared to $19.6 million for the full fiscal year of 2014.
Diluted net income attributable to common stockholders per share was
$0.29, compared to $0.50, which includes the pro-rata effect of the Series
A Special shares conversion to common shares on September 3, 2013, for
the full fiscal year of 2014.
During fiscal year 2014, the Company sold certain businesses and incurred
charges relating to additional reserves, accelerated amortization and severance
costs. Excluding the impact of these businesses and charges, and excluding the
impact of the aforementioned charges in the fourth quarter of fiscal year 2015, for
the year ended June 30, 2015 (see Appendix C, D and E below).
EBITDA would have been $113.6 million compared to $123.6 million for
the full fiscal year of 2014.
Operating income would have been $43.7 million compared to $54.5
million for the full fiscal year of 2014.
Net income attributable to common and Series A stockholders would have
been $29.4 million compared to $35.6 million for the full fiscal year of
2014.
Diluted net income attributable to common stockholders per share would
have been $0.78, compared to $0.88, which includes the pro-rata effect of
the Series A Special shares conversion to common shares on September 3,
2013, for the full fiscal year of 2014.
Comments from Management
“We delivered solid financial results for the year, including double-digit revenue
gains in our education technology sales to school districts and our private schools,
while continuing significant investments in student academic outcomes,” said
Nate Davis, Chairman and Chief Executive Officer. ”As we begin a new fiscal
year, we will continue using our strong financial position to improve our products
and services,” added Davis.
36.
On August 4, 2015, after the market closed, K12 filed its Annual Report with the
SEC on Form 10-K for the fiscal year ended June 30, 2015. The Company’s Form 10-K was
signed by Defendant Davis, and reaffirmed the Company’s financial results previously
announced in the press release issued the same day.
37.
The above statements contained in ¶¶21-36 were materially false and/or
misleading, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, these statements were false and/or misleading statements
and/or failed to disclose: (1) that K12 was publishing misleading advertisements about students’
academic progress, parent satisfaction, their graduates’ eligibility for University of California
and California State University admission, class sizes, the individualized and flexible nature of
K12’s instruction, hidden costs, and the quality of the materials provided to students; (2) that
K12 submitted inflated student attendance numbers to the California Department of Education in
order to collect additional funding; (3) that, as a result of the aforementioned practices, the
Company was open to potential civil and criminal liability; (4) that the Company would likely be
forced to end these practices, which would have a negative impact on K12’s operations and
prospects, and/or that K12 was, in fact, ending the practices; and (5) that, as a result of the
foregoing, Defendants’ statements about K12’s business, operations, and prospects, were false
and misleading and/or lacked a reasonable basis.
Disclosures at the End of the Class Period
38.
On October 27, 2015, CREDO published a study regarding online charter schools,
specifically mentioning K12. CREDO also published a press release in conjunction with the
study, summarizing the results of the study. CREDO, in the press release, stated: “Innovative
new research suggests that students of online charter schools had significantly weaker academic
performance in math and reading, compared with their counterparts in conventional schools.”
Multiple news organizations publicized the CREDO study.
39.
On the same day, October 27, 2015, the Company issued a press release entitled
“K12 Inc. Reports First Quarter Fiscal 2016 With Revenue of $221.2 Million.” Therein, the
Company, in relevant part, stated:
HERNDON, Va., Oct. 27, 2015 (GLOBE NEWSWIRE) -- K12 Inc.
(NYSE:LRN), a technology-based education company and leading provider of
proprietary curriculum and online school programs for students in pre-K through
high school, today announced its results for the first fiscal quarter ended
September 30, 2015.
Financial Highlights for the Three Months Ended September 30, 2015 (First
Quarter Fiscal Year 2016)
Revenues of $221.2 million, compared to $236.7 million in the first
quarter of FY 2015. The year over year decline is largely due to the Agora
Cyber School shifting from a Managed to Non-managed program.
EBITDA, a non-GAAP measure (see reconciliation below), of negative
$3.9 million, compared to $3.7 million in the first quarter of FY 2015.
Operating loss of $20.5 million, compared to an operating loss of $13.2
million in the first quarter of FY 2015.
Net loss attributable to common stockholders of $12.8 million, compared
to a net loss of $6.8 million in the first quarter of FY 2015.
Diluted net loss attributable to common stockholders per share of $0.34,
compared to a diluted net loss of $0.18 in the first quarter of FY 2015.
Comments from Management
“We have been using an online model to educate students for fifteen years, and
every year we increase the tools and capabilities families and teachers can use to
make their students successful,” said Nate Davis, Chairman and Chief Executive
Officer. ”We remain committed to continuous improvement, including increased
offerings, and improvements in technology and content that make us one of the
nation’s premier education technology providers. Bringing award winning
technology to education is our contribution to our nation’s commitment to its
students.”
Enrollment Data
The following table sets forth enrollment data for students in Managed Public
School Programs and our Non-managed Public School Programs for the periods
indicated. These figures exclude enrollments from classroom pilot programs and
consumer programs.
(1) If a school changes from a Managed to a Non-managed program, the
corresponding enrollment classification would change in the period in
which the contract arrangement changed.
(2) Managed Public School Programs include enrollments for which K12
receives no public funding or revenue.
(3) Enrollments are equal to the official count date number, which is the
first Wednesday of October in a year, or October 7, 2015 for Q1 FY16 and
October 1, 2014 for Q1 FY15.
40.
On this news, K12’s stock price fell $1.93 per share, or 15.8%, to close at $10.25
per share on October 27, 2015, on unusually heavy trading volume.
41.
After the market closed on October 27, 2015, K12 filed its Form 10-Q with the
SEC for the fiscal quarter ended September 30, 2015. Therein, the Company disclosed that it
received a subpoena from the Attorney General of the State of California, Bureau of Children’s
Justice in connection with an investigation styled “In the Matter of the Investigation of: For-
Profit Virtual Schools.”
42.
Though the market did not immediately react to the disclosure of the subpoena
buried in the Company’s Form 10-Q, K12’s stock price slid a cumulative $0.54 per share, or
5.2%, over three days from a close of $10.25 per share on October 27, 2015, to a close of $9.71
per share on October 30, 2015.
CLASS ACTION ALLEGATIONS
43.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and entities that
acquired K12’s securities between November 7, 2013, and October 27, 2015, inclusive, and who
were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and
directors of the Company, at all relevant times, members of their immediate families and their
legal representatives, heirs, successors, or assigns, and any entity in which Defendants have or
had a controlling interest.
44.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, K12’s common stock actively traded on the NYSE.
While the exact number of Class members is unknown to Plaintiff at this time and can only be
ascertained through appropriate discovery, Plaintiff believes that there are at least hundreds or
thousands of members in the proposed Class. Millions of K12 shares were traded publicly
during the Class Period on the NYSE. As of October 21, 2015, K12 had 38,939,704 shares of
common stock outstanding. Record owners and other members of the Class may be identified
from records maintained by K12 or its transfer agent and may be notified of the pendency of this
action by mail, using the form of notice similar to that customarily used in securities class
actions.
45.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
46.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
47.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b)
whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of K12; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
48.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
49.
The market for K12’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, K12’s securities traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired K12’s securities relying upon
the integrity of the market price of the Company’s securities and market information relating to
K12, and have been damaged thereby.
50.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of K12’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. The statements and omissions were materially
false and/or misleading because they failed to disclose material adverse information and/or
misrepresented the truth about K12’s business, operations, and prospects as alleged herein.
51.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about K12’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein when the truth was
revealed.
LOSS CAUSATION
52.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
53.
During the Class Period, Plaintiff and the Class purchased K12’s securities at
artificially inflated prices and were damaged thereby. The price of the Company’s securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’ losses.
SCIENTER ALLEGATIONS
54.
As alleged herein, Defendants acted with scienter since Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding K12, his/her control over, and/or receipt
and/or modification of K12’s allegedly materially misleading misstatements and/or their
associations with the Company which made them privy to confidential proprietary information
concerning K12, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
55.
The market for K12’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, K12’s securities traded at artificially inflated prices during the Class Period. On June
23, 2014, the Company’s stock price closed at a Class Period high of $25.98 per share. Plaintiff
and other members of the Class purchased or otherwise acquired the Company’s securities
relying upon the integrity of the market price of K12’s securities and market information relating
to K12, and have been damaged thereby.
56.
During the Class Period, the artificial inflation of K12’s stock was caused by the
material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about K12’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of K12 and its
business, operations, and prospects, thus causing the price of the Company’s securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
Company stock. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
57.
At all relevant times, the market for K12’s securities was an efficient market for
the following reasons, among others:
(a)
K12 stock met the requirements for listing, and was listed and actively
traded on the NYSE, a highly efficient and automated market;
(b)
As a regulated issuer, K12 filed periodic public reports with the SEC
and/or the NYSE;
(c)
K12 regularly communicated with public investors via established market
communication mechanisms, including through regular dissemination of press releases on the
national circuits of major newswire services and through other wide-ranging public disclosures,
such as communications with the financial press and other similar reporting services; and/or
(d)
K12 was followed by securities analysts employed by brokerage firms
who wrote reports about the Company, and these reports were distributed to the sales force and
certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
58.
As a result of the foregoing, the market for K12’s securities promptly digested
current information regarding K12 from all publicly available sources and reflected such
information in K12’s stock price. Under these circumstances, all purchasers of K12’s securities
during the Class Period suffered similar injury through their purchase of K12’s securities at
artificially inflated prices and a presumption of reliance applies.
59.
A Class-wide presumption of reliance is also appropriate in this action under the
Supreme Court’s holding in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128
(1972), because the Class’s claims are, in large part, grounded on Defendants’ material
misstatements and/or omissions. Because this action involves Defendants’ failure to disclose
material adverse information regarding the Company’s business operations and financial
prospects—information that Defendants were obligated to disclose—positive proof of reliance is
not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the
sense that a reasonable investor might have considered them important in making investment
decisions. Given the importance of the Class Period material misstatements and omissions set
forth above, that requirement is satisfied here.
NO SAFE HARBOR
60.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of K12 who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of The Exchange Act and
Rule 10b-5 Promulgated Thereunder
Against All Defendants
61.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
62.
During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase K12’s securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,
took the actions set forth herein.
63.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to
maintain artificially high market prices for K12’s securities in violation of Section 10(b) of the
Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the
wrongful and illegal conduct charged herein or as controlling persons as alleged below.
64.
Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about K12’s financial
well-being and prospects, as specified herein.
65.
These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of K12’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about K12 and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
66.
Each of the Individual Defendants’ primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
67.
The defendants had actual knowledge of the misrepresentations and/or omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they failed
to ascertain and to disclose such facts, even though such facts were available to them. Such
defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing K12’s financial well-being and prospects from the
investing public and supporting the artificially inflated price of its securities. As demonstrated
by Defendants’ overstatements and/or misstatements of the Company’s business, operations,
financial well-being, and prospects throughout the Class Period, Defendants, if they did not have
actual knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to
obtain such knowledge by deliberately refraining from taking those steps necessary to discover
whether those statements were false or misleading.
68.
As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of K12’s
securities was artificially inflated during the Class Period. In ignorance of the fact that market
prices of the Company’s securities were artificially inflated, and relying directly or indirectly on
the false and misleading statements made by Defendants, or upon the integrity of the market in
which the securities trades, and/or in the absence of material adverse information that was known
to or recklessly disregarded by Defendants, but not disclosed in public statements by Defendants
during the Class Period, Plaintiff and the other members of the Class acquired K12’s securities
during the Class Period at artificially high prices and were damaged thereby.
69.
At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that K12 was experiencing, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired their K12 securities, or, if
they had acquired such securities during the Class Period, they would not have done so at the
artificially inflated prices which they paid.
70.
By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
71.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of The Exchange Act
Against the Individual Defendants
72.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
73.
The Individual Defendants acted as controlling persons of K12 within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiff contends are false and misleading. The Individual Defendants were
provided with or had unlimited access to copies of the Company’s reports, press releases, public
filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
74.
In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
75.
As set forth above, K12 and the Individual Defendants each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and other members of the Class suffered damages in connection with their purchases of
the Company’s securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: July 20, 2016
GLANCY PRONGAY & MURRAY LLP
By: s/ Robert V. Prongay
Lionel Z. Glancy
Robert V. Prongay
Lesley F. Portnoy
Charles H. Linehan
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: info@glancylaw.com
Attorneys for Plaintiff Babulal Tarapara
In re ITT Educational Services, Inc. Securities Litigation (Indiana) Case No. 1:14-cv-01599-TWP-DML
7/13/2016
Babulal Tarapara's Transactions in K12, Inc (LRN)
Date
Transaction Type
Quantity
Unit Price
01/02/2014
Bought
2,000
$20.9200
01/02/2014
Bought
2,000
$21.0400
01/02/2014
Bought
2,000
$21.1500
10/06/2014
Sold
-1,000
$16.3000
10/16/2014
Sold
-3,100
$14.6000
10/30/2014
Bought
1,500
$13.9000
11/10/2014
Sold
-3,000
$12.4500
12/09/2014
Sold
-1,200
$11.8000
12/24/2014
Bought
1,200
$12.3000
01/06/2015
Sold
-2,300
$10.6500
03/16/2015
Sold
-4,989
$16.6600
07/07/2015
Sold
-1,100
$12.6500
10/01/2015
Sold
-1,500
$12.3600
10/01/2015
Sold
-100
$12.4400
| securities |
C7ELC4cBD5gMZwczXI2s | IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT, OHIO
EASTERN DIVISION
ADVANCED DERMATOLOGY
On behalf of itself and all those similarly
situated
8940 Darrow Road
Twinsburg, Ohio 44087
Plaintiff,
-vs-
CASE NO.:
JUDGE
CLASS ACTION COMPLAINT AND
JURY DEMAND
MYDERMRECRUITER
7506 Bluff Road
Washington, MO 63090
and
MICHELLE SULLENTRUP
7506 Bluff Road
Washington, MO 63090
Defendants.
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INTRODUCTION
Plaintiff Advanced Dermatology (“Plaintiff”) brings this nationwide Class Action
Complaint against Defendants MyDermRecruiter and Michelle Sullentrup for violations of the
Telephone Consumer Protection Act, 47 U.S.C. §227 (“TCPA”) in sending unsolicited facsimiles
to people and businesses who have not given their consent. Plaintiff, for its Complaint, alleges as
follows upon personal knowledge as to itself, and as to all other matters, upon information and
belief, including investigation conducted by its attorneys.
1.
The TCPA prohibits any unsolicited facsimiles.
PARTIES
1
2.
Defendant MyDermRecruiter is a for-profit Missouri corporation, with its
headquarters in Washington, Missouri.
3.
Defendant MyDermRecruiter solicits small businesses, including dermatology
offices across the nation, to use its recruiting services to match employers with job seekers.
4.
Defendant MyDermRecruiter is paid upon placement of its candidates with
businesses.
5.
Defendant Michelle Sullentrup (hereinafter “Ms. Sullentrup”) is the sole owner and
shareholder of MyDermRecruiter.
6.
On information and belief, Ms. Sullentrup directly participated in and/or personally
authorized and/or directed the sending of unsolicited faxes by MyDermRecruiter, as described
7.
On information and belief, Ms. Sullentrup exercises complete control over
MyDermRecruiter so that Defendants have no separate mind; that control is exercised to commit
unlawful acts against Plaintiff; and that control resulted in injury, such that Ms. Sullentrup may be
held liable for the acts of MyDermRecruiter.
8.
Plaintiff is a resident of Ohio who received two unsolicited facsimiles from
Defendants on its office fax machine without consent on May 20, 2019 and June 19, 2019. See
Exhibits 1 and 2.
JURISDICTION
9.
This Court has jurisdiction 28 U.S.C. §1331 and 47 U.S.C. §227.
10.
Venue is proper in this District because Defendant directed its acts and conduct
herein to the Northern District of Ohio and Plaintiff’s injury occurred here.
FACTS
2
11.
On or about May 20, 2019, Plaintiff received a one-page facsimile, attached hereto
as Exhibit 1, on its fax machine from “myDermRecruiter.com.”
12.
On the facsimile, Defendants tout MyDermRecruiter as the “#1 Dermatology
Recruitment Firm in the Nation!,” and features a candidate with accompanying job qualifications.
13.
The facsimile also provides MyDermRecruiter’s complete contact information,
including phone, address, website address, and the name and direct line to one of
MyDermRecruiter’s recruitment specialists.
14.
On or about June 19, 2019, Plaintiff received a second one-page facsimile,
attached hereto as Exhibit 2, on its fax machine from Defendants.
15.
Again, the fax provided a listing for a job candidate with skills and job experience
listed, and a specific name and direct phone number for one of Defendants’ recruitment specialist.
16.
The second facsimile also provides MyDermRecruiter’s contact information,
including phone, address, and website address, and promotion as the “#1 Dermatology
Recruitment Firm in the Nation!.” Exhibit 2
17.
Plaintiff had no business relationship with Defendants, did not give Defendants its
number, and had not consented to be sent a facsimile.
18.
On information and belief, Defendants routinely send facsimiles to recipients where
no relationship exists and sends these facsimiles without prior consent to do so.
19.
On information and belief, Defendants continue to solicit businesses by sending
these facsimiles nationwide.
20.
Plaintiff was damaged by Defendants’ facsimiles by suffering a monetary loss,
including incurring the costs of the use of facsimile paper, ink and toner, loss of employee time to
review the facsimiles, invasion of privacy, nuisance, interruption of work, trespass to its chattel by
3
interfering with its office facsimile used to aid patients, stress, aggravation, and because a violation
of the TCPA itself is a concrete injury.
CLASS ALLEGATIONS
21.
Class Definition: Plaintiff brings this action pursuant to Rule 23 of the Federal
Rules of Civil Procedure on behalf of itself and a Class of similarly situated individuals or business,
defined as follows:
A. All persons in the United States who received a facsimile from or on
behalf of Defendants and who had no ongoing business relationship
with Defendants and had not given consent to receive facsimiles from
Defendants within the four years prior to the filing of the Complaint
until the class is certified.
22.
Numerosity: The exact number of class members is unknown and is not available
to Plaintiff at this time, but individual joinder in this case is impracticable. The Class likely consists
of thousands of individuals and businesses. Class members can be easily identified through
MyDermRecruiter’s or its agent’s records.
23.
Commonality and Predominance: There are many questions of law and fact
common to the claims of Plaintiff and other members of the Class, and those questions predominate
over any questions that may affect individual members of the Class. Common questions for the
Class include but are not limited to the following:
a)
Whether Defendants sent the faxes or had them sent on its behalf;
b)
Whether Defendants had consent;
c)
Whether Defendants have processes in place to prevent these facsimiles;
d)
Whether Defendants’ conduct was willful;
4
e)
Whether Defendants’ facsimiles were solicitations; and
f)
Whether Defendants’ conduct constitutes a violation of the TCPA.
24.
Typicality: Plaintiff’s claims are typical of the claims of other Class members and
it sustained the same damages as other members of the Class as a result of Defendants’ actions.
25.
Adequate Representation: Plaintiff will fairly and adequately represent and protect
the interests of the Class. Plaintiff has retained counsel competent and experienced in complex
litigation and class actions, including TCPA cases. Plaintiff has no interests antagonistic to the
Class, and Defendants have no defenses unique to Plaintiff. Plaintiff and its counsel are committed
to vigorously prosecuting this action on behalf of members of the Class and have the financial
resources to do so.
26.
Superiority: This case is appropriate for certification because class proceedings are
the best method available for the fair and efficient adjudication of this controversy in light of the
common issues across the class.
CAUSE OF ACTION
Violation of 47 U.S.C § 227
(On behalf of Plaintiff and the Class)
31.
Plaintiff incorporates the foregoing allegations as if fully set forth herein.
32.
The TCPA expressly prohibits unsolicited fax advertising, 47 U.S.C.§ 227(b)
(1) (C).
33.
Defendants violated this provision by sending an unsolicited faxes to Plaintiff.
34.
As a result of Defendants’ unlawful conduct, Plaintiff and the other members of
the Class suffered actual damages as set forth in paragraph 13 above and under Section
227(b)(3)(B), are each entitled to, inter alia, a minimum of $500 in statutory damages for each
violation.
5
35.
Should the Court determine that Defendants’ misconduct was willful and knowingly,
the Court may, pursuant to section 227(b)(3)(C), treble the amount of statutory damages recoverable
by Plaintiff and the other members of the Class to $1,500 per fax.
PAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of itself and the Class, respectfully requests that this
Court enter an order:
A. Certifying this case as a class action on behalf of the Class defined above, appointing
Plaintiff as representative of the Class, and appointing its counsel as Class Counsel;
B. Awarding injunctive and other equitable relief as necessary to protect the interests of
the Class, including, inter alia, an order prohibiting Defendants from engaging in the
wrongful and unlawful acts described herein;
C. An award of actual and statutory damages;
D. Awarding Plaintiff and the Class their reasonable litigation expenses and attorneys'
fees;
E. Awarding Plaintiff and the Class pre- and post-judgment interest, to the extent
allowable; and
F. Awarding such other and further relief as equity and justice may require.
6
Respectfully submitted,
/s/Ronald I. Frederick
Ronald I. Frederick (#0063609)
Michael L. Berler (#0085728)
Michael L. Fine (#0077131)
Frederick & Berler LLC
767 East 185th Street
Cleveland, Ohio 44119
(216) 502-1055 (phone)
(216) 566-9400(fax)
ronf@clevelandconsumerlaw.com
mikeb@clevelandconsumerlaw.com
michaelf@clevelandconsumerlaw.com
Attorneys for Plaintiff
JURY DEMAND
Plaintiff demands a trial by jury for all issues so triable.
/s/Ronald I. Frederick
Ronald I. Frederick (#0063609)
Frederick & Berler, LLC
Attorney for Plaintiff
7
| privacy |
UNtDEIcBD5gMZwczCZjE | UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
Case No. :
DEANNA HICKS, individually and on behalf
of all others similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
HOUSTON BAPTIST UNIVERSITY, a
Delaware corporation,
Defendant.
CLASS ACTION COMPLAINT AND DEMAND FOR JURY TRIAL
Plaintiff DeAnna Hicks (“Hicks” or “Plaintiff Hicks”) brings this Class Action Complaint
and Demand for Jury Trial (“Complaint”) against Defendant Houston Baptist University (“HBU”
or “Defendant”) to (1) stop its practice of placing calls using an “automatic telephone dialing
system” to the cellular telephones of consumers nationwide without their prior express written
consent; (2) enjoin Defendant from continuing to place autodialed telephone calls to consumers
who did not provide their prior express written consent to receive them - and even to those on the
National Do Not Call Registry- and (3) obtain redress for all persons injured by its conduct.
Plaintiff, for her Complaint, alleges as follows upon personal knowledge as to herself and her
own acts and experiences, and, as to all other matters, upon information and belief, including
investigation conducted by her attorneys.
NATURE OF THE ACTION
1.
Senator Hollings, one of the [Telephone Consumer Protection Act’s (“TCPA”)]
sponsors, described computerized calls as ”the scourge of modern civilization. They wake us up
in the morning; they interrupt our dinner at night; they force the sick and elderly out of bed; they
hound us until we want to rip the telephone cord out of the wall.” 137 Cong. Rec. 30, 821 (1991).
Senator Hollings presumably intended telephone subscribers another option: telling the
autodialers to simply stop calling.” Osario v. State Fram Bank, F.S.B., 746 F.3d 1242, 1256 (11th
Cir. 2014). Thus, the TCPA was enacted to empower the private citizen and to protect the
privacy (and perhaps the sanity) of consumers nationwide.
2.
But, unfortunately, computerized calls continue to increase and further invade the
privacy of millions of consumers. Last year, in 2016, 4 million complaints related to unwanted
calls were lodged with the Federal Communications Commission (the “FCC”).1 This number is
markedly higher than the previous year, which yielded 2.6 million complaints (which rose from
the year before that).2 Notably (and inauspiciously), many consumers who have been subjected
to illegal calling activity do not report each instance of illegal calling activity, and the actual
number of consumers affected by illegal calls is significantly higher.
3.
Here, Defendant HBU contacts consumers without their prior express written
consent in an effort to solicit their business with respect to signing up for college classes at HBU.
4.
Accordingly, this case addresses HBU’s repeated pattern of practice of calling
consumers on their cellular telephones using an autodialer who have no direct relationship with
HBU. Defendant conducted (and continues to conduct) a wide-scale solicitation campaign that
features the repeated making of unwanted autodialed phone calls to consumers’ cellular
1 National Do Not Call Registry Data Book FY 2016, October 1, 2015 - September 30, 2016, FEDERAL TRADE
COMMISSION (Dec. 2016), https://www.ftc.gov/system/files/documents/reports/national-do-not-call-registry-data-
book-fiscal-year-2016/dnc_data_book_fy_2016_post.pdf; Consumer Complaints Data - Unwanted Calls, FCC -
Open Data, FEDERAL COMMUNICATIONS COMMISSION, https://opendata.fcc.gov/Consumer-and-
Government-Affairs/Consumer-Complaints-Data-Unwated-Calls/vakf-fz8e.
2 National Do Not Call Registry Data Book FY 2015, FEDERAL TRADE COMMISSION (Nov. 2015),
https://www.ftc.gov/system/files/documents/reports/national-do-not-call-registry-data-book-fiscal-year-
2015/dncdatabookfy2015.pdf: Consumer Complaints Data - Unwanted Calls, FCC - Open Data, FEDERAL
COMMUNICATIONS COMMISSION, https://opendata.fcc.gov/Consumer-and-Government-Affairs/Consumer-
Complaints-Data-Unwanted-Calls/vakf-fz8e; Fact Sheet: Wheeler Proposal to Protect and Empower Consumers
Against Unwanted Robocalls, Texts to Wireless Phones, FEDERAL COMMUNICATIONS COMMISSION,
https://apps.fcc.gov/edocs_public/attachmatch/DOC-333676A1.pdf; National Do Not Call Registry Data Book FY
2014, FEDERAL TRADE COMMISSION (Nov. 2014),
https://www.ftc.gov/system/files/documents/reports/national-do-not-call-registry-data-book-fiscal-year-
2014/dncdatabookfy2014.pdf.
telephones without prior express written consent, all in violation of the Telephone Consumer
Protection Act, 47 U.S.C. § 227 (the “TCPA”).
5.
By making these autodialed calls, Defendant caused Plaintiff and the members of
the Classes actual harm and cognizable legal injury. This includes the aggravation and nuisance
and invasions of privacy that result from the receipt of such calls, in addition to the wear and tear
on their cellular telephones, consumption of battery life, lost cellular minutes, loss of value
realized for the monies consumers paid to their wireless carriers for the receipt of such calls, in
the form of the diminished use, enjoyment, value, and utility of their cellular telephone plans.
Furthermore, Defendant made the calls knowing they interfered with Plaintiff and the other Class
members’ use and enjoyment of, and the ability to access their cellphones, including the related
data, software, and hardware components.
6.
The TCPA was enacted to protect consumers from autodialed telephone calls like
those alleged and described herein. In response to Defendant’s unlawful conduct, Plaintiff files
this lawsuit seeking injunctive relief, requiring Defendant to cease all autodialed telephone
calling activities to cellular telephones without first obtaining prior express written consent, as
well as an award of statutory damages to the members of the Classes under the TCPA, costs, and
reasonable attorney’s fees.
PARTIES
7.
Plaintiff Hicks is a natural person and resides in Youngsville, North Carolina.
8.
Defendant HBU is a corporation with a principal place of business located at 7502
Fondren Road, Houston, Texas, 77074. Defendant conducts business throughout this District,
the State of North Carolina, and the United States.
JURISDICTION AND VENUE
9.
This Court has jurisdiction over the subject matter of this action under 28 U.S.C.
§ 1331, as the action arises under the TCPA, which is a federal statute. This Court has personal
jurisdiction over Defendant because Defendant conducts a significant amount of business in this
District, solicits consumers in this District, made and continues to make unwanted autodialed
solicitation calls in this District, and because the wrongful conduct giving rise to this case
occurred in, was directed to, and/or emanated from this District.
10.
Venue is proper in this District under 28 U.S.C. § 1391(b) because Defendant
conducts a significant amount of business within this District and markets to this District, and
because the wrongful conduct giving rise to this case occurred in, was directed to, and/or
emanated from this District. Furthermore, venue is proper because Plaintiff resides in this
District.
COMMON FACTUAL ALLEGATIONS
11.
Defendant is a private university and contacts consumers to solicit them to sign up
for college classes using an Automated Telephone Dialing System (“ATDS”).
12.
As explained by the Federal Communications Commission (“FCC”) in its 2012
order, the TCPA requires “prior express written consent for all autodialed or prerecorded
[solicitation] calls to wireless numbers and residential lines.” In the Matter of Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991, CG No. 02-278,
FCC 12-21, 27 FCC Rcd. 1830 ¶ 2 (Feb. 15, 2012).
13.
Yet in violation of this rule, Defendant fails to obtain any prior express written
consent to make these autodialed solicitation calls to cellular telephone numbers.
14.
In placing the calls that form the basis of this Complaint, Defendant utilized an
ATDS in violation of the TCPA. Specifically, the hardware and software used by Defendant has
the capacity to generate and store random numbers, and/or receive and store lists of telephone
numbers, and to dial such numbers, en masse, in an automated fashion without human
intervention. Defendant’s automated dialing equipment also is, or includes features substantially
similar to, a predictive dialer, meaning that it is capable of making numerous phone calls
simultaneously and automatically connecting answered calls to then available callers and
disconnecting the rest (all without human intervention).
15.
In fact, HBU advertises its autodialing technology on its very own website, as
shown below:
16.
The above image states that by signing up on HBU’s website, a consumer agrees
to be subject to “[HBU] contacting [the consumer] about educational opportunities via text,
email, phone, including [the consumer’s] mobile phone if provided, and those calls may be
placed using an autodialer.”3 4
3 http://onlinenursing.hbu.edu/privacy/.
4 Plaintiff never provided her number to HBU.
17.
When placing these calls to consumers, Defendant failed to obtain prior express
written consent as required by the TCPA from cellular telephone owners/users to make such
18.
At all times material to this Complaint, Defendant was and is fully aware that
unwanted autodialed telemarketing calls are being made to consumers’ cellular telephones
through its own efforts and their agents.
19.
Defendant knowingly made (and continues to make) autodialed solicitation calls
to cellular telephones without the prior express written consent of the call recipients. In so
doing, Defendant not only invaded the personal privacy of Plaintiff and members of the putative
Class, but also intentionally and repeatedly violated the TCPA.
FACTS SPECIFIC TO PLAINTIFF DEANNA HICKS
20.
On August 11, 2006, Plaintiff Hicks’ cellular telephone number was registered on
the National Do Not Call Registry.
21.
Plaintiff Hicks became a registered nurse after studying at Austin Community
College (hereinafter “ACC”).
22.
While studying at ACC, Hicks signed a document with ACC that stated that ACC
would not share nor sell her information with any other schools or organizations.
23.
On September 13, 2017 at 1:55 p.m., and more than 30 days after Hicks’
telephone number was registered on the National Do Not Call Registry, Hicks began receiving
unwanted autodialed solicitation calls from telephone number 888-688-1710 (the “1710
Number”). The agent calling from the 1710 Number left a voice message. During the voice
message, the live agent explained that she was calling “on behalf of Houston Baptist University”
and encouraged Hicks to contact HBU to learn more about what it can offer her by calling 844-
326-3019 or going online to visit http://onlinenursing.hbu.edu/. The webpage the operator
directed Plaintiffs Hicks to describe their program where a registered nurse such as Plaintiff
Hicks can enroll in HBU’s paid curriculum to earn a Master of Science in Nursing (MSN) or a
Bachelor of Science in Nursing which can “launch registered nurses ahead.”5 The webpage
advertises that these programs can be completed fully online. The programs cost anywhere from
$11,475 to $18,000 in tuition.
24.
The next day, on September 14, 2017 at 9:41 a.m., Hicks received another call
from the 1710 Number (the “September 14th Call”).
25.
Upon answering the September 14th Call, Hicks noticed a slight pause. This
artificially long pause is indicative of the caller using an autodialer to place the calls.
26.
During the September 14th Call, HBU again solicited Hicks to sign up for their
online programs and their HBU agent explained to Hicks that HBU had partnered with her
former school, although, curiously, HBU’s agent did not specifically state Hicks’ former school
by name (ACC) until Hicks herself mentioned her former school’s name.
27.
During the September 14th Call, Hicks demanded that HBU stop calling her.
28.
HBU owns/operates and/or utilizes the 1710 Number to place solicitation calls to
potential consumers.
29.
Hicks does not have a relationship with HBU, or any of its affiliated companies,
or has ever requested that HBU place calls to her. Simply put, HBU did not possess Hicks’ prior
express written consent to place a solicitation telephone call to her on her cellular telephone
using autodialer and Hicks has no business relationship with HBU. Hicks even contacted her
former nursing school ACC to ensure that it did not share or sell her information. ACC replied
that it had not shared her information.
5 http://onlinenursing.hbu.edu/
30.
By making unauthorized autodialed telephone calls as alleged herein, HBU has
caused consumers actual harm in the form of annoyance, nuisance, and invasion of privacy. In
addition, the calls disturbed Hicks’ use and enjoyment of her cellular telephone, in addition to
the wear and tear on the phone’s hardware (including the phone’s battery) and the consumption
of memory on Hicks’ cellular telephone. In the present case, a consumer could be subjected to
many unsolicited collection calls as HBU does not take care to ensure that the recipients of its
autodialed solicitation calls have given their prior express written consent to be called, even
those on the National Do Not Call Registry.
31.
In order to redress these injuries, Hicks, on behalf of herself and a class of
similarly situated individuals, brings suit under the Telephone Consumer Protection Act, 47
U.S.C. § 227, et seq., which prohibits unsolicited autodialed telephone calls to cellular
telephones.
32.
On behalf of the Classes, Plaintiff seeks an injunction requiring Defendant to
cease all unsolicited autodialed telephone calling activities and an award of statutory damages to
the class members, together with costs and reasonable attorney’s fees.
CLASS ALLEGATIONS
33.
Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23(b)(2)
and Rule 23(b)(3) on behalf of herself and all others similarly situated and seeks certification of
the following two Classes:
Autodialed No Consent Class: All persons in the United States from four
years prior to the filing of this action through the present who (1)
Defendant (or a third person acting on behalf of Defendant) called, (2) on
the person’s cellular telephone, (3) using an autodialer, and (4) for whom
Defendant claims it obtained prior express written consent in the same
manner as Defendant claims it supposedly obtained prior express written
consent to call the Plaintiff.
Do Not Call Registry Class: All persons in the United States who (1)
Defendant (or a third person acting on behalf of Defendant) called more
than one time on his/her cellular telephone; (2) within any 12-month period
(3) where the cellular telephone number had been listed on the National Do
Not Call Registry for at least thirty days; (4) for the purpose of selling
Defendant’s products and services; and (5) for whom Defendant claims it
obtained prior express consent in the same manner as Defendant claims it
obtained prior express consent to call the Plaintiff.
34.
The following individuals are excluded from the Class: (1) any Judge or
Magistrate presiding over this action and members of their families; (2) Defendant, its
subsidiaries, parents, successors, predecessors, and any entity in which Defendant or its parents
have a controlling interest and their current or former employees, officers and directors; (3)
Plaintiff’s attorneys; (4) persons who properly execute and file a timely request for exclusion
from the class; (5) the legal representatives, successors or assigns of any such excluded persons;
and (6) persons whose claims against Defendant have been fully and finally adjudicated and/or
released. Plaintiff anticipates the need to amend the class definition following appropriate
discovery.
35.
Numerosity: The exact size of the Classes are unknown and not available to
Plaintiff at this time, but it is clear that individual joinder is impracticable. On information and
belief, Defendant placed autodialed solicitation calls to thousands of consumers who fall into the
definition of the Class. Members of the Class can be easily identified through Defendant’s
36.
Commonality and Predominance: There are many questions of law and fact
common to the claims of Plaintiff and the Classes, and those questions predominate over any
questions that may affect individual members of the Classes. Common questions for the Classes
include, but are not necessarily limited to the following:
(a) whether Defendant’s conduct constitutes a violation of the TCPA;
(b) whether Defendant systematically made telephone calls to members of the
Classes without first obtaining prior express consent to make the calls;
(c) whether Defendant utilized an automatic telephone dialing system to make its
calls to members of the Classes;
(d) whether Defendant systematically made multiple telephone calls to consumers
whose telephone numbers were registered with the National Do Not Call
Registry;
(e) whether Defendant made autodialed telephone calls to members of the Classes
without first obtaining prior express written consent to make the calls;
(f) whether members of the Classes are entitled to treble damages based on the
willfulness of Defendant’s conduct; and
(g) whether Defendant obtained prior express written consent to contact any class
members.
37.
Adequate Representation: Plaintiff will fairly and adequately represent and
protect the interests of the Classes, and has retained counsel competent and experienced in class
actions. Plaintiff has no interests antagonistic to those of the Classes, and Defendant has no
defenses unique to Plaintiff. Plaintiff and her counsel are committed to vigorously prosecuting
this action on behalf of the members of the Classes, and have the financial resources to do so.
Neither Plaintiff nor her counsel has any interest adverse to the Classes.
38.
Appropriateness: This class action is also appropriate for certification because
Defendant has acted or refused to act on grounds generally applicable to the Classes and as a
whole, thereby requiring the Court’s imposition of uniform relief to ensure compatible standards
of conduct toward the members of the Classes and making final class-wide injunctive relief
appropriate. Defendant’s business practices apply to and affect the members of the Classes
uniformly, and Plaintiff’s challenge of those practices hinges on Defendant’s conduct with
respect to the Classes as wholes, not on facts or law applicable only to Plaintiff. Additionally, the
damages suffered by individual members of the Classes will likely be small relative to the
burden and expense of individual prosecution of the complex litigation necessitated by
Defendant’s actions. Thus, it would be virtually impossible for the members of the Classes to
obtain effective relief from Defendant’s misconduct on an individual basis. A class action
provides the benefits of single adjudication, economies of scale, and comprehensive supervision
by a single court. Economies of time, effort, and expense will be fostered and uniformity of
decisions will be ensured.
FIRST CAUSE OF ACTION
Telephone Consumer Protection Act
(Violations of 47 U.S.C. § 227 et seq.)
(On Behalf of Plaintiff and the Autodialed No Consent Class)
39.
Plaintiff incorporates the foregoing factual allegations as if fully set forth herein.
40.
Defendant made autodialed solicitation telephone calls to cellular telephone
numbers belonging to Plaintiff and other members of the Autodialed No Consent Class without
first obtaining prior express written consent to receive such calls.
41.
Defendant made the telephone calls using equipment that had the capacity to store
or produce telephone numbers using a random or sequential number generator, to receive and
store lists of phone numbers, and to dial such numbers, en masse, without human intervention.
42.
The telephone dialing equipment utilized by Defendant, also known as a
predictive dialer, dialed numbers from a list, or dialed numbers from a database of telephone
numbers, in an automatic and systematic manner. Defendant’s autodialer disseminated
information en masse to Plaintiff and other consumers.
43.
By making the unwanted solicitation telephone calls to Plaintiff and the
Autodialed No Consent Class members’ cellular telephones without their prior express consent,
and by utilizing an autodialer to make those calls, Defendant violated 47 U.S.C. §
227(b)(1)(A)(iii).
44.
As a result of Defendant’s unlawful conduct, Plaintiff and the members of the
Autodialed No Consent Class are each entitled a minimum of Five Hundred Dollars ($500.00) in
damages for each such violation of the TCPA.
45.
In the event that the Court determines that Defendant’s conduct was willful and
knowing, it may, under 47 U.S.C. § 227(b)(3)(C), treble the amount of statutory damages
recoverable by Plaintiff and the other members of the Autodialed No Consent Class.
SECOND CAUSE OF ACTION
Telephone Consumer Protection Act
(Violation of 47 U.S.C. § 227)
(On Behalf of Plaintiff and the Do Not Call Registry Class)
46.
Plaintiff incorporates by reference the foregoing allegations as if fully set forth
47.
47 U.S.C. § 227(c) provides that any “person who has received more than one
telephone call within any 12-month period by or on behalf of the same entity in violation of the
regulations prescribed under this subsection may” bring a private action based on a violation of
said regulations, which were promulgated to protect telephone subscribers’ privacy rights to
avoid receiving telephone solicitations to which they object.
48.
The TCPA’s implementing regulation, 47 C.F.R. § 64.1200(c), provides that “[n]o
person or entity shall initiate any telephone solicitation” to “[a] residential telephone subscriber
who has registered his or her telephone number on the national do-not-call registry of persons
who do not wish to receive telephone solicitations that is maintained by the federal government.”
49.
47 C.F.R. § 64.1200(e), provides that § 64.1200(c) and (d) “are applicable to any
person or entity making telephone solicitations or telemarketing calls to wireless telephone
numbers to the extent described in the FCC’s July 3, 2003 Report and Order, which in turn,
provides as follows:
The Commission’s rules provide that companies making telephone solicitations to
residential telephone subscribers must comply with time of day restrictions and
must institute procedures for maintaining do-not-call lists. For the reasons
described above, we conclude that these rules apply to calls made to wireless
telephone numbers. We believe that wireless subscribers should be afforded the
same protections as wireline subscribers.6
50.
47 C.F.R. § 64.1200(d) further provides that “[n]o person or entity shall initiate
any call for telemarketing purposes to a residential telephone subscriber unless such person or
entity has instituted procedures for maintaining a list of persons who request not to receive
telemarketing calls made by or on behalf of that person or entity. The procedures instituted must
meet the following minimum standards:
(1) Written policy. Persons or entitles making calls for telemarketing purposes must
have a written policy, available upon demand, for maintaining a do-not-call list.
(2) Training of personnel engaged in telemarketing. Personnel engaged in any
aspect of telemarketing must be informed and trained in the existence and use of
the do-not-call list.
(3) Recording, disclosure of do-not-call requests. If a person or entity making a call
for telemarketing purposes (or on whose behalf such a call is made) receives a
request from a residential telephone subscriber not to receive calls from that person
or entity, the person or entity must record the request and place the subscriber’s
name, if provided, and telephone number on the do-not-call list at the time the
request is made. Persons or entities making calls for telemarketing purposes (or on
whose behalf such calls are made) must honor a residential subscriber’s do-not-call
request within a reasonable time from the date such request is made. This period
may not exceed thirty days from the date of such request . . . .
(4) Identification of sellers and telemarketers. A person or entity making a call for
telemarketing purposes must provide the called party with the name of the
individual caller, the name of the person or entity on whose behalf the call is being
made, and a telephone number or address at which the person or entity may be
contacted. The telephone number provided may not be a 900 number or any other
number for which charges exceed local or long distance transmission charges.
(5) Affiliated persons or entities. In the absence of a specific request by the
subscriber to the contrary, a residential subscriber’s do-not-call request shall apply
to the particular business entity making the call (or on whose behalf a call is made),
6 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG
Docket No. 02-278, Report and Order, 18 FCC Rcd 14014 (2003) Available at
https://apps.fcc.gov/edocs_public/attachmatch/FCC-03-153A1.pdf
and will not apply to affiliated entities unless the consumer reasonably would
expect them to be included given the identification of the caller and the product
being advertised.
(6) Maintenance of do-not-call lists. A person or entity making calls for
telemarketing purposes must maintain a record of a consumer’s request not to
receive further telemarketing calls. A do-not-call request must be honored for 5
years from the time the request is made.
51.
Defendant violated 47 C.F.R. § 64.1200(c) by initiating, or causing to be initiated,
telephone solicitations to wireless telephone subscribers such as Plaintiff and the Do Not Call
Registry Class members who registered their respective telephone numbers on the National Do
Not Call Registry, a listing of persons who do not wish to receive telephone solicitations that is
maintained by the federal government. These consumers requested to not receive calls from
Defendant, as set forth in 47 C.F.R. § 64.1200(d)(3).
52.
Defendant also violated 47 C.F.R. § 64.1200(d) by failing to have a written policy
of dealing with do not call requests, by failing to inform or train its personnel engaged in
telemarketing regarding the existence and/or use of any do not call list, and by failing to
internally record and honor do not call requests.
53.
Defendant made more than one unsolicited telephone call to Plaintiff and other
members of the Do Not Call Registry Class within a 12-month period without their prior express
consent to receive such calls. Plaintiff and other members of the Do Not Call Registry Class
never provided any form of consent to receive telephone calls from Defendant, and/or Defendant
does not have a current record of consent to place telemarketing calls to them.
54.
Defendant violated 47 C.F.R. § 64.1200(d) by initiating calls for telemarketing
purposes to residential and wireless telephone subscribers, such as Plaintiff and the Do Not Call
Registry Class, without instituting procedures that comply with the regulatory minimum
standards for maintaining a list of persons who request not to receive telemarketing calls from
55.
Defendant violated 47 U.S.C. § 227(c)(5) because Plaintiff and the Do Not Call
Registry Class received more than one telephone call in a 12-month period made by or on behalf
of Defendant in violation of 47 C.F.R. § 64.1200, as described above. As a result of Defendant’s
conduct as alleged herein, Plaintiff and the Do Not Call Registry Class suffered actual damages
and, under section 47 U.S.C. § 227(c), are each entitled, inter alia, to receive up to $500 in
damages for such violations of 47 C.F.R. § 64.1200.
56.
To the extent Defendant’s misconduct is determined to be willful and knowing,
the Court should, pursuant to 47 U.S.C. § 227(c)(5), treble the amount of statutory damages
recoverable by the members of the Do Not Call Registry Class.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Classes, prays for the
following relief:
57.
An order certifying the Classes as defined above, appointing Plaintiff DeAnna
Hicks as the representative of the Classes, and appointing her counsel as Class Counsel;
58.
An award of actual monetary loss from such violations or the sum of five hundred
dollars ($500.00) for each violation, whichever is greater all to be paid into a common fund for
the benefit of the Plaintiff and the Class Members;
59.
An order declaring that Defendant’s actions, as set out above, violate the TCPA;
60.
A declaratory judgment that Defendant’s telephone calling equipment constitutes
an automatic telephone dialing system under the TCPA;
61.
An order requiring Defendant to disgorge any ill-gotten funds acquired as a result
of its unlawful telephone calling practices;
62.
An order requiring Defendant to identify any third-party involved in the
autodialing as set out above, as well as the terms of any contract or compensation arrangement it
has with such third parties;
63.
An injunction requiring Defendant to cease all unsolicited autodialed calling
activities, and otherwise protecting the interests of the Classes;
64.
An injunction prohibiting Defendant from using, or contracting the use of, an
automatic telephone dialing system without obtaining, and maintaining records of, call
recipient’s prior express written consent to receive calls made with such equipment;
65.
An injunction prohibiting Defendant from contracting with any third-party for
marketing purposes until it establishes and implements policies and procedures for ensuring the
third-party’s compliance with the TCPA;
66.
An injunction prohibiting Defendant from conducting any future autodialing
activities until it has established an internal Do Not Call List as required by the TCPA;
67.
An award of reasonable attorneys’ fees and costs to be paid out of the common
fund prayed for above; and
68.
Such other and further relief that the Court deems reasonable and just.
JURY DEMAND
Plaintiff requests a trial by jury of all claims that can be so tried.
Respectfully Submitted,
DEANNA HICKS, individually and on behalf of
classes of similarly situated individuals
Dated: December 20, 2017
By: ___/s/ Ted Lewis Johnson_________
One of Plaintiff’s Attorneys
Ted Lewis Johnson
PO Box 5272
Greensboro, NC 27435
tedlewisjohnson@tedlewisjohnson.com
Phone: (336) 252-8596
Stefan Coleman*
Law@StefanColeman.com
201 S. Biscayne Blvd, 28th Floor
Miami, Fl 33131
Phone: (877) 333-9427
Fax: (888) 498-8946
Attorneys for Plaintiff and the putative Classes
*Pro Hac Vice to be sought
| privacy |
2gn4FYcBD5gMZwczpIaf | THE ROSEN LAW FIRM, P.A.
Phillip Kim, Esq. (PK 9384)
Laurence M. Rosen, Esq. (LR 5733)
275 Madison Avenue, 34th Floor
New York, New York 10016
Telephone: (212) 6861060
Fax: (212) 2023827
Email: lrosen@rosenlegal.com
Email: pkim@rosenlegal.com
Counsel for Plaintiff
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
DAVID REILLY, INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY
SITUATED,
Plaintiff,
v.
Case No.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
ABEONA THERAPEUTICS INC. f/k/a/
PLASMATECH BIOPHARMACEUTICALS,
INC., STEVEN H. ROUHANDEH, and
STEPHEN B. THOMPSON
Defendants.
Plaintiff David Reilly (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against
Defendants (defined below), alleges the following based upon personal knowledge as to Plaintiff
and Plaintiff’s own acts, and upon information and belief as to all other matters based on the
investigation conducted by and through Plaintiff’s attorneys, which included, among other
things, a review of Securities and Exchange Commission (“SEC”) filings by Abeona
Therapeutics Inc. (“Abeona”), formerly known as PlasmaTech Biopharmaceuticals, Inc.
(“PlasmaTech” and together with Abeona, the “Company”), as well as media and analyst reports
about the Company. Plaintiff believes that substantial evidentiary support will exist for the
allegations set forth herein after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf of a class consisting of all
persons and entities, other than Defendants and their affiliates, who: (1) purchased or otherwise
acquired publicly traded PlasmaTech securities from March 31, 2015 to June 19, 2015, both
dates inclusive (the “PlasmaTech Class Period”); and/or (2) purchased or otherwise acquired
publicly traded Abeona securities from June 22, 2015 to December 9, 2016, both dates inclusive
(the “Abeona Class Period” and together with the PlasmaTech Class Period, the “Class Period”),
seeking to recover compensable damages caused by Defendants’ violations of federal securities
laws and pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”) and
Rule 10b5 promulgated thereunder.
JURISDICTION AND VENUE
2.
The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b5 promulgated thereunder (17
C.F.R. § 240.10b5).
3.
This Court has jurisdiction over the subject matter of this action pursuant to
Section 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.
4.
Venue is proper in this Judicial District pursuant to Section 27 of the Exchange
Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b) as Defendants conduct business in this District
and a significant portion of the Defendants' actions, and the subsequent damages, took place
within this District.
5.
In connection with the acts, conduct and other wrongs alleged herein, Defendants
either directly or indirectly used the means and instrumentalities of interstate commerce,
including but not limited to the United States mails, interstate telephone communications, and
the facilities of the national securities exchange.
PARTIES
6.
Plaintiff as set forth in the attached PSLRA Certification, acquired PlasmaTech
and/or Abeona securities at artificially inflated prices during the Class Period and was damaged
upon the revelation of the alleged corrective disclosures.
7.
Defendant Abeona focuses on developing and delivering gene therapy and
plasmabased products for severe and lifethreatening rare diseases. The Company is
incorporated in Delaware and maintains an office in New York at 1325 Avenue of the Americas,
27th Floor, New York, NY 10019. Abeona securities trade on the Nasdaq Stock Market
(“NASDAQ”) under the symbol “ABEO.” From October 24, 2014 to June 19, 2015, the
Company was named PlasmaTech Biopharmaceuticals, Inc. Plasma securities traded on the
NASDAQ from December 19, 2014 until June 19, 2015 under the symbol “PTBI.”
8.
Defendant Steven H. Rouhandeh (“Rouhandeh”) has been the Company’s
Executive Chairman and Principal Executive Officer throughout the Class Period..
9.
Defendant Stephen B. Thompson (“Thompson”) has been the Company’s Chief
Accounting Officer, Secretary and Treasurer throughout the Class Period.
10.
Collectively, Defendants Rouhandeh and Thompson are referred to herein as
“Individual Defendants.”
11.
Collectively, Defendant Abeona and Individual Defendants are herein referred to
as “Defendants”.
12.
Each of the Individual Defendants:
a.
directly participated in the management of the Company;
b.
was directly involved in the daytoday operations of the Company at the
highest levels;
c.
was privy to confidential proprietary information concerning the Company
and its business and operations;
d.
was directly or indirectly involved in drafting, producing, reviewing
and/or disseminating the false and misleading statements and information
alleged herein;
e.
was directly or indirectly involved in the oversight or implementation of
the Company’s internal controls;
f.
was aware of or recklessly disregarded the fact that the false and
misleading statements were being issued concerning the Company; and/or
g.
approved or ratified these statements in violation of the federal securities
laws.
13.
Abeona is liable for the acts of the Individual Defendants and its employees under
the doctrine of respondeat superior and common law principles of agency as all of the wrongful
acts complained of herein were carried out within the scope of their employment with
authorization.
14.
The scienter of the Individual Defendants and other employees and agents of the
Company is similarly imputed to Abeona under respondeat superior and agency principles.
SUBSTANTIVE ALLEGATIONS
Background
15.
Sanfilippo syndrome, also called MPS III, is metabolism disorder in which the
body cannot properly break down long chains of sugar molecules. There are 4 main types of
Sanfilippo syndrome, described as type A, B, C or D.
16.
Abeona’s lead programs are ABO101 (AAV NAGLU) and ABO102 (AAV
SGSH), adenoassociated virus (AAV)based gene therapies for Sanfilippo syndrome (MPS IIIB
and IIIA, respectively).
Defendants’ False and Misleading Class Period Statements
17.
On March 31, 2015, the Company filed an annual report on Form 10K with the
SEC announcing the Company’s financial and operating results for the fiscal year ended
December 31, 2014 (the “2014 10K”). The 2014 10K was signed by Defendants Rouhandeh
and Thompson. The 2014 10K contained signed certifications pursuant to the SarbanesOxley
Act of 2002 (“SOX”) by Defendants Rouhandeh and Thompson attesting to the accuracy of
financial reporting, the disclosure of any material changes to the Company’s internal control over
financial reporting and the disclosure of all fraud.
18.
The 2014 10K provide the following biographical information about Defendant
Rouhandeh:
Mr. Steven H. Rouhandeh became our Executive Chairman on January 1, 2015.
Mr. Rouhandeh has been a director and Chairman of the Board since March 4,
2008. He has been Chief Investment Officer of SCO Capital Partners, a group of
New York based life sciences funds since 1997. Mr. Rouhandeh possesses a
diverse background in financial services that includes experience in asset
management, corporate finance, investment banking and law. He has been active
throughout recent years as an executive in venture capital and as a founder of
several companies in the biotech field. His experience also includes positions as
Managing Director of a private equity group at Metzler Bank, a private European
investment firm and Vice President, Investment Banking at Deutsche Bank. Mr.
Rouhandeh was also a corporate attorney at New York Citybased Cravath,
Swaine & Moore. Mr. Rouhandeh holds a J.D., from Harvard Law School,
Harvard University and B.A. Political Science, from Southern Illinois University.
19.
On March 30, 2016, the Company filed an annual report on Form 10K with the
SEC announcing the Company’s financial and operating results for the fiscal year ended
December 31, 2015 (the “2015 10K”). The 2015 10K was signed by Defendants Rouhandeh
and Thompson. The 2015 10K contained signed SOX certifications by Defendants Rouhandeh
and Thompson attesting to the accuracy of financial reporting, the disclosure of any material
changes to the Company’s internal control over financial reporting and the disclosure of all
20.
The 2015 10K provide the following biographical information about Defendant
Rouhandeh:
Mr. Steven H. Rouhandeh, became our Executive Chairman, Principal Executive
Officer, on January 1, 2015. Mr. Rouhandeh has been a director and Chairman of
the Board since March 4, 2008. He has been Chief Investment Officer of SCO
Capital Partners, a group of New York based life sciences funds since 1997. Mr.
Rouhandeh possesses a diverse background in financial services that includes
experience in asset management, corporate finance, investment banking and law.
He has been active throughout recent years as an executive in venture capital and
as a founder of several companies in the biotech field. His experience also
includes positions as Managing Director of a private equity group at Metzler
Bank, a private European investment firm and Vice President, Investment
Banking at Deutsche Bank. Mr. Rouhandeh was also a corporate attorney at New
York Citybased Cravath, Swaine & Moore. Mr. Rouhandeh holds a J.D., from
Harvard Law School, Harvard University and B.A. Political Science, from
Southern Illinois University.
21.
The 2015 10K stated the following with regards to ABO101 and ABO102:
ABO101 for MPS III B and ABO102 for MPS III A (Sanfilippo syndrome)
Mucopolysaccharidosis (MPS) type III (Sanfilippo syndrome) is a group of four
inherited genetic diseases, described as type A, B, C or D, which cause enzyme
deficiencies that result in the abnormal accumulation of glycosaminoglycans
(sugars) in body tissues. MPS III is a lysosomal storage disease, a group of rare
inborn errors of metabolism resulting from deficiency in normal lysosomal
function. The incidence of MPS III (all four types combined) is estimated to be 1
in 70,000 births.
Mucopolysaccharides are long chains of sugar molecules used in the building of
connective tissues in the body. There is a continuous process in the body of
replacing used materials and breaking them down for disposal. Children with
MPS III are missing an enzyme called heparan sulfate which is essential in
breaking down the used mucopolysaccharides. The partially broken down
mucopolysaccharides remain stored in cells in the body causing progressive
damage. Babies may show little sign of the disease, but as more and more cells
become damaged, symptoms start to appear.
In MPS III, the predominant symptoms occur due to accumulation within the
central nervous system (CNS), including the brain and spinal cord, resulting in
cognitive decline, motor dysfunction, and eventual death. To date, there is no cure
for MPS III and treatments are largely supportive.
Abeona is developing next generation AAVbased gene therapies for MPS III
(Sanfilippo syndrome), which involves a onetime delivery of a normal copy of
the defective gene to cells of the central nervous system with the aim of reversing
the effects of the genetic errors that cause the disease.
After a single dose in Sanfilippo preclinical models, ABO101 and ABO102
induced cells in the CNS and peripheral organs to produce the missing enzymes
which helped repair the damage caused to the cells. Preclinical in vivo efficacy
studies in Sanfilippo syndrome have demonstrated functional benefits that remain
for months after treatment. A single dose of ABO101 or ABO102 significantly
restored normal cell and organ function, corrected cognitive defects that remained
months after drug administration, increased neuromuscular control and increased
the lifespan of animals with MPS III over 100% one year after treatment
compared to untreated control animals. These results are consistent with studies
from several laboratories suggesting AAV treatment could potentially benefit
patients with Sanfilippo Syndrome Type A and B. In addition, safety studies
conducted in animal models of Sanfilippo syndromes have demonstrated that
delivery of AB0101 or AB0102 are well tolerated with minimal side effects.
22.
The statements referenced in ¶¶ 1721 above were materially false and/or
misleading because they misinterpreted and failed to disclose the following adverse facts
pertaining to the Company’s business and operations which were known to Defendants or
recklessly disregarded by them. Specifically, Defendants made false and/or misleading
statements and/or failed to disclose that: (1) the science behind Abeona’s proposed gene therapy
treatment for Sanfilippo syndrome is unviable; (2) defendant Rouhandeh previously worked in a
high ranking position for a biotech promoter who was convicted of securities fraud and involved
in manipulating biotech stocks; and (3) as a result, Defendants’ statements about Abeona’s
business, operations and prospects were materially false and misleading and/or lacked a
reasonable basis at all relevant times.
The Truth Emerges
23.
On December 12, 2016, analyst firm Mako Research published a report on the
Company (the “Mako Research Report”) asserting, among other things, that the Company’s
science underpinning ABO101 and ABO102 is unviable, stating in part:
This report will cover the following key points about Abeona’s science:
Three serious flaws in Abeona’s gene therapy approach guarantee failure of
ABO101 and ABO102. Furthermore, ABEO does not appear to be pursuing a
rational regulatory pathway forward, calling into question the true motives of
insiders as they continue to collect their ridiculously excessive insider
compensation paid for with shareholder money. Similar to AVXS, ABEO has
pursued flakey trials at a single location the Nationwide Children's Hospital
(NCH) in Ohio. As I wrote about previously in my report on AVXS, NCH faces a
host of related party conflicts of interest, negative media coverage after the
Sarepta fiasco, and a tainted reputation that casts significant doubt over the
limited data studies conducted at NCH. Lastly, even if Abeona ever made its way
through all of the red flags above, the TAM of Sanfilippo syndrome is incredibly
small, and ABEO faces a host of larger competitors pursuing superior treatments
in this small and crowded market.
With ABEO, investors appear under the mistaken belief that adeno associated
virus (AAV) based gene therapy approaches are a cure all for monogenic diseases
like Sanfilippo syndrome. They don't dig into the scientific details and as such are
susceptible to believing the superficial analysis conducted by conflicted sell side
banks and stock promoters. This certainly seems to be the case with Abeona as a
deep dive into the medical literature reveals not one but three key flaws in
Abeona's approach, any of which would render their claims unviable.
First, a primer on gene therapy. In order for gene therapy to work, the gene in
question has to get to the target cell AND it has to express once it is there. The
first part, called delivery, is typically accomplished by a virus. The second is
accomplished through the use of a promoter. In other words, there are two key
steps that must both be successful for the gene therapy treatment to work. The
promoter (pun intended in the case of Abeona) directs expression of the gene of
interest once the virus has transduced the tissue. Promoters come in two types:
constitutive (always on) and tissue specific (only work in certain tissues). With
that as a background, let us explore why Abeona's approach fails these two
criteria, which in turn makes ABO101 and 102 destined to certain failure based
on our research. Furthermore, we then show that ABEO has no rational regulatory
pathway forward.
Abeona Flaw #1: AAV gene therapy has already been tried in MPS3a and
hasn’t worked
We rarely have a case where we can compare direct delivery with indirect
delivery for the same disease but it turns out Abeona is not the first to consider
gene therapy for MPS3a. Unlike Abeona who is relying on inferior intravenous
administration of the AAV vector, Lysogene attempted direct intraparenchymal
delivery of their AAV vector. That means they injected it directly into the
patient’s brain. By directly introducing the virus into the brain, any concern that
the virus would not reach brain tissue is eliminated. In other words, the delivery
problem has been eliminated. Simply stated, if the direct approach attempted by
Lysogene doesn't work then intravenous gene therapy (i.e., Abeona’s approach of
indirectly applying the treatment that may or may not successfully reach the
brain) clearly doesn't stand a chance, in our view. The results presented by
Lysogene were underwhelming as shown in this abstract which concluded, “Brain
atrophy evaluated by magnetic resonance imaging seemed to be stable in Patients
1 and 3 but tended to increase in Patients 2 and 4.” Hardly a ringing endorsement
and this is from a study where the barrier to delivery was nonexistent. How well
could Abeona’s approach, which has a much more difficult path to delivery, be
expected to work in light of these Lysogene results?
How will Abeona do better than this when they are administering the virus
into a peripheral vein and hoping or praying that it gets into the central
nervous system? We already know that superior delivery via directly into the
brain showed mediocre results at best.
Making matters worse for Abeona is that the study described above used a
promoter that is active in all tissue types. As we'll see below, Abeona's promoter
choice is even more problematic as well which brings us to flaw number 2.
Abeona Flaw #2 - The promoter chosen by Abeona doesn't work in glia
The nervous system consists of two broad cell classifications: neurons and glia.
Neurons are the cells that transmit electric signals to other cell types and glial
cells play a supportive role. MPS3a affects both cell types (see electron
micrograph in the source below).
Source: NCBI
The AAV vector being used by Abeona supposedly transduces both cell types but
getting into the cell is not enough: Once inside the virus must express the protein
of interest. If the virus gets into the correct cells but does not express, there is no
benefit to the patient.
Expression of the protein of interest is done by placing a good copy of the gene in
front of a "promoter" which will drive its expression.
Abeona chose a promoter called U1a as shown in their clinical trials.gov listing:
Unfortunately for Abeona, they chose a promoter called U1a that apparently IS
NOT ACTIVE in glia which means it can only treat some of the cells in the CNS.
How can one honestly expect good results from this? Moreover, what does this
say about the scientific acumen of Abeona's scientists? This is a rookie mistake.
Furthermore, Abeona has set the bar for the primary end point for their trial
comically low. Below is Abeona's primary endpoint from clinical trials.gov. How
difficult do you think this primary endpoint development of unacceptable
toxicity will be to achieve? I could develop unacceptable toxicity levels with a
rock. Even if Abeona achieves this primary outcome measure, it's essentially
meaningless.
Why would Abeona set the bar so low? And if Abeona wants to run a credible
trail, why go to Nationwide Children's Hospital (aka the place it seems to me that
you go if you want a positive, but worthless, trial) to determine whether the drug
works or not? I covered the dubious science and rampant conflicts of interest that
have occurred in other trials at NCH in my recent report on Avexis
(NASDAQ:AVXS): please see that report for further details, which I believe are
also relevant for Abeona.
*****
The bottom line is that, similar to Avexis, Abeona's proposed gene therapy
treatment is deeply flawed:
The delivery mechanism is inferior to existing studies from other companies
with superior delivery mechanisms which still showed mediocre clinical results,
rendering ABEO's science unviable.
The promoter Abeona has chosen doesn't even work in glia anyway, rendering
ABEO's science unviable.
Abeona is attempting to clear a bar that is so low that it's essentially
meaningless, meaning whatever their trial shows should be clinically worthless.
All occurring at what we believe is the most dubious clinical site in the country.
(Emphasis in original).
24.
The Mako Research Report also asserted that Defendant Rouhandeh was a
Managing Director for a biotech stock promoter convicted of securities fraud and involved in
manipulating biotech stocks, stating in part:
Introducing the Cast of Characters: David Blech and Steven Rouhandeh
David Blech: The Godfather of Biotech Stock Fraud
Many of today's investors are too young or too new to the investment business to
remember the spectacular flame out of D. Blech & Co in the early 1990s. The
firm, named after nowconvicted felon David Blech who was a key insider in
ABEO (in previous incarnations), specialized in making investments in low
quality biotech stocks. Blech, who is bipolar and reportedly has a gambling
addiction, pled guilty to securities fraud in 1998 but avoided prison time. As
recently as 2013, Blech was apparently headed to prison for a second securities
fraud conviction according to the NY Times. Known as an aggressive stock
promoter involved in many dubious companies, “Blech stocks” have long been a
favorite among short sellers and have frequently produced stellar returns for those
betting they will decline in price. Several of these legacy Blech stocks, including
Abeona, still exist in the market, though often only after failing and reemerging,
and/or saddling early investors with crushing dilution and losses.
Eventually and not that surprisingly, D. Blech & Co. imploded. Sources claim the
firm's collapse caused several biotech stocks to drop by 2040% or more in a
single day, in what later became known as “Blech Thursday.” A Reuters blog
identified that these companies lost more than $168 million in market
capitalization on this one trading day alone. To detail all of the schemes Blech
was involved with would require a novellength report but I believe Blech’s own
employees said it best when they claimed that Blech ran “a sleazy boiler room
operation.”
We’re not aware of anyone within biotech over the last few decades who has a
worse reputation than David Blech and we’ve looked. His involvement in the
predecessor companies that ultimately became Abeona is an undeniable red flag,
in our view.
Steven Rouhandeh: Blech's Protégé and Now Master of Biotech Wipeouts
Abeona's Executive Chairman and largest shareholder via his investment firm
SCO Capital and affiliates is Steven Rouhandeh. ABEO specifically suggests that
Rouhandeh’s “extensive domestic and international financial experience in the
health care industry” are his qualifications to serve on the board. So what exactly
are Rouhandeh's qualifications?
Early in his career, Rouhandeh worked in a position of authority (Managing
Director) at D. Blech & Co. and apparently didn't leave until nearly the very end,
according to the Wall Street Journal. Since that time, as we will see below,
Rouhandeh has blazed a trail of shareholder destruction in lousy biotech stocks
that would rival even Blech himself.
In my opinion, the key take away here is that Rouhandeh worked in a high
ranking position for a biotech stock promoter who was convicted of securities
fraud and involved in manipulating biotech stocks. This is not an impressive
qualification and would make any investor conducting real due diligence at least a
little uneasy. I suspect that most Abeona investors are completely unaware of this
fact because it has apparently been omitted from Rouhandeh's recent, publicly
available business background profiles. The key question now becomes, how and
why was this key piece of Rouhandeh's qualifications omitted from his biography
and past?
Source: Google Images and Institutional Investors Alpha
After reviewing numerous profiles, I found that Rouhandeh’s role as Managing
Director at D. Blech & Co. mysteriously disappears even though it seems he
previously included it before the firm was the subject of widespread media
coverage based on David Blech’s fraudulent behavior. This complete lack of
disclosure is especially unsettling since Rouhandeh still discloses that he served
as a Managing Director at Metzler Bank which he worked at before he began
working at D. Blech & Co. This is consistent across the public business profiles I
reviewed, it does not appear to be an administrative error. It's worth reiterating
that these actions are highly relevant to someone making a decision to invest in a
biotech company and I find it appalling that these proper disclosures have been
neglected.
(Emphasis in original).
25.
On this news, shares of the Company fell $0.70 per share or over 13% from its
previous closing price to close at $4.45 per share on December 12, 2016, damaging investors.
26.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s common shares, Plaintiff and other Class members
have suffered significant losses and damages.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
27.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who (1) purchased or
otherwise acquired PlasmaTech securities publicly traded on the NASDAQ from March 31, 2015
to June 19, 2015, both dates inclusive; and/or (2) purchased or otherwise acquired Abeona
securities publicly traded on the NASDAQ from June 22, 2015 to December 9. 2016, both dates
inclusive (the “Class”) and were damaged upon the revelation of the alleged corrective
disclosure. Excluded from the Class are Defendants herein, the officers and directors of the
Company, at all relevant times, members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which Defendants have or had a
controlling interest.
28.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, PlasmaTech and Abeona securities were actively
traded on the NASDAQ. While the exact number of Class members is unknown to Plaintiff at
this time and can be ascertained only through appropriate discovery, Plaintiff believes that there
are hundreds or thousands of members in the proposed Class. Record owners and other members
of the Class may be identified from records maintained by the Company or its transfer agent and
may be notified of the pendency of this action by mail, using the form of notice similar to that
customarily used in securities class actions.
29.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
30.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
31.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
a.
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
b.
whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business, operations and
management of the Company;
c.
whether the Individual Defendants caused the Company to issue false and
misleading financial statements during the Class Period;
d.
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
e.
whether the prices of PlasmaTech and/or Abeona securities during the
Class Period were artificially inflated because of the Defendants’ conduct complained of
herein; and
f.
whether the members of the Class have sustained damages and, if so, what
is the proper measure of damages.
32.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to redress
individually the wrongs done to them. There will be no difficulty in the management of this
action as a class action.
33.
Plaintiff will rely, in part, upon the presumption of reliance established by the
fraudonthemarket doctrine in that:
a.
Defendants made public misrepresentations or failed to disclose material
facts during the Class Period;
b.
the omissions and misrepresentations were material;
c.
PlasmaTech and/or Abeona securities are traded in an efficient market;
d.
PlasmaTech and/or Abeona’s shares were liquid and traded with moderate
to heavy volume during the Class Period;
e.
the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of PlasmaTech and/or Abeona’s securities; and
f.
Plaintiff and members of the Class purchased, acquired and/or sold
PlasmaTech and/or Abeona securities between the time the Defendants failed to disclose
or misrepresented material facts and the time the true facts were disclosed, without
knowledge of the omitted or misrepresented facts.
34.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
35.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State
of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material
information in their Class Period statements in violation of a duty to disclose such information,
as detailed above.
FIRST CAUSE OF ACTION
Violation of Section 10(b) of The Exchange Act Against and Rule 10b-5
Promulgated Thereunder Against All Defendants
36.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
37.
This cause of action is asserted against all Defendants.
38.
During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to, and throughout the Class Period, did: (1) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (2) cause Plaintiff and
other members of the Class to purchase and/or sell PlasmaTech and/or Abeona’s securities at
artificially inflated and distorted prices. In furtherance of this unlawful scheme, plan and course
of conduct, Defendants, individually and as a group, took the actions set forth herein.
39.
Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about the business,
operations and future prospects of the Company as specified herein.
40.
Defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse nonpublic information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of the Company’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and omitting to state material
facts necessary in order to make the statements made about the Company and its business
operations and financial condition in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business that operated as a fraud and deceit upon the purchasers of PlasmaTech and/or
Abeona securities during the Class Period.
41.
Each of the Defendants’ primary liability, and controlling person liability, arises
from the following: (a) Defendants were highlevel executives, directors, and/or agents at the
Company during the Class Period and members of the Company’s management team or had
control thereof; (b) by virtue of their responsibilities and activities as senior officers and/or
directors of the Company, were privy to and participated in the creation, development and
reporting of the Company’s plans, projections and/or reports; (c) Defendants enjoyed significant
personal contact and familiarity with the other members of the Company’s management team,
internal reports and other data and information about the Company’s operations, and (d)
Defendants were aware of the Company’s dissemination of information to the investing public
which they knew or recklessly disregarded was materially false and misleading.
42.
Defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such
Defendants’ material misrepresentations and/or omissions were done knowingly or recklessly
and for the purpose and effect of concealing the Company’s financial condition from the
investing public and supporting the artificially inflated price of its securities. As demonstrated by
Defendants’ false and misleading statements during the Class Period, Defendants, if they did not
have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing
to obtain such knowledge by failing to take steps necessary to discover whether those statements
were false or misleading.
43.
As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market price for PlasmaTech and/or
Abeona’s securities was artificially inflated during the Class Period.
44.
In ignorance of the fact that market prices of PlasmaTech and/or Abeona’s
publiclytraded securities were artificially inflated or distorted, and relying directly or indirectly
on the false and misleading statements made by Defendants, or upon the integrity of the market
in which PlasmaTech and/or Abeona’s securities trade, and/or on the absence of material adverse
information that was known to or recklessly disregarded by Defendants but not disclosed in
public statements by Defendants during the Class Period, Plaintiff and the other members of the
Class acquired PlasmaTech and/or Abeona’s securities during the Class Period at artificially high
prices and were damaged thereby.
45.
At the time of said misrepresentations and omissions, Plaintiff and other members
of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the
other members of the Class and the marketplace known the truth regarding the Company’s
financial results and condition, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired PlasmaTech and/or
Abeona securities, or, if they had acquired such securities during the Class Period, they would
not have done so at the artificially inflated prices or distorted prices at which they did.
46.
By virtue of the foregoing, the Defendants have violated Section 10(b) of the
Exchange Act, and Rule 10b5 promulgated thereunder.
47.
As a direct and proximate result of the Defendants’ wrongful conduct, Plaintiff
and the other members of the Class suffered damages in connection with their respective
purchases and sales of the Company’s securities during the Class Period.
48.
This action was filed within two years of discovery of the fraud and within five
years of Plaintiff’s purchases of securities giving rise to the cause of action.
SECOND CAUSE OF ACTION
Violation of Section 20(a) of The Exchange Act
Against the Individual Defendants
49.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
50.
This second cause of action is asserted against each of the Individual Defendants.
51.
The Individual Defendants acted as controlling persons of the Company within
the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their highlevel
positions, agency, and their ownership and contractual rights, participation in and/or awareness
of the Company’s operations and/or intimate knowledge of aspects of the Company’s
dissemination of information to the investing public, the Individual Defendants had the power to
influence and control, and did influence and control, directly or indirectly, the decisionmaking
of the Company, including the content and dissemination of the various statements that Plaintiff
contend are false and misleading. The Individual Defendants were provided with or had
unlimited access to copies of the Company’s reports, press releases, public filings and other
statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements
were issued, and had the ability to prevent the issuance of the statements or to cause the
statements to be corrected.
52.
In particular, each of these Defendants had direct and supervisory involvement in
the daytoday operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
53.
As set forth above, Abeona and the Individual Defendants each violated Section
10(b) and Rule 10b5 by their acts and omissions as alleged in this Complaint.
54.
By virtue of their positions as controlling persons, the Individual Defendants are
liable pursuant to Section 20(a) of the Exchange Act as they culpably participated in the fraud
alleged herein. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
other members of the Class suffered damages in connection with their purchases of the
Company’s common stock during the Class Period.
55.
This action was filed within two years of discovery of the fraud and within five
years of Plaintiff’ purchases of securities giving rise to the cause of action.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
a.
Determining that this action is a proper class action, designating Plaintiff as class
representative under Rule 23 of the Federal Rules of Civil Procedure and Plaintiff’s counsel as
Class Counsel;
b.
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
c.
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
d.
Awarding such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: December 16, 2016
Respectfully submitted,
THE ROSEN LAW FIRM, P.A.
By: /s/ Phillip Kim
Laurence M. Rosen, Esq. (LR 5733)
Phillip Kim, Esq. (PK 9384)
275 Madison Ave, 34th Floor
New York, NY 10016
Phone: (212) 6861060
Fax: (212) 2023827
Counsel for Plaintiff
| securities |
eOfEEYcBD5gMZwczO7fT | UNITED STATES DISTRICT COURT
ECEIVE
SOUTHERN DISTRICT OF NEW YORK
MAR 22 2011
)
U.S.D.C. S.D. N.Y.
)
Civil Action COMPLETED
)
Plaintiff,
)
)
CLASS ACTION COMPLAINT
V.
)
)
)
JURY TRIAL DEMANDED
)
Defendants.
)
)
)
Plaintiff Marlon Fund Sicav plc ("Plaintiff"), individually and on behalf of all other
NATURE OF THE ACTION
1.
This is a securities fraud class action, on behalf of all those who purchased or
2.
Throughout the Class Period, Defendants made false and/or misleading
3.
On March 15, 2011, the Company shocked the market with the disclosure "that it
4.
Upon this disclosure, Nasdaq halted trading of ShengdaTech shares at $3.55.
5.
As a result of defendants' wrongful acts and omissions, and the precipitous
JURISDICTION AND VENUE
6.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
7.
This Court has jurisdiction over the subject matter of this action pursuant to 28
8.
Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15
9.
In connection with the challenged conduct, defendants, directly or indirectly, used
PARTIES
10.
Plaintiff Marlon Fund Sicav plc, as set forth in the accompanying certification,
11.
Defendant ShengdaTech is a Nevada corporation with its principal executive
12.
Defendant Xiangzhi Chen ("X. Chen") was, at all relevant times, the
13.
Defendant Anhui Guo ("Guo") has been the Company's Acting Chief Financial
14.
Defendant Andrew Weiwen Chen ("A. Chen") was the Company's CFO from
15. The defendants referenced above in 19 12 through 14 are collectively referred toSUBSTANTIVE ALLEGATIONS
16.
On May 10, 2010, the Company filed a Form 10-Q for the first quarter ended
17.
On May 11, 2010, the Company issued a press release announcing its financial
18.
On August 9, 2010, the Company filed a Form 10-Q for the second quarter ended
19.
On August 10, 2010, ShengdaTech issued a press release announcing its financial
20.
On November 8, 2010, ShengdaTech issued a press release announcing its
21.
On November 8, 2010, the Company filed a Form 10-Q for the 3Q10 with the
22.
The statements referenced above in II 16-22 above were materially false and/or
23.
On March 15, 2011, the Company disclosed "that it had appointed a special
24.
As a result of the Company's disclosure, Nasdaq halted trading of ShengdaTec
25.
On March 18, 2011, the Company issued a press release revealing:
[O]n March 16, 2011, it received a letter from the Listing
Qualifications Department of The Nasdaq Stock Market
("Nasdaq") advising the Company that due to its inability to file its
Annual Report on Form 10-K for the fiscal year ended December
31, 2010 with the Securities and Exchange Commission in a timely
manner, the Company is not in compliance with Nasdaq Listing
Rule 5250(c)(1). The Company also received a request for
information and documents from the Listing Investigation
Department of Nasdaq.
Nasdaq has requested that the Company submit, prior to March 31,
2011, a plan to regain compliance. If Nasdaq accepts the
Company's plan, Nasdaq can grant up to 180 calendar days from
March 31, 2011, to regain compliance. The Company currently
intends to submit a plan to regain compliance with the Nasdaq
Listing Rules and a response to the information and document
request as soon as reasonably practicable.
CLASS ACTION ALLEGATIONS
26.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil27.
The members of the Class are SO numerous that joinder of all members is
28.
Plaintiff's claims are typical of the claims of the members of the Class as all
29.
Plaintiff will fairly and adequately protect the interests of the members of the
30.
Common questions of law and fact exist as to all members of the Class and
whether the federal securities laws were violated by defendants' acts as
alleged herein;
whether statements made by defendants to the investing public during the
Class Period misrepresented material facts about the business, operations,
financial condition, and prospects of ShengdaTech
whether the Individual Defendants caused ShengdaTech to issue false and
misleading financial statements during the Class Period;
whether defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
whether the prices of ShengdaTech securities during the Class Period were
artificially inflated because of the defendants' conduct complained of herein;
and
whether the members of the Class sustained damages when the truth began to
be disclosed and, if so, what is the proper measure of damages.
31.
A class action is superior to all other available methods for the fair and efficient
32.
Plaintiff will rely, in part, upon the presumption of reliance established by the
defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
the omissions and misrepresentations were material;
ShengdaTech securities are traded in efficient markets;
the Company's shares were liquid and traded with moderate to heavy volume
during the Class Period;
the Company traded on the Nasdaq, and was covered by multiple analysts;
the misrepresentations and omissions alleged would tend to induce
a
reasonable investor to misjudge the value of the Company's securities; and
Plaintiff and members of the Class purchased and/or sold Shengda Tech
securities between the time the defendants failed to disclose or misrepresented
material facts and the time the true facts were disclosed, without knowledge of
the omitted or misrepresented facts.
33.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
CLAIMS FOR RELIEF
COUNT I
(Against All Defendants For Violations of
Section 10(b) And Rule 10b-5 Promulgated Thereunder)
34.
Plaintiff re-alleges each and every allegation contained above as if fully set forth
35.
This Count is asserted against all defendants and is based upon Section 10(b) of
36.
During the Class Period, defendants engaged in a plan, scheme, conspiracy and
37.38.
By virtue of their positions at ShengdaTech, defendants had actual knowledge of
39.
Defendants were personally motivated to make false statements and omit material
40.
Information showing that defendants acted knowingly or with reckless disregard
41.
The Individual Defendants are liable both directly and indirectly for the wrongs
42.
During the Class Period, ShengdaTech securities were traded on an active and
43.
By reason of the conduct alleged herein, defendants knowingly or recklessly,
44.
As a direct and proximate result of defendants' wrongful conduct, Plaintiff and
COUNT II
(Violations of Section 20(a) of the
Exchange Act Against The Individual Defendants)
45.
Plaintiff repeats and realleges each and every allegation contained in the
46.
(a)
During the Class Period, the Individual Defendants participated in the
(b)
As officers and/or directors of a publicly owned company, the Individual
(c)
Because of their positions of control and authority as senior officers, the47.
Each of the Individual Defendants, therefore, acted as a controlling person of
48.
By reason of the above conduct, the Individual Defendants are liable pursuant to
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against defendants as follows:
A.
Determining that the instant action may be maintained as a class action under
B.
Awarding compensatory damages in favor of Plaintiff and the other class
C.
Awarding Plaintiff and the other members of the Class prejudgment and post-
D.
Awarding rescissionary damages; and
E.
Awarding such equitable, injunctive or other relief as this Court may deem just
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff hereby demands
Respectfully Submitted,
POMERANTZ HAUDEK
GROSSMAN & GROSS, LLP
By:
Marc I Gross L
Loven
Jeremy A. Lieberman
100 Park Avenue, 26th Floor
New York, New York 10017-5516
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
migross@pomlaw.com
jalieberman@pomlaw.com
POMERANTZ HAUDEK
GROSSMAN & GROSS LLP
Patrick V. Dahlstrom
10 South LaSalle Street, Suite 3505
Chicago, IL 60603
Phone: 312-377-1181
Fax: 312-377-1184
pdahlstrom@pomlaw.com
Counsel for Plaintiff
CERTIFICATION PURSUANT
TO FEDERAL SECURITIES LAWS
1. J, luc Sitbon
, on behalf of Marlon Fund Sicav Plc ("Marlon Fund") make
this declaration pursuant to Section 21D(a)(2) of the Securities Exchange Act of 1934 as amended by the Private
Securities Litigation Reform Act of 1995. I have authority to commence this action on behalf of Marlon Fund.
2. I have reviewed a Complaint against ShengdaTech Inc. ("ShengdaTech"), and authorize the
filing of a comparable complaint on behalf of Marlon Fund.
3. Marlon Fund did not purchase ShengdaTech securities at the direction of plaintiffs counsel or in
order to participate in any private action arising under the Securities Exchange Act of 1934.
4. Marlon Fund is willing to serve as a representative party on behalf of a Class of investors who
purchased Shengda Tech during the class period, including providing testimony at deposition and trial,
if
necessary. Marlon Fund understands that the Court has the authority to select the most adequate lead plaintiff'in
this action.
5. To the best of my current knowledge, the attached sheet lists all of Marlon Fund's transactions in
ShengdaTech securities during the Class Period as specified in the Complaint.
6. During the three-year period preceding the date on which this Certification is signed, Marlon Fund
has not sought to serve as a representative party on behalf of a class under the federal securities laws.
7. Marlon Fund agrees not to accept any payment for serving as a representative party on behalf of the
class as set forth in the Complaint, beyond its pro rata share of any recovery, except such reasonable costs and
expenses directly relating to the representation of the class as ordered or approved by the Court.
I declare under penalty of perjury under the laws of the United States of America that the foregoing is
true and correct.
Executed 22/03/11
London UK
, at
(Date)
(City, State)
1
(Signature)
LUC SITBON
(Type or Print Name)
DIRECTOR
(Title)
SUMMARY OF PURCHASES AND SALES
DATE
PURCHASE OR SALE NUMBER OF SHARES PRICE PER SHARE
09-Aug-10
BUY
10,000
4.6675
16-Aug-10
BUY
5,000
4,5909
01-Sep-10
BUY
5,000
4.4884
04-Oct-10
BUY10,000
5.24
07-Oct-10
Buy
10,000
5.5
24-Nov-10
SELL
-
3,931
6.0899
26-Nov-10
SELL
-
6,069
6.0101
13-Dec-10
SELL
-
4,800
5.0199
25-Jan-11
BUY
5,000
4.1782
08-Mar-11
SELL
-
10,000
4.0102
14-Mar-11
BUY
10,000
3.5418 | securities |
uEbsAokBRpLueGJZhVre | David S. Casey, Jr., SBN 060768
dcasey@cglaw.com
Gayle M. Blatt, SBN 122048
gmb@cglaw.com
Jeremy Robinson, SBN 188325
jrobinson@cglaw.com
P. Camille Guerra, SBN 326546
camille@cglaw.com
James M. Davis, SBN 301636
jdavis@cglaw.com
CASEY GERRY SCHENK
FRANCAVILLA BLATT &
PENFIELD, LLP
110 Laurel Street
San Diego, CA 92101
Telephone: (619) 238-1811
Facsimile: (619) 544-9232
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
2:20-cv-9553
NOREEN PFEIFFER, JOSE
CONTRERAS and SUSAN WRIGHT,
on behalf of themselves and all other
persons similarly situated,
Plaintiffs,
v.
CASE NO.
CLASS ACTION COMPLAINT
Demand for Jury Trial
RADNET, INC., a Delaware
corporation,
Defendant.
Plaintiffs Noreen Pfeiffer, Jose Contreras and Susan Wright, individually, and
on behalf of all others similarly situated, upon personal knowledge of facts pertaining
to them and on information and belief as to all other matters, by and through
undersigned counsel, hereby bring this Class Action Complaint against Defendant
RadNet, Inc., and allege as follows:
INTRODUCTION
1.
Obtaining a job requires turning over to employers valuable personal
identifying information (“PII”), including social security numbers, driver’s license
numbers, birth dates and addresses. If stolen, identity thieves can use this highly
sensitive information to fraudulently open new accounts, access existing accounts,
perpetrate identity fraud or impersonate victims in myriad schemes, all of which can
cause grievous financial harm, negatively impact the victim’s credit scores for years,
and cause victims to spend countless hours mitigating the impact.
2.
Despite the dire warnings about the severe impact of data breaches on
Americans of all economic strata, companies still fail to put adequate security
measures in place to protect their customers’ and employees’ data.
3.
Defendant RadNet, Inc. (“RadNet”), a provider of outpatient imaging, is
among those companies that failed to meet its obligation to protect the sensitive
personal identifying information entrusted to it by their current and former
employees.
4.
As a corporation doing business in California, RadNet is legally required
to protect the PII it gathers from unauthorized access and exfiltration.
5.
Defendant RadNet collected its employees’ sensitive PII. And in
acquiring various imaging centers, Defendant collected the PII of employees of
those businesses. In either case, Defendant had an obligation to secure that PII by
implementing reasonable and appropriate data security.
6.
On or about July 18, 2020, an unknown third party gained unauthorized
access to a RadNet server that was used to store certain employee data, and copied
files to an external server. The unlawfully access information included employee
names, social security numbers, driver’s license numbers, and additional data such
as dates of birth, addresses, and passport numbers.
7.
As a result of RadNet’s failure to provide adequate data security,
Plaintiffs’ and the Class members’ PII has been exposed to those who should not
have access to it. Plaintiffs and the Class are now at much higher risk of identity
theft and for cybercrimes of all kinds.
THE PARTIES
8.
Defendant Radnet, Inc., is a Delaware corporation with its principal place
of business in Los Angeles, California.
9.
Plaintiff Noreen Pfeiffer is a resident of Cockeysville, Maryland. She was
employed by Medical Imaging of Baltimore from June 1988 until January 2012. As
a part of her employment, she provided that entity with her PII.
10.
Medical Imaging of Baltimore was acquired by RadNet before the data
breach at issue herein. In or about January 2012, following RadNet’s acquisition of
Medical Imaging of Baltimore, Pfeiffer became an employee of RadNet and began
to receive compensation from RadNet. As part of the acquisition of Medical Imaging
of Baltimore, RadNet acquired and stored the PII that Plaintiff Pfieffer had provided
to that company as a part of her employment.
11.
Pfeiffer reasonably believed RadNet would keep her PII secure. Had
RadNet disclosed to Pfeiffer that her PII would not be kept secure and would be left
easily accessible to hackers and third parties, she would have taken additional
precautions relating to her PII.
12.
Plaintiff Susan Wright is a resident of Edgewood, Maryland. She was
employed by Advanced Imaging Partners, Inc. from May 1988 to June 2020. As a
part of her employment, she provided that entity with her PII.
13.
Advanced Imaging Partners, Inc. was acquired by RadNet before the data
breach at issue herein. RadNet is the controlling company of Advanced Imaging
Partners, Inc. As part of the acquisition of Advanced Imaging Partners, Inc., RadNet
acquired and stored the PII that Plaintiff Wright had provided to that company as a
part of her employment.
14.
Wright reasonably believed RadNet would keep her PII secure. Had
RadNet disclosed to Wright that her PII would not be kept secure and would be kept
easily accessible to hackers and third parties, she would have taken additional
precautions relating to her PII.
15.
Plaintiff Jose Contreras is a resident of Pacoima, California. He was
employed by RadNet San Fernando Valley Northridge Diagnostic Imaging Center
from approximately 2006 to 2016.
16.
Contreras reasonably believed RadNet would keep his PII secure. Had
RadNet disclosed to Contreras that his PII would not be kept secure and would be
kept easily accessible to hackers and third parties, he would have taken additional
precautions relating to his PII.
JURISDICTION AND VENUE
17.
Subject matter jurisdiction in this civil action is authorized pursuant to 28
U.S.C. § 1332(d) because there are more than 100 Class members, at least one class
member is a citizen of a state different from that of Defendant, and the amount in
controversy exceeds $5 million, exclusive of interest and costs.
18.
This Court has personal jurisdiction over Defendant because it maintains
its principal place of business in this District, is registered to conduct business in
California, and has sufficient minimum contacts with California.
19.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because
Defendant resides in this District and, on information and belief, a substantial part of
the events or omissions giving rise to Plaintiffs’ and Class members’ claims
occurred in this District.
20.
Application of California law to this dispute is proper because
Defendant’s headquarters are in California, the decisions or actions that gave rise to
the underlying facts at issue in this Complaint were presumably made or taken in
California, and the action and/or inaction at issue emanated from California.
FACTUAL ALLEGATIONS
A. RadNet Collects and Stores Thousands of Employees’ and Former
Employees’ PII and Fails to Provide Adequate Data Security
21.
RadNet is a publicly traded company with a market capitalization
approaching one billion dollars. It is a major player in its industry. In addition to a
full range of medical imaging solutions, it also operates an IT division which
delivers integrated, web-based, cloud solutions for medical imaging workflow.1
RadNet also provides a “sophisticated portfolio of insurance solutions to physicians”
and operates RadNet TV delivering “targeted, dynamic programming for patients,
family members, friends, and guests.”2
22.
On July 18, 2020, an unknown third party gained access to a RadNet
server that was used to store employee data and copied files to an external server.
23.
Employee names, social security numbers, driver’s license numbers, as
well as dates of birth, addresses, and passport numbers were among the PII that may
have been accessed by the unknown third party.
24.
This incident is referred to herein as the “Data Breach.”
25.
On or about September 28, 2020, Plaintiffs Pfeiffer, Jose Contreras and
Wright received a letter titled “Notice of Data Breach,” dated September 21, 2020,
from RadNet. The letter stated that their PII, including those mentioned above, may
have been compromised.
26.
The information exposed by RadNet is a virtual goldmine for phishers,
hackers, identity thieves and cyber criminals.
1 https://www.radnet.com/
2 Id.
27.
This exposure is tremendously problematic. Cybercrime is rising at an
exponential rate, as shown in the FBI’s Internet Crime Complaint statistics chart
below:
28.
According to experts, one out of four data breach notification recipients
become a victim of identity fraud.
29.
Stolen PII is often trafficked on the “dark web,” a heavily encrypted part
of the Internet that is not accessible via traditional search engines. Law enforcement
has difficulty policing the “dark web” due to this encryption, which allows users and
criminals to conceal identities and online activity.
30.
Once PII is sold, it is often used to gain access to various areas of the
victim’s digital life, including bank accounts, social media, credit card, and tax
details. This can lead to additional PII being harvested from the victim, as well as
PII from family, friends and colleagues of the original victim.
31.
According to the FBI’s Internet Crime Complaint Center (IC3) 2019
Internet Crime Report, Internet-enabled crimes reached their highest number of
complaints and dollar losses in 2019, resulting in more than $3.5 billion in losses to
individuals and business victims.
32.
Further, according to the same report, “rapid reporting can help law
enforcement stop fraudulent transactions before a victim loses the money for good.”
Here, Defendant did not rapidly report to Plaintiffs and Class Members that their PII
had been stolen. Instead, it took Defendant almost two months to notify them.
33.
Victims of identity theft also often suffer embarrassment, blackmail, or
harassment in person or online, and/or experience financial losses resulting from
fraudulently opened accounts or misuse of existing accounts.
34.
Data breaches facilitate identity theft as hackers obtain consumers’ PII
and then use it to siphon money from current accounts, open new accounts in the
names of their victims, or sell consumers’ PII to others who do the same.
35.
For example, The United States Government Accountability Office noted
in a June 2007 report on data breaches (the “GAO Report”) that criminals use PII to
open financial accounts, receive government benefits, and make purchases and
secure credit in a victim’s name.3 The GAO Report further notes that this type of
identity fraud is the most harmful because it may take some time for a victim to
become aware of the fraud, and can adversely impact the victim’s credit rating in the
meantime. The GAO Report also states that identity theft victims will face
“substantial costs and inconveniences repairing damage to their credit records . . .
[and their] good name.”4
B. RadNet Failed to Comply with Federal Trade Commission Requirements
36.
Federal and State governments have established security standards and
issued recommendations to minimize data breaches and the resulting harm to
individuals and financial institutions. The Federal Trade Commission (“FTC”) has
3 See Government Accountability Office, Personal Information: Data Breaches are
Frequent, but Evidence of Resulting Identity Theft is Limited; However, the Full
Extent is Unknown (June 2007), available at
http://www.gao.gov/assets/270/262899.pdf (last visited October 6, 2020).
4 Id.
issued numerous guides for businesses that highlight the importance of reasonable
data security practices. According to the FTC, the need for data security should be
factored into all business decision-making.5
37.
In 2016, the FTC updated its publication, Protecting Personal
Information: A Guide for Business, which established guidelines for fundamental
data security principles and practices for business.6 Among other things, the
guidelines note businesses should properly dispose of personal information that is no
longer needed; encrypt information stored on computer networks; understand their
network’s vulnerabilities; and implement policies to correct security problems. The
guidelines also recommend that businesses use an intrusion detection system to
expose a breach as soon as it occurs; monitor all incoming traffic for activity
indicating someone is attempting to hack the system; watch for large amounts of
data being transmitted from the system; and have a response plan ready in the event
of a breach.7
38.
Additionally, the FTC recommends that companies limit access to
sensitive data; require complex passwords to be used on networks; use industry-
tested methods for security; monitor for suspicious activity on the network; and
verify that third-party service providers have implemented reasonable security
measures.8
39.
Highlighting the importance of protecting against data breaches, the FTC
has brought enforcement actions against businesses for failing to adequately and
5 See Federal Trade Commission, Start With Security (June 2015),
https://www.ftc.gov/system/files/documents/plain-language/pdf0205-
startwithsecurity.pdf (last visited October 6, 2020).
6 See Federal Trade Commission, Protecting Personal Information: A Guide for
Business (Oct. 2016), https://www.ftc.gov/system/files/documents/plain-language/pdf-
0136_proteting-personal-information.pdf (last October 6, 2020).
7 Id.
8 Federal Trade Commission, Start With Security, supra note 6.
reasonably protect PII, treating the failure to employ reasonable and appropriate
measures to protect against unauthorized access to confidential consumer data as an
unfair act or practice prohibited by Section 5 of the Federal Trade Commission Act
(“FTC Act”), 15 U.S.C. § 45. Orders resulting from these actions further clarify the
measures businesses must take to meet their data security obligations.9
40.
By allowing an unknown third party to access a RadNet server and copy
employee PII to an unknown server, RadNet failed to employ reasonable and
appropriate measures to protect against unauthorized access to confidential
employee data. RadNet’s data security policies and practices constitute unfair acts or
practices prohibited by Section 5 of the FTC Act, 15 U.S.C. § 45.
CLASS ACTION ALLEGATIONS
41.
Pursuant to Rule 23 of the Federal Rules of Civil Procedure, Plaintiffs
bring this action on behalf of themselves and the following proposed Nationwide
Class and California Subclass, defined as follows:
a. The Nationwide Class:
All persons residing in the United States who are employees or former
employees of RadNet or any affiliate, parent, or subsidiary of RadNet who
had their PII compromised as a result of the Data Breach that occurred on
or about July 18, 2020.
b. The California Subclass:
All persons residing in the State of California who are employees or
former employees of RadNet or any affiliate, parent, or subsidiary of
RadNet who had their PII compromised as a result of the Data Breach
that occurred on or about July 18, 2020.
42.
Collectively, the Nationwide Class and the California Subclass will be
referred to as “the Class” unless there is a need to differentiate them.
9 Federal Trade Commission, Privacy and Security Enforcement Press Releases,
https://www.ftc.gov/news-events/media-resources/protecting-consumer-
privacy/privacy-security-enforcement (last visited October 6, 2020).
43.
Excluded from the proposed Class are any officer or director of RadNet;
any officer or director of any affiliate, parent, or subsidiary of RadNet; anyone
employed by counsel in this action; and any judge to whom this case is assigned, his
or her spouse, and members of the judge’s staff.
44.
Numerosity. Members of the proposed Class are large in number and are
too numerous to practically join in a single action. Membership in the Class is
readily ascertainable from Defendant’s own records.
45.
Commonality and Predominance. Common questions of law and fact
exist as to all proposed Class members and predominate over questions affecting
only individual Class members. These common questions include:
a. Whether Defendant engaged in the wrongful conduct alleged herein;
b. Whether Defendant’s inadequate data security measures were a cause of the
data security breach;
c. Whether Defendant owed a legal duty to Plaintiffs and the other Class members
to exercise due care in collecting, storing, and safeguarding their PII;
d. Whether Defendant negligently or recklessly breached legal duties owed to
Plaintiffs and the other class members to exercise due care in collecting,
storing, and safeguarding their PII;
e. Whether Plaintiffs and the Class are at an increased risk for identity theft
because of the data security breach;
f. Whether Defendant’s conduct violated Cal. Bus. & Prof. Code § 17200 et seq.;
g. Whether Defendant violated section 1798.150 of the California Consumer
Privacy Act by failing to prevent Plaintiffs’ and Class members’ PII from
unauthorized access and exfiltration, theft, or disclosure, as a result of
Defendant’s violations of its duty to implement and maintain reasonable
security procedures and practices appropriate to the nature of the information;
h. Whether Plaintiffs and the other class members are entitled to actual, statutory,
or other forms of damages, and other monetary relief; and
i. Whether Plaintiffs and the other class members are entitled to equitable relief,
including, but not limited to, injunctive relief and restitution.
46.
Defendant engaged in a common course of conduct giving rise to the
legal rights sought to be enforced by Plaintiffs individually and on behalf of the
other Class members. Individual questions, if any, pale by comparison, in both
quantity and quality, to the numerous questions that dominate this action.
47.
Typicality: The claims of Plaintiffs Noreen Pfeiffer and Susan Wright
are typical of the claims of the members of the National Class. The claims of
Plaintiff Jose Contreras are typical of the claims of the members of the California
Subclass. All Class members were subject to the Data Breach and had their PII
accessed by and/or disclosed to unauthorized third parties.
48.
Adequacy of Representation: Plaintiffs are adequate representatives of
the Class because their interests do not conflict with the interests of the other Class
members they seek to represent; they have retained counsel competent and
experienced in complex class action litigation, and Plaintiffs will prosecute this
action vigorously. The interests of the Class will be fairly and adequately protected
by Plaintiffs and their counsel.
49.
Superiority: A class action is superior to any other available means for
the fair and efficient adjudication of this controversy, and no unusual difficulties are
likely to be encountered in the management of this matter as a class action. The
damages, harm, or other financial detriment suffered individually by Plaintiffs and
the other Class members are relatively small compared to the burden and expense
that would be required to litigate their claims on an individual basis against
Defendant, making it impracticable for Class members to individually seek redress
for Defendant’s wrongful conduct. Even if Class members could afford individual
litigation, the court system could not. Individualized litigation would create a
potential for inconsistent or contradictory judgments and increase the delay and
expense to all parties and the court system. By contrast, the class action device
presents far fewer management difficulties and provides the benefits of single
adjudication, economies of scale, and comprehensive supervision by a single court.
FIRST CAUSE OF ACTION
Violation of the California’s Unfair Competition Law
Cal. Bus. & Prof. Code § 17200, et seq.
(On Behalf of Plaintiffs and the Nationwide Class)
50.
Plaintiffs incorporate by reference all previous allegations as though fully
set forth herein.
51.
Defendant violated and continues to violate California’s Unfair
Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200, et seq., which prohibits
unlawful, unfair, and/or fraudulent business acts or practices.
52.
Defendant’s conduct, as alleged above, is unlawful because it violates
state data security laws, including the California Consumer Protection Act, as well
as Section 5 of the Federal Trade Commission Act, which prohibits “unfair …
practices in or affecting commerce.”
53.
Defendant’s failure to safeguard Plaintiffs’ and Class members’ PII is an
unfair practice under the UCL because the gravity of harm to Plaintiffs and Class
members outweighs the utility of Defendant’s conduct. This conduct includes
Defendant’s failure to adequately ensure the privacy, confidentiality, and security of
employee data entrusted to it and Defendant’s failure to have adequate data security
measures in place. Current and former employees of Defendant were harmed
because they were obligated to provide sensitive and confidential information in
order to obtain or continue employment, and Defendant failed to provide such
security.
54.
Indeed, the PII of Plaintiffs and Class members, including their names,
Social Security numbers, driver’s license numbers, birth dates, addresses, and
passport numbers, were made accessible by Defendant to unauthorized third parties,
subjecting Plaintiffs and the Class members to an impending risk of identity theft.
55.
As a direct result of Defendant’s violations of the UCL, as set out above,
Plaintiffs and the Class members suffered injury in fact and lost money or property
by not being adequately compensated for the heightened risks they were taking by
providing their PII.
56.
As a direct result of Defendant’s violations of the UCL, Plaintiffs and the
Class members are entitled to restitution and other equitable relief.
SECOND CAUSE OF ACTION
Negligence
(On Behalf of Plaintiffs and the Nationwide Class)
57.
Plaintiffs incorporate by reference all previous allegations as though fully
set forth herein.
58.
Defendant owed a duty to Plaintiffs and the Class to exercise reasonable
care in obtaining, securing, safeguarding, storing, and protecting Plaintiffs’ and
Class members’ PII from being compromised, lost, stolen, and accessed by
unauthorized persons. This duty includes, among other things, designing,
maintaining and testing its data security systems to ensure that Plaintiffs’ and Class
members’ PII in Defendant’s possession was adequately secured and protected.
59.
Defendant owed a duty of care to Plaintiffs and members of the Class to
provide security, consistent with industry standards, to ensure that its systems and
networks adequately protected the PII of its current and former employees.
60.
Defendant owed a duty of care to Plaintiffs and members of the Class
because they were foreseeable and probable victims of any inadequate data security
practices. Defendant knew or should have known of the inherent risks in collecting
and storing the PII of its current and former employees and the critical importance of
adequately securing such information.
61.
Plaintiffs and members of the Class entrusted Defendant with their PII
with the understanding that Defendant would safeguard their information, and
Defendant was in a position to protect against the harm suffered by Plaintiffs and
members of the Class as a result of the Data Breach.
62.
Defendant’s own conduct also created a foreseeable risk of harm to
Plaintiffs and Class members. Defendant’s misconduct included failing to implement
the systems, policies, and procedures necessary to prevent the Data Breach.
63.
Defendant knew, or should have known, of the risks inherent in
collecting and storing PII and the importance of adequate security. Defendant knew
about – or should have been aware of - numerous, well-publicized data breaches
affecting businesses in the United States.
64.
Defendant breached its duties to Plaintiffs and Class members by failing
to provide fair, reasonable, or adequate computer systems and data security to
safeguard the PII of Plaintiffs and Class members.
65.
Because Defendant knew that a breach of its systems would damage
thousands of current and former RadNet employees, including Plaintiffs and Class
members, Defendant had a duty to adequately protect its data systems and the PII
contained therein.
66.
Defendant had a special relationship with Plaintiffs and Class members
by virtue of being Plaintiffs’ and Class members’ current or former employees.
Plaintiffs and Class members reasonably believed that Defendant would take
adequate security precautions to protect their PII.
67.
Defendant also had independent duties under state and federal laws that
required Defendant to reasonably safeguard Plaintiffs’ and Class members’ PII.
68.
Through Defendant’s acts and omissions, including Defendant’s failure
to provide adequate security and its failure to protect Plaintiffs’ and Class members’
PII from being foreseeably accessed, Defendant unlawfully breached its duty to use
reasonable care to adequately protect and secure the PII of Plaintiffs and Class
members during the time it was within Defendant’s possession or control.
69.
In engaging in the negligent acts and omissions as alleged herein, which
permitted an unknown third party to access a RadNet server containing current and
former employee PII, Defendant violated Section 5 of the FTC Act, which prohibits
“unfair…practices in or affecting commerce.” This prohibition includes failing to
have adequate data security measures and failing to protect their current and former
employees’ PII.
70.
Plaintiffs and the Class members are among the class of persons Section
5 of the FTC Act was designed to protect, and the injuries suffered by Plaintiffs and
the Class members is the type of injury Section 5 of the FTC Act was intended to
prevent. As a result, Defendant is negligent per se.
71.
Neither Plaintiffs nor the other Class members contributed to the Data
Breach as described in this Complaint.
72.
As a direct and proximate cause of Defendant’s conduct, Plaintiffs and
Class members have suffered and/or will suffer injury and damages, including: (i)
the loss of the opportunity to determine for themselves how their PII is used; (ii) the
publication and/or theft of their PII; (iii) out-of-pocket expenses associated with the
prevention, detection, and recovery from identity theft, tax fraud, and/or
unauthorized use of their PII; (iv) lost opportunity costs associated with effort
expended and the loss of productivity addressing and attempting to mitigate the
actual and future consequences of the Data Breach, including but not limited to
efforts spent researching how to prevent, detect, contest and recover from tax fraud
and identity theft; (v) costs associated with placing freezes on credit reports; (vi)
anxiety, emotional distress, loss of privacy, and other economic and non-economic
losses; (vii) the continued risk to their PII, which remains in Defendant’s possession
and is subject to further unauthorized disclosures so long as Defendant fails to
undertake appropriate and adequate measures to protect the PII of employees and
former employees in its continued possession; and, (viii) future costs in terms of
time, effort and money that will be expended to prevent, detect, contest, and repair
the inevitable and continuing consequences of compromised PII for the rest of their
lives.
THIRD CAUSE OF ACTION
Breach of Implied Contract
(On Behalf of Plaintiffs and the Nationwide Class)
73.
Plaintiffs incorporate by reference all previous allegations as though fully
set forth herein.
74.
Defendant offered employment to Plaintiffs and Class members, either
directly or through acquiring the businesses for which Plaintiffs and Class members
worked. Defendant either required Plaintiffs and Class members to provide their PII
or acquired their PII, including names, addresses, dates of birth, Social Security
numbers, driver’s license numbers, passport numbers and other personal
information, from their former employers which Defendant acquired.
75.
Implied in these exchanges was a promise by Defendant to ensure that
the PII of Plaintiffs and Class members in its possession was only used to provide
the agreed-upon compensation and other employment benefits from Defendant.
76.
Defendant was therefore required to reasonably safeguard and protect the
PII of Plaintiffs and Class members from unauthorized disclosure and/or use.
77.
Plaintiffs and Class members accepted Defendant’s employment offer
and/or fully performed their obligations under the implied contract with Defendant
by providing their PII, directly or indirectly, to Defendant, among other obligations.
78.
Plaintiffs and Class members would not have provided and entrusted
their PII to Defendant in the absence of their implied contracts with Defendant, and
would have instead retained the opportunity to control their PII for uses other than
compensation and other employment benefits from Defendant.
79.
Defendant breached the implied contracts with Plaintiffs and Class
members by failing to reasonably safeguard and protect Plaintiffs’ and Class
members’ PII.
80.
As a proximate and direct result of Defendant’s breaches of its implied
contracts with Plaintiffs and Class members, Plaintiffs and the Class members
suffered damages as described in detail above.
FOURTH CAUSE OF ACTION
Violation of the California Consumer Privacy Act, Cal. Civ. Code § 1798.150
(On Behalf of Plaintiff Contreras and the California Subclass)
81.
Plaintiff Contreras incorporates by reference all previous allegations as
though fully set forth herein.
82.
Defendant collects consumers’ personal information as defined in Cal.
Civ. Code § 1798.140. As a result, Defendant has a duty to implement and maintain
reasonable security procedures and practices to protect this personal information. As
alleged herein, Defendant failed to do so.
83.
Defendant violated § 1798.150 of the California Consumer Privacy Act
(“CCPA”) by failing to prevent Plaintiff Contreras’ and California Subclass members’
nonencrypted and nonredacted PII from unauthorized access and exfiltration, theft, or
disclosure. These failures were the result of Defendant’s violations of its duty to
implement and maintain reasonable security procedures and practices appropriate to
the nature of the information.
84.
As a direct and proximate result of Defendant’s conduct, Plaintiff
Contreras’s and the California Subclass members’ personal information, including
names, social security numbers, driver’s license numbers, and additional data such as
dates of birth, addresses, and passport numbers, was subjected to unauthorized access,
exfiltration, and theft. On information and belief, Plaintiff Conreras and the California
Subclass allege this PII was not encrypted or redacted in the format accessed during
the Data Breach.
85.
Plaintiff Contreras and the California Subclass members seek injunctive
or other equitable relief to ensure Defendant hereafter adequately safeguards
customers’ PII by implementing reasonable security procedures and practices. Such
relief is particularly important because Defendant continues to hold customers’ PII,
including that of Plaintiff Contreras and the California Subclass. These individuals
have an interest in ensuring that their PII is reasonably protected.
86.
On October 17, 2020, Plaintiffs’ Counsel sent a notice letter to
Defendant’s registered service agent via FedEx Priority. Assuming Defendant cannot
cure the Data Breach within 30 days, and Plaintiffs believe any such cure is not
possible under these facts and circumstances, Plaintiffs intend to promptly amend this
complaint to seek actual damages and statutory damages of no less than $100 and up
to $750 per customer record subject to the Data Breach on behalf of the California
Subclass as authorized by the CCPA.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually, and on behalf of all others similarly
situated, respectfully request that the Court enter an order:
a. Certifying the proposed Class as requested herein;
b. Appointing Plaintiffs as Class Representatives and undersigned counsel as Class
Counsel;
c. Finding that Defendant engaged in the unlawful conduct as alleged herein;
d. Enjoining Defendant’s conduct and requiring Defendant to implement proper
data security policies and practices;
e. Awarding Plaintiffs and Class members damages;
f. Awarding Plaintiffs and Class members pre-judgment and post-judgment interest
on all amounts awarded;
g. Awarding Plaintiffs and the Class members reasonable attorneys’ fees, costs, and
expenses; and
h. Granting such other relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs, on behalf of themselves and the proposed Class, hereby demand a
trial by jury as to all matters so triable.
Dated: October 17, 2020
/s/ Gayle M. Blatt
GAYLE M. BLATT
CASEY GERRY SCHENK
FRANCAVILLA BLATT &
PENFIELD, LLP
Attorneys for Plaintiffs and the
putative Class
| privacy |
NdxpEIcBD5gMZwczwdDP | IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
WILLIAM GUNN, Individually and on behalf
)
of all others similarly situated,
)
)
Plaintiffs,
)
CLASS ACTION COMPLAINT
v.
)
)
PROSPECTS DM, LLC
)
)
Case No.: 4:19-cv-3129
&
)
)
ICOT HEARING SYSTEMS, LLC d/b/a
)
LISTENCLEAR
)
)
&
)
)
ICOT HOLDINGS, LLC
)
)
&
)
)
JOHN DOE CORPORATIONS 1 THROUGH )
10, and OTHER JOHN DOE ENTITES 1
)
THROUGH 10, all whose true names are
)
unknown.
)
JURY TRIAL DEMANDED
)
)
Defendant.
)
COMPAINT AND DEMAND FOR JURY TRIAL
COMES NOW Plaintiff William Gunn, individually and on behalf of all others similarly
situated, and through undersigned counsel, and for his Complaint against Defendants, Prospects
DM, LLC, John Doe Corporations, Other John Doe Entities, ICOT Hearing Systems, LLC d/b/a
ListenClear, and ICOT Holdings, LLC, and for their violations under the Telephone Consumer
Protection Act, 47 U.S.C. § 227 et seq. (“TCPA”), states to the Court as follows:
INTRODUCTION
1.
The TCPA was enacted in response to widespread public outrage about the
proliferation of intrusive, nuisance telemarketing practices. Mims v. Arrow Fin. Servs., LLC, 132 S.
Ct. 740, 745 (2012).
2.
Defendant ICOT Hearing Systems, LLC d/b/a ListenClear (“ListenClear”) is owned
and controlled by Defendant ICOT Holdings, LLC (“ICOT”).
3.
Defendant ListenClear manufactures and sells hearing devices. Upon information and
belief, its marketing structure is based on offering a free thirty-day trial to individuals.
4.
Defendant ListenClear and ICOT commissioned or otherwise encouraged Defendant
Prospects DM, LLC (“PDM”), and upon information and belief, numerous other corporations and
vendors, to make auto-dialed calls to individuals across the country.
5.
Unfortunately, Defendants do not obtain prior express written consent to place these
autodialed telemarketing calls and, therefore, are in violation of the Telephone Consumer Protection
Act (“TCPA”), 47 U.S.C. § 227.
6.
These autodialed calls placed by Defendants caused Plaintiff and class members to
suffer actual harm and legal injury. Plaintiff has suffered aggravation, invasion of privacy, nuisance
due to receiving such calls. Plaintiff and class members suffered from the diminished use, enjoyment,
utility, and value of their telephones as these calls interfered with their access to their cell phones.
7.
The TCPA was enacted to protect consumers from unauthorized and unwanted
autodialed calls exactly like the ones alleged in this case. See Mims v. Arrow Fin Servs., LLC, 132 S.Ct.,
740, 745 (2012). Defendant placed these autodialed calls despite the fact that Plaintiffs never provided
Defendant with prior express written consent to receive them.
8.
Senator Hollings, the TCPA’s sponsor described these autodialed calls as “the scourge
of modern civilization, they wake us up in the morning; they interrupt our dinner at night; they force
the sick and elderly out of bed; they hound us until we want to rip the telephone out of the wall.” 137
Cong. Rec. 30, 821 (1991).
2
9.
By placing the autodialed calls at issue, Defendant has violated the privacy and
statutory rights of Plaintiff and caused him to suffer actual harm by subjecting him to the aggravation
that necessarily accompanies the receipt of such repeated and unauthorized autodialed calls.
10.
Plaintiffs therefore seek an injunction requiring Defendant to stop using an autodialer
to place telemarketing calls to telephones, as well as an award of actual and statutory damages, together
with costs and reasonable attorneys’ fees.
PARTIES
11.
Plaintiff William Gunn (“Plaintiff”) is a resident of the State of Missouri.
12.
Defendant PDM is a limited liability company organized in the state of California with
its mailing address at 603 Seagaze Drive, Suite 817, Oceanside, California 92054 that conducts business
throughout this state and throughout the country.
13.
Defendant ListenClear is a limited liability company organized in the state of Georgia
with its headquarters located at 300 Bull St. Suite 200, Savannah, Georgia 31401 that conducts business
in this state and throughout the country.
14.
Defendant ICOT is a limited liability company organized in the state of Georgia with
its headquarters located at 300 Bull Street, Suite 200, Savannah, Georgia 31401 that conducts business
in this state and throughout the country
15.
Defendant ICOT has control over the conduct and actions of ListenClear.
16.
Defendant ICOT, upon information and belief, controls ListenClear’s marketing
strategy, including its decision to employ unlawful telemarketing strategies.
17.
Defendant ICOT is vicariously liable for ListenClear’s actions as they had agency over
determining marketing strategies, who received calls, and how these were limited.
3
18.
Upon information and belief, Defendants John Doe Corporations 1 through 10 (the
“Corporate Defendants”) are corporations, the names and addresses of residence of which are
unknown.
19.
Upon information and belief, Defendants Other Entity Defendants 1 through 10 (the
“Other Entity Defendants”) are other legal entities, the names of addresses of residences of which are
unknown.
JURISDICTION AND VENUE
20.
This Court has personal jurisdiction over Defendants because Defendants transact
business within this state, have made contracts within this state, and/or have committed tortious acts
within this state and otherwise have sufficient minimum contacts with the State of Missouri.
21.
Venue is proper because a substantial part of the events, actions, and omissions of
Defendants, which give rise to the claims and subject Defendants to liability for this telemarking
campaign, occurred in this circuit.
22.
Plaintiff is an individual located in St. Louis, Missouri.
23.
This Court has personal jurisdiction over Defendants because they conduct business
in this Circuit and the events giving rise to this lawsuit occurred in and emanated from, in substantial
part, this Circuit.
TCPA BACKGROUND
24.
In 1991, Congress enacted the TCPA to regulate the explosive growth of the
telemarketing industry. In so doing, Congress recognized that “[u]nrestricted telemarketing…can be
an intrusive invasion of privacy[.]” Telephone Consumer Protection Act of 1991, Pub. L. No. 102-
243, § 2(5) (1991) (codified at 47 U.S.C. § 227).
25.
Through the TCPA, Congress outlawed telemarketing via unsolicited automated or
pre-recorded telephone calls (“robocalls”), finding:
4
Residential telephone subscribers consider automated or prerecorded telephone calls,
regardless of the content or the initiator of the message, to be a nuisance and an invasion of privacy.
- - -
Banning such automated or prerecorded telephone calls to the home, except when the
receiving party consents to receiving the call…is the only effective means of protecting telephone
consumers from this nuisance and privacy invasion. Id. § 2(10) and (12); see also Mims, 132 S. Ct. at
The TCPA imposes vicarious liability on
third-parties who do not physically dial the calls
26.
Under the TCPA, a seller of a product or service may be vicariously liable for a third-
party marketer’s violations of Sections 227(b) and 227(c), even if the seller did not physically dial the
illegal call, and even if the seller did not directly control the marketer who did. In re Joint Pet. Filed by
Dish Network, LLC, FCC 13-54 ¶ 37, 2013 WL 193449 (May 9, 2013) (“FCC Ruling”).
27.
A seller is liable under Sections 227(b) and (c) when it has authorized a telemarketer
to market its goods or services. Id. ¶ 47.
28.
Additionally, a seller may be vicariously liable for violations of those provisions under
principles of apparent authority and ratification. Factors relevant to a finding of vicarious liability
include:
a.
Whether “the seller allows the outside sales entity access to information and
systems that normally would be within the seller’s exclusive control, including…access to
detailed information regarding the nature and pricing of the seller’s products and services or
to the seller’s customer information,”
b.
Whether the outside sales entity can “enter consumer information into the
seller’s sales or customer systems,”
5
c.
Whether the outside sales entity has “the authority to use the seller’s trade
name, trademark and service mark,”
d.
Whether the “seller approved, wrote or reviewed the outside entity’s
telemarketing scripts,” and
e.
“Whether the seller knew (or reasonably should have known) that the
telemarketer was violating the TCPA on the seller’s behalf and the seller failed to take effective
steps within its power to force the telemarketer to cease that conduct.” Id. ¶ 46.
FACTUAL ALLEGATIONS
29.
Plaintiff is a “person” as defined by 47 U.S.C. § 153(39).
30.
On or about March 2019, Plaintiff began receiving phone calls from telemarketing
representatives of PDM, Corporate Defendants, and Other Entity Defendants, all purportedly calling
on behalf of Defendants ICOT and ListenClear.
31.
Defendant PDM, Corporate Defendants, and Other Entity Defendants called Plaintiff
in an attempt to sell or otherwise coerce Plaintiff into engaging with Defendant ListenClear, and by
extension, Defendant ICOT.
32.
Plaintiff has never used ListenClear products, contracted with ListenClear, or
otherwise given ListenClear permission to contact him.
33.
Plaintiff is the regular user and only individual assigned to the phone number 314-785-
1255 and was the recipient of Defendants’ phone calls to that number.
34.
Plaintiffs caller ID identified the calls from Defendant as being initiated from
numerous phone numbers that appear to have been “spoofed,” or numbers that appear to be
legitimate phone numbers but are actually autodialed telemarketing calls from Defendants.
35.
When Plaintiff answered these phone calls there was not a human salesperson on the
line, but rather an automated robotic voice.
6
36.
Plaintiff has received at least one hundred and fifty (150) calls from Defendants in
which Plaintiff did not consent to receiving.
37.
Upon information and belief, Plaintiff has received well in excess of one hundred and
fifty (150) calls, as to be determined in the discovery phase.
38.
Plaintiff has not given written consent to receive telemarketing calls from, or on behalf
of, ICOT, ListenClear, or Corporate Defendants and Other Entity Defendants.
39.
In fact, Plaintiff on several occasions demanded to be placed on the “Do Not Call”
list for PDM, Corporate Defendants and Other Entity Defendants, and by extension ListenClear, and
ICOT, yet these repeated demands were ignored.
40.
Plaintiff repeatedly asked the agents/representatives of Defendants to stop calling
him. Plaintiff made very clear that he did not consent in any way to the phone calls being placed.
41.
Plaintiff has had to constantly endure these phone calls throughout his workday as
they invaded upon his privacy and solitude.
42.
As Plaintiff works in a school as a college advisor, he does not have the option of
simply ignoring any number he does not recognize. Plaintiff must answer these calls in case they are
the numbers of parents, administrators, or other school staff.
43.
Upon information and belief, some or all of the calls the Defendants made to the
Plaintiff’s telephone number were made using an “automatic telephone dialing system” which has the
capacity to store and produce telephone numbers to be called, using a random or sequential number
generator or an artificial or prerecorded voice; and to dial such numbers as specified by 47 U.S.C. §
227(a)(1).
44.
On several occasions, Plaintiff instructed Defendants’ agents/representatives to stop
calling his device.
7
45.
Despite clearly and unequivocally revoking any consent Defendants may have believed
they had to call Plaintiff, Defendants continue to place automated calls to Plaintiff.
46.
In fact, several of Defendants’ representatives acknowledged that per the Defendants’
internal communications, Plaintiff was supposed to have been placed on the internal Do Not Call List
within their “systems.”
47.
Upon information and belief, Defendants’ “systems” include an auto-dialer system
and an internal Do Not Call List.
48.
Upon information and belief, Defendants continued to call individuals placed on the
internal Do Not Call List despite consumer’s requests to be placed on such a list.
49.
Each subsequent call Defendants made to Plaintiff’s telephone was knowing and
willful and done so without the express consent of Plaintiff.
50.
Defendants intentionally harassed and abused Plaintiff on numerous occasions by
calling up to eight times in one day and calling multiple days in a row with such frequency as can
reasonably be expected to harass.
51.
Upon information and belief, Defendants ICOT and ListenClear have engaged in a
business strategy that includes marketing through illegal telemarketing calls.
52.
Upon information and belief, Defendants PDM, Corporate Defendants, and Other
Entity Defendants have a corporate policy to use an automatic telephone dialing system or a pre-
recorded or artificial voice to individuals just as they did to Plaintiff’s line in this case.
53.
Upon information and belief, Defendant PDM’s, Corporate Defendants’, and Other
Entity Defendants’ corporate policies are structured so as to continue to call individuals like Plaintiff,
on behalf of other companies that seek to harass consumers, despite these individuals explaining to
all Defendants that they want the calls to cease.
8
54.
Not a single call placed by Defendants to Plaintiff was placed for “emergency
purposes” as specified in 47 U.S.C. § 277(b)(1)(A).
55.
Defendants willfully and knowingly violated the TCPA with respect to Plaintiff.
56.
Each phone call placed by Defendants to the Plaintiff’s phone without consent caused
Plaintiff to suffer the injury of invasion of privacy and the intrusion upon his right of seclusion.
57.
Each phone call placed by Defendants to the Plaintiff’s phone without consent caused
Plaintiff to suffer the injury of unnecessary expenditures to his time. For the calls Plaintiff answered,
the time spent on these calls was unnecessary as Plaintiff repeatedly asked for the calls to stop. Even
for unanswered calls, Plaintiff had to waste time silencing the call or waiting for the phone to stop
ringing and Plaintiff had to waste time to check his voicemail. This also impaired the usefulness of
Plaintiff’s phone, which is designed to inform the user of important and legitimate missed
communications.
58.
Each phone call placed by Defendants to the Plaintiff’s phone without consent caused
Plaintiff to suffer the injury of occupation of his phone line by unwanted calls, making the phone
unavailable for legitimate callers or outgoing calls while the phone was ringing from Defendants’ calls.
59.
Each phone call where a voice message was left by Defendants without the consent
of the Plaintiff occupied space in Plaintiff’s phone.
60.
Every phone call placed by Defendants without express consent to Plaintiff’s phone
resulted in injury of trespass to Plaintiff’s chattel, namely his telephone.
61.
As a result of the calls described above, Plaintiff was affected in a personal and
individualized way through stress, anxiety, nervousness, distress and aggravation.
62.
ICOT officers and directors control ListenClear’s sales and marketing strategy,
including its decisions to solicit the unlawful use of autodialers.
9
63.
Upon information and belief, ICOT and ListenClear arbitrarily share and allocate
funds amongst themselves.
64.
ICOT has taken out, and paid for, insurance policies that list ListenClear as the insured.
65.
ICOT and ListenClear have a unity of business interest and operate under the
ListenClear brand.
66.
ListenClear has no separate interests or functions that exist outside of ICOT’s interests
and functions.
67.
A corporation or other entity that contracts out its telephone marketing may be held
vicariously liable under federal common law principles of agency for violations of section 227(b) or
section 227(c) that are committed by third-party telemarketers.
68.
ListenClear and ICOT are thus directly liable for PDM’s, Corporate Defendants’, and
Other Entity Defendants’ telemarketing calls because, upon information and belief, they actively
participated in the calls by allowing such an outside entity access to information and systems that
normally would be within the seller’s exclusive control by giving PDM, Corporate Defendants, and
Other Entity Defendants access to its calling systems.
69.
ListenClear and ICOT maintain interim control over PDM, Corporate Defendants,
and Other Entity Defendants, as they hired these companies to perform tasks and dictated parameters
for potential prospects.
70.
ListenClear and ICOT knew, or should have known, that PDM, Corporate
Defendants and Other Entity Defendants were violating the TCPA on its behalf and failed to take
effective steps within its power to force these companies to cease such conduct. ListenClear and ICOT
tacitly consented to such actions by not reasonably investigating or preventing such conduct.
CLASS ALLEGATIONS
71.
This action is brought as a class action. Plaintiff brings this action on behalf of himself
10
and on behalf of all other persons similarly situated pursuant to Rule 23 of the Federal Rules of Civil
Procedure.
72.
The identities of all class members are readily ascertainable from the records of PDM,
Corporate Defendants, Other Entity Defendants, ICOT and ListenClear.
73.
Excluded from the Plaintiff’s Class is PDM, Corporate Defendants, Other Entity
Defendants, ICOT, ListenClear, and all officers, members, partners, managers, directors, and
employees of PDM, Corporate Defendants, Other Entity Defendants, ICOT, and ListenClear, and all
of their respective immediate families, and legal counsel for all parties to this action and all members
of their immediate families.
74.
There are questions of law and fact common to the Plaintiff’s Class, which common
issues predominate over any issues involving only individual class members. The principal issues are
whether PDM, Corporate Defendants, Other Entity Defendants, ICOT, and ListenClear’s
communications with the Plaintiff, such as the above stated claims, violate provisions of the TCPA
and Missouri Consumer Fraud and Deceptive Business Practices Act Chapter 407.
75.
Plaintiff’s claims are typical of the class members, as all are based upon the same facts
and legal theories.
76.
Plaintiff will fairly and adequately protect the interests of the Plaintiff’s Class defined
in this complaint. Plaintiff has retained counsel with experience in handling consumer lawsuits,
complex legal issues, and class actions, and neither the Plaintiff nor his attorneys have any interests,
which might cause them not to vigorously pursue this action.
77.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a well-
defined community interest in the litigation:
a.
Numerosity: Plaintiff is informed and believes, and on that basis alleges, that
11
the Plaintiff’s Class defined above is so numerous that joinder of all members would be
impractical.
b. Common Questions Predominate: Common questions of law and fact exist
as to all members of the Plaintiff’s Class and those questions predominate over any
questions or issues involving only individual class members. The principal issues are
whether PDM’s, Corporate Defendants’, and Other Entity Defendants’ communications
with the Plaintiff, as directed by ICOT and ListenClear, such as in the above stated claims,
violate provisions of the TCPA and Missouri Consumer Fraud and Deceptive Business
Practices Act.
c.
Typicality: Plaintiff’s claims are typical of the claims of the class members.
Plaintiff and all members of Plaintiff’s Class defined in this complaint have claims arising
out of the Defendants’ common uniform course of conduct complained of herein.
d.
Adequacy: Plaintiff will fairly and adequately protect the interests of the class
members insofar as Plaintiff has no interests that are adverse to the absent class members.
Plaintiff is committed to vigorously litigating this matter. Plaintiff has also retained counsel
experienced in handling consumer lawsuits, complex legal issues, and class actions. Neither
the Plaintiff nor his counsel have any interests, which might cause them not to vigorously
pursue the instant class action lawsuit.
e.
Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all members
would be impracticable. Class action treatment will permit a large number of similarly
situated persons to prosecute their common claims in a single forum efficiently and without
unnecessary duplication of effort and expense that individual actions would engender.
Certification of a class under Rule 23(b)(l)(A) of the Federal Rules of Civil Procedure is
12
appropriate because adjudications with respect to individual members create a risk of
inconsistent or varying adjudication which could establish incompatible standards of
conduct for Defendants who, upon information and belief, instigate the autodialed calling
of non-consenting individuals throughout the United States of America and throughout
Missouri.
78.
Certification of a class under Rule 23(b)(2) of the Federal Rules of Civil Procedure is
also appropriate in that a determination that the above stated claims, violate provisions of the TCPA,
and is tantamount to declaratory relief and any monetary relief under the TPCA would be merely
incidental to that determination.
79.
Certification of a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure is
also appropriate in that the questions of law and fact common to members of the Plaintiff’s Class
predominate over any questions affecting an individual member, and a class action is superior to other
available methods for the fair and efficient adjudication of the controversy.
80.
Further, PDM, Corporate Defendants, Other Entity Defendants, ICOT, and
ListenClear have acted, or failed to act, on grounds generally applicable to the Rule (b)(l)(A) and (b)(2)
Class, thereby making appropriate final injunctive relief with respect to the Class as a whole.
81.
Depending on the outcome of further investigation and discovery, Plaintiff may, at the
time of class certification motion, seek to certify one or more classes only as to particular issues
pursuant to Fed. R. Civ. P. 23(c)(4).
82.
This cause of action is brought on behalf of Plaintiff and the members of a class.
83.
The class consists of all persons whom Defendants’ records reflect resided in the State
of Missouri and who were called with an auto-dialed by PDM, Corporate Defendants, and Other
Entity Defendants, at the instruction of ICOT or ListenClear and (a) who had not given written
consent to be subjected to these calls; or (b) had explicitly revoked or made clear the lack of consent
13
to make such calls; and (c) the Plaintiff asserts that the phone calls described contained violations of
the TCPA and Missouri Consumer Fraud and Deceptive Business Practices Act for making autodialed
telemarking calls in which they had no authority or right to make to Plaintiff and all those in the Class.
COUNT I
VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT, 47 U.S.C. §
227 ET SEQ.
84.
Plaintiff, individually and on behalf of all others similarly situated, incorporates by
reference all other paragraphs of this Complaint as if fully stated herein.
85.
The foregoing acts and omissions of the Defendants constitute violations of the
TPCA, including but not limited to each of the above cited provisions of 47 U.S.C. § 227 et seq.
86.
Defendants violated the TCPA by (a) initiating a telephone call using an automated
dialing system to Plaintiff’s telephone number assigned to him, or (b) by the fact that others caused
the initiation of those calls on its behalf. See C.F.R. 64.1200(a)(1)(iii); 47 U.S.C. § 227(b)(1).
87.
The TCPA provides a private right of action, wherein a person may, if otherwise
permitted by the laws or rules of court of a state, bring in an appropriate court of that state:
a.
An action based on a violation of this subsection or the regulations prescribed
under this subsection to enjoin such violation.
b.
An action to recover for actual monetary loss from such a violation, or to
receive $500 in damages for each such violation, whichever is greater; or
c.
Both such actions.
88.
The Court, in its discretion, may treble the statutory damages if the violation was
knowing. 47 U.S.C. § 227.
89.
The TCPA is a strict liability statute and Defendants are liable to Plaintiff, individually,
and on behalf of all others similarly situated, even if their actions were only negligent.
14
90.
Defendants knew or should have known that: (a) Plaintiff had not given express
permission or invitation for Defendants or anyone else to initiate a telephone call using an automated
dialing system to Plaintiff’s telephone number to solicit advertisements about Defendants’ goods or
services.
91.
If the Court finds that Defendants knowingly violated this subsection or the
regulations prescribed under this subsection, the Court may, in its discretion, increase the amount of
the award to an amount equal to not more than three times the amount available under subparagraph
(b) of this paragraph. 47 U.S.C. § 227(b)(3).
92.
Plaintiff, and all others similarly situated, is also entitled to and do seek injunctive relief
prohibiting the Defendants’ violation of the TCPA in the future.
WHEREFORE, Plaintiff, individually and on behalf of all others similarly situated,
respectfully requests that the Court grant Plaintiff, and all others similarly situated, the following relief
against the Defendants:
a.
Injunctive relief prohibiting such violations of the TCPA by the Defendant in
the future;
b.
As a result of the Defendants’ willful and/or knowing violations of 47 U.S.C.
§ 227, Plaintiff, and all others similarly situated, seek treble damages, as provided by statute,
of up to $1,500 for each and every call that violated the TCPA;
c.
As a result of Defendant’s violations of 47 U.S.C. § 227, Plaintiff, and all others
similarly situated, seek $500 in statutory damages for each and every call that violated the
TCPA;
d.
A declaration that Defendants’ conduct violated the TCPA and that this action
is just and proper;
15
e.
An award of costs and such further relief as the Court may deem just and
proper;
f.
That this Court award pre-judgment and post-judgment interest at the
statutory rate of 9%;
g.
That this Court award Plaintiff’s its attorney fees and all expenses incurred in
preparing and prosecuting this claim; and
h.
Such other relief as this Court may deem just and proper.
COUNT II
VIOLATIONS OF MISSOURI CONSUMER FRAUD AND DECEPTIVE BUSINESS
PRACTICES ACT Chapter 407
93.
Plaintiff, individually, and on behalf of all others similarly situated, incorporates by
reference the foregoing paragraphs of this Complaint as if fully set forth herein.
94.
In accordance with Chapter 407, Plaintiff, and all others similarly situated, bring Count
II for Defendants’ unfair practice of making unsolicited and unlawful telephone calls while using an
automated dialing system to Plaintiff’s telephone number:
All persons who, on or after four years prior to the filing of this action, were
sent telephone messages by or on behalf of Defendants with respect to whom
Defendants cannot provide evidence of prior express permission or invitation.
95.
Defendants violated the unfairness predicate of the Act by engaging in an
unscrupulous business practice and by violating Missouri public policy, which public policy violations
in the aggregate caused substantial injury to Plaintiff.
96.
Defendants’ misconduct caused damages to Plaintiff, including loss of the exclusive
use of his telephone, loss of time, and emotional distress.
97.
Plaintiff routinely uses his telephone. Defendants’ actions prevented Plaintiff from
using his telephone during the time Defendants contacted Plaintiff’s telephone for Defendants’
unlawful purposes. Plaintiff lost valuable time receiving Defendants’ unlawful telephone calls.
16
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of all others similarly situated,
respectfully requests that the Court grant Plaintiff, and all others similarly situated, the following relief
against the Defendants:
a.
That this Court award judgment against Defendant in a total amount in excess
of the $25,000 jurisdictional amount of this Court to be proven at trial;
b.
That this Court award damages to Plaintiff, and all others similarly situated;
c.
That this Court award treble damages to Plaintiff, and all others similarly
situated, for knowing violations of the TCPA;
d.
That this Court award punitive damages to Plaintiff, and all others similarly
situated;
e.
That this Court declare that Defendants’ conduct violated the TCPA and that
this action is just and proper;
f.
That this Court award Plaintiff, and all others similarly situated, damages and
attorney fees for violation of The Missouri Consumer Fraud and Deceptive Business Practices
Act Chapter 407;
g.
That this Court award Plaintiff’s attorneys’ fees and costs;
h.
That this Court award Plaintiff all expenses incurred in preparing and
prosecuting these claims;
i.
That this Court enter an injunction prohibiting Defendants from such
violations of the TCPA by the Defendants in the future; and
j.
Awarding such further relief as this Court may deem just and proper.
17
Dated: November 21, 2019
Respectfully Submitted,
HALVORSEN KLOTE
By: /s/ Samantha Orlowski
Samantha J. Orlowski, #72058
Joel S. Halvorsen, #67032
680 Craig Road, Suite 104
St. Louis, MO 63141
P: (314) 451-1314
F: (314) 787-4323
sam@hklawstl.com
joel@hklawstl.com
Attorneys for Plaintiffs
18
| privacy |
Rqo3CocBD5gMZwczruUo |
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Menachem Gutnick, individually and on behalf
of all others similarly situated,
C.A. No: 9:21-cv-81492
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Midland Credit Management, Inc.,
Defendant(s).
COMPLAINT
Plaintiff Menachem Gutnick (hereinafter “Plaintiff”) brings this Class Action Complaint by
and through his attorneys, Zeig Law Firm, LLC, against Defendant Midland Credit Management,
Inc. (hereinafter “MCM” or “Defendant”) individually and on behalf of a class of all others similarly
situated, pursuant to Rule 23 of the Federal Rules of Civil Procedure, based upon information and
belief of Plaintiff’s counsel, except for allegations specifically pertaining to Plaintiff, which are
based upon Plaintiff's personal knowledge.
INTRODUCTION
1.
Congress enacted the Fair Debt Collection Practices Act (“FDCPA” or the “Act”) in
1977 in response to the “abundant evidence of the use of abusive, deceptive, and unfair debt
collection practices by many debt collectors.” 15 U.S.C. §1692(a). At that time, Congress was
concerned that “abusive debt collection practices contribute to the number of personal
bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.”
Id. Congress concluded that “existing laws…[we]re inadequate to protect consumers,” and that
“the effective collection of debts” does not require “misrepresentation or other abusive debt
collection practices.” 15 U.S.C. §§ 1692(b) & (c).
2.
Congress explained that the purpose of the Act was not only to eliminate abusive
debt collection practices, but also to “insure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged.” 15 U.S.C. § 1692(e).
After determining that the existing consumer protection laws were inadequate Id. § 1692(b),
Congress gave consumers a private cause of action against debt collectors who fail to comply
with the Act Id. § 1692k.
JURISDICTION AND VENUE
3.
The Court has jurisdiction over this class action pursuant to 28 U.S.C. § 1331 and
15 U.S.C. § 1692 et. seq. The Court has pendent jurisdiction over any state law claims in this
action pursuant to 28 U.S.C. § 1367(a).
4.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) as this is
where is where the Plaintiff resides, as well as a substantial part of the events or omissions giving
rise to the claim occurred and where Plaintiff resides.
NATURE OF THE ACTION
5.
Plaintiff brings this class action on behalf of a class of Florida consumers under §
1692 et seq. of Title 15 of the United States Code, commonly referred to as the Fair Debt
Collections Practices Act (“FDCPA”).
6.
Plaintiff is seeking damages and declaratory relief.
PARTIES
7.
Plaintiff is a resident of the State of Florida, County of Palm Beach.
8.
Defendant MCM is a “debt collector” as the phrase is defined in 15 U.S.C.
§ 1692(a)(6) and as used in the FDCPA and can be served upon their registered agent, Midland
Funding LLC, 13008 Telecom Dr Ste. 350. Temple Terrace, FL 33637.
9.
Upon information and belief, Defendant MCM is a company that uses the mail,
telephone, and facsimile and regularly engages in business, the principal purpose of which is to
attempt to collect debts.
CLASS ALLEGATIONS
10.
Plaintiffs bring this claim on behalf of the following case, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
11.
The Class consists of:
a. all individuals with addresses in the State of Florida;
b. to whom Defendant MCM sent a collection letter attempting to collect a
consumer debt;
c. containing options for settlement;
d. one of which is for monthly payments as low as $50 per month;
e. which letter was sent on or after a date one (1) year prior to the filing of this
action and on or before a date twenty-one (2l) days after the filing of this action.
12.
The identities of all class members are readily ascertainable from the records of
Defendants and those companies and entities on whose behalf they attempt to collect and/or
have purchased debts.
13.
Excluded from the Plaintiff Class are the Defendants and all officer, members,
partners, managers, directors and employees of the Defendants and their respective immediate
families, and legal counsel for all parties to this action, and all members of their immediate
families.
14.
There are questions of law and fact common to the Plaintiff Class, which common
issues predominate over any issues involving only individual class members. The principal issue
is whether the Defendant’s written communications to consumers, in the forms attached as
Exhibit A, violate 15 U.S.C. § 1692e et seq.
15.
The Plaintiff’s claims are typical of the class members, as all are based upon the same
facts and legal theories. The Plaintiff will fairly and adequately protect the interests of the
Plaintiff Class defined in this complaint. The Plaintiff has retained counsel with experience in
handling consumer lawsuits, complex legal issues, and class actions, and neither the Plaintiff
nor his attorneys have any interests, which might cause them not to vigorously pursue this action.
16.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a
well-defined community interest in the litigation:
a. Numerosity: The Plaintiff is informed and believes, and on that basis alleges,
that the Plaintiff Class defined above is so numerous that joinder of all members
would be impractical.
b. Common Questions Predominate: Common questions of law and fact exist as
to all members of the Plaintiff Class and those questions predominance over any
questions or issues involving only individual class members. The principal issue
is whether the Defendant’s written communications to consumers, in the forms
attached as Exhibit A violate 15 U.S.C. § 1692e et seq.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class members.
The Plaintiff and all members of the Plaintiff Class have claims arising out of the
Defendants' common uniform course of conduct complained of herein.
d. Adequacy: The Plaintiff will fairly and adequately protect the interests of the
class members insofar as Plaintiff has no interests that are adverse to the absent
class members. The Plaintiff is committed to vigorously litigating this matter.
Plaintiff has also retained counsel experienced in handling consumer lawsuits,
complex legal issues, and class actions. Neither the Plaintiff nor his counsel have
any interests which might cause them not to vigorously pursue the instant class
action lawsuit.
e. Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all
members would be impracticable. Class action treatment will permit a large
number of similarly situated persons to prosecute their common claims in a single
forum efficiently and without unnecessary duplication of effort and expense that
individual actions would engender.
17.
Certification of a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure
is also appropriate in that the questions of law and fact common to members of the Plaintiff
Class predominate over any questions affecting an individual member, and a class action is
superior to other available methods for the fair and efficient adjudication of the controversy.
18.
Depending on the outcome of further investigation and discovery, Plaintiff may, at
the time of class certification motion, seek to certify a class(es) only as to particular issues
pursuant to Fed. R. Civ. P. 23(c)(4).
FACTUAL ALLEGATIONS
19.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
numbered above herein with the same force and effect as if the same were set forth at length
herein.
20.
Some time prior to February 6, 2021, an obligation was allegedly incurred to creditor
Synchrony Bank.
21.
The Synchrony Bank obligation arose out of transactions incurred primarily for
personal, family or household purposes, specifically a personal credit card.
22.
The alleged Synchrony Bank obligation is a “debt” as defined by 15 U.S.C.§
1692a(5).
23.
Synchrony Bank is a “creditor” as defined by 15 U.S.C.§ 1692a(4).
24.
Synchrony Bank sold the alleged debt to Defendant MCM, who is the current owner
of the alleged debt for the purpose of debt collection. Therefore, Defendant MCM is a debt
collector as defined by 15 U.S.C.§ 1692a(6).
Violation – February 6, 2021 Collection Letter
25.
On or about February 6, 2021, Defendant MCM sent the Plaintiff a collection letter
(the “Letter”) regarding the alleged debt originally owed to Capital One. (See a true and correct
copy of the Letter attached as Exhibit A.)
26.
The Letter states a current balance of $3,167.14.
27.
The Letter goes on to state “You have been pre-approved for options designed to
save you money. Act now to maximize your savings…”
28.
The Letter then proceeds to give three payment options:
1) Option 1: 10% Off – Pay $2,850.43
2) Option 2: 5% Off – 6 monthly payments of $501.46
3) Option 3: Monthly Payments as low as: $50 per month
29.
The third option provided by Defendant is not adequately explained and results in at
least two different possible interpretations.
30.
First, Option 3 might be construed as an option by which a discounted total amount
is paid by monthly installments of $50 per month.
31.
Second, Option 3 might be construed as an option by which monthly installments of
$50 are made until the total debt amount is paid in full.
32.
By failing to explain whether Option 3 is a settlement option or an option to pay in
full, the Letter is false, deceptive and misleading.
33.
Furthermore, the Letter references “savings” and proclaims that it is “designed to
save [the consumer] money”.
34.
If in fact Option 3 is an offer for payment in full on the entire balance, the promises
made by Defendant in the Letter to the Plaintiff consumer are completely false.
35.
These violations by Defendant were knowing, willful, negligent and/or intentional,
and Defendant did not maintain procedures reasonably adapted to avoid any such violations.
36.
Congress is empowered to pass laws and is well-positioned to create laws that will
better society at large.
37.
As it relates to this case, Congress identified a concrete and particularized harm with
a close common-law analogue to the traditional tort of fraud.
38.
Now, consumers have a right to receive proper notice from debt collectors, including
a right to receive proper notice of the nature of their debts and settlement options. When a debt
collector fails to effectively inform the consumer of how much it would cost to satisfy their debt
in full satisfaction of the obligation, in violation of statutory law, the debt collector has harmed
the consumer.
39.
Defendant’s collection efforts with respect to this alleged debt from Plaintiff caused
Plaintiff to suffer concrete and particularized harm, inter alia, because the FDCPA provides
Plaintiff with the legally protected right not to be misled or treated unfairly with respect to any
action regarding the collection of any consumer debt.
40.
Defendant’s deceptive, misleading and unfair representations with respect to its
collection efforts were material misrepresentations that affected and frustrated Plaintiff's ability
to intelligently respond to Defendant’s collection efforts because Plaintiff could not adequately
respond to Defendant’s demand for payment of this debt.
41.
As a result of Defendant’s deceptive, misleading and unfair debt collection practices,
Plaintiff has been damaged.
COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692e et seq.
42.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
above herein with the same force and effect as if the same were set forth at length herein.
43.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692e.
44.
Pursuant to 15 U.S.C. §1692e, a debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.
45.
Defendant violated §1692e:
a. As the Letter is open to more than one reasonable interpretation, at least one of
which is inaccurate in violation of §1692e(2).
b. By making a false and misleading representation in violation of §1692e(10).
46.
By reason thereof, Defendant is liable to Plaintiff for judgment in that Defendant's
conduct violated Section 1692e et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
DEMAND FOR TRIAL BY JURY
47.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby requests
a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Menacham Gutnick, individually and on behalf of all others
similarly situated, demands judgment from Defendant MCM as follows:
1.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Justin Zeig, Esq. as Class Counsel;
2.
Awarding Plaintiff and the Class statutory damages;
3.
Awarding Plaintiff and the Class actual damages;
4.
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees and
expenses;
5.
Awarding pre-judgment interest and post-judgment interest; and
6.
Awarding Plaintiff and the Class such other and further relief as this Court may deem
just and proper.
May 3, 2021
Respectfully Submitted,
ZEIG LAW FIRM, LLC
/s/ Justin Zeig
Justin Zeig, Esq.
3475 Sheridan St. Ste 310
Hollywood, FL 33021
Telephone: (754) 217-3084
Facsimile: (954) 272-7807
justin@zeiglawfirm.com
Counsel for Plaintiff
| consumer fraud |
8fDdEocBD5gMZwcz3JA8 | IN THE UNITED STATES DISTRICT COURT
FEB 09 2011
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
GREENVILLE DIVISION
PLAINTIFF
No.: 4.11-CV-012PS
JURY DEMANDED
DEFENDANTS
COMPLAINT & DEMAND FOR JURY TRIAL
COMES NOW Plaintiff, Mary Jackson ("Plaintiff"), on behalf of herself and others
PARTIES
1.
Plaintiff is a resident of Choctaw County, Alabama and is a former employee of
2.
Plaintiff brings this action, on behalf of herself and all others similarly situated,
3.
Defendant, Healthport Technologies, LLC is a Georgia limited liability company
4.
This action is brought under the FLSA to recover from Defendant unpaid
5.
Based upon information and belief, at all material times relevant to this action,
6.
Defendant is engaged in interstate commerce and was SO engaged during
7.
At all relevant times, Defendant had two or more employees of the enterprise
8.
Plaintiff and those similarly situated to her were individually covered by the
JURISDICTION AND VENUE
9.
This Court has subject matter jurisdiction over Plaintiff's claims pursuant to 28
10.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) as
FACTS
11.
Plaintiff was employed by Defendant as a Release of Information Specialist Field
12.
Plaintiff was an employee of Defendant.
13.
Defendant provided medical record scanning services and release of information
14.
Plaintiff's duties and job responsibilities as a Release of Information Specialist for
15.
Plaintiff would scan medical records for a clinic and transmit them to Defendant
16.
Defendant paid Plaintiff a commission based on a percentage of the billable
17.
Defendant also required Plaintiff to scan non-billable records, but Defendant did
18.
Defendant also paid Plaintiff a car allowance.
19.
Defendant did not pay Plaintiff for the time spent driving to and from the various
20.
Plaintiff's time spent driving to and from the various medical clinics and
21.
Plaintiff's time spent driving to and from the various medical clinics and
22.
Plaintiff's time spent driving to and from the various medical clinics and
23.
During one or more weeks while employed by Defendant, Plaintiff did not make
24.
Plaintiff also worked more than 40 hours in a workweek for one or more
25.
Defendant did not properly compensate Plaintiff for the hours worked over 40 in a
26.
Defendant failed to comply with 29 USC § § 201-209, because Plaintiff performed
27.
Defendant failed to comply with 29 USC §§ 201-209 because Defendant failed to
28.
Upon information and belief, the records - to the extent such records exist
-
COUNT ONE
FAILURE TO PAY MINIMUM WAGE
29.
Plaintiff reasserts and incorporates by reference all allegations contained within
30.
Plaintiff was not paid at least the minimum wage for each hour worked while
31.
Plaintiff was entitled to be paid at least the minimum wage for each hour that she32.
Plaintiff expressly demanded proper compensation for hours worked, but she
33.
Defendant willfully, intentionally, and/or recklessly failed to pay Plaintiff at least
34.
Upon information and belief, Defendant's failure to properly compensate Plaintiff
COUNT TWO
RECOVERY OF OVERTIME COMPENSATION
35.
Plaintiff reasserts and incorporates by reference all allegations contained within
36.
During her employment with Defendant, Plaintiff worked more than forty (40)
37.
Defendant failed to properly compensate Plaintiff for overtime hours that she
38.
Defendant willfully, intentionally, and/or recklessly failed to pay Plaintiff at least
39.
Upon information and belief, Defendant's failure to properly compensate Plaintiff
DAMAGES AND REQUESTED RELIEF
40.
As a result of Defendant's intentional, willful, and reckless failure to lawfully
41.
As a result of Defendant's intentional, willful, and reckless violation(s) of the
42.
Plaintiff respectfully demands a trial by jury.
WHEREFORE, Plaintiff and all other similarly situated employees of Defendant demand
a)
payment of their overtime wages and/or minimum wages, where applicable, at
the correct rate pursuant to 29 U.S.C. § 207;
b)
an equal amount of liquidated damages pursuant to 29 U.S.C. § 216(b);
c)
declaratory relief pursuant to the DJA and FLSA finding that all hours worked
should be paid at an amount at least equal to the applicable minimum wage
and that all hours worked over forty in a workweek should be paid time and
one-half of an employees' regular rate of pay as long as an employee is not
exempt from the FLSA;
d)
pre-judgment and post-judgment interest where applicable;
e)
reasonable attorneys' fees and costs pursuant to 29 U.S.C. § 216(b); and
f)
all other relief that the Court deems just and proper.
Respectfully submitted,
MORGAN & MORGAN, PA
By:
J
Justin 2600 One M Ross Commerce #99832
Square
Memphis, Tennessee 38103
Tel: (901) 333-1844
Fax: (901) 333-1897
Email: jross@forthepeople.com
Submitted this 3rd day of February 2011. | employment & labor |
yts0EIcBD5gMZwczgSOT | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO.: 0:19cv60960
JERRY PAUL, individually and
on behalf of a class of others
similarly situated,
Plaintiff,
v.
COMPLAINT – CLASS ACTION
COMMONWEALTH FINANCIAL SYSTEMS, INC.,
Defendants.
_______________________________/
CLASS ACTION COMPLAINT SEEKING
INJUNCTIVE RELIEF AND STATUTORY DAMAGES
JURY DEMAND
On behalf of the putative class, Plaintiff JERRY PAUL (“Plaintiff”), seeks redress for the
unlawful conduct of Defendant COMMONWEALTH FINANCIAL SYSTEMS, INC.
(“Defendant”), to wit, violation of 15 U.S.C. § 1692 et seq., the Fair Debt Collection Practices Act
(“FDCPA”). Simply put, Defendant has dispatched thousands unlawful collection letters to United
States consumers, whereby each such letter contains identical violations of §§ 1692e, 1692e(2)(a),
1692e(5), 1692e(10) and/or 1692f of the FDCPA.
INTRODUCTION
1.
The FDCPA “is a consumer protection statute that imposes open-ended
prohibitions on, inter alia, false, deceptive, or unfair’” debt-collection practices. Crawford v.
LVNV Funding, LLC, 758 F.3d 1254, 1257 (11th Cir. 2014) (quoting Jerman v. Carlisle,
McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 587 (2010)).
Page 1 of 8
2.
“Congress enacted the FDCPA after noting abundant evidence of the use of
abusive, deceptive, and unfair debt collection practices by many debt collectors.” Brown v. Card
Serv. Ctr., 464 F.3d 450 (3rd Cir. 2006) (internal quotations omitted); see, e.g., Id. at 453 (quoting
15 U.S.C. §1692(a)) (“Abusive debt collection practices contribute to the number of personal
bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.”).
3.
As set forth in more detail below, Defendant has dispatched thousands of unlawful
collection letters to consumers in an attempt to collect a debt, and in each such letter, Defendant
falsely claimed that certain debts were barred by the statute of limitations, when they were not, in
violation of §§ 1692e, 1692e(2)(a), 1692e(5), 1692e(10) and/or 1692f.. Accordingly, Plaintiff, on
behalf of the putative class, seeks statutory damages under the FDCPA over the punitive class
timeframes set forth herein.
DEMAND FOR JURY TRIAL
4.
Plaintiff is entitled to, and hereby respectfully demands, a trial by jury on all counts
alleged and on any issues so triable. See Sibley v. Fulton DeKalb Collection Service, 677 F.2d 830
(11th Cir.1982) (wherein the Eleventh Circuit held that, “a plaintiff, upon timely demand, is
entitled to a trial by jury in a claim for damages under the FDCPA.”).
JURISDICTION AND VENUE
5.
This Court has jurisdiction for all counts under 28 U.S.C. §§ 1331, 1337 and 15
U.S.C. § 1692k.
6.
Jurisdiction of this Court arises under 15 U.S.C. §1692k(d), 28 U.S.C §1331, and
28 U.S.C §1337.
7.
Venue in this District is proper because Plaintiff resides here, Defendant transacts
business here, and the complained of conduct occurred within the venue.
Page 2 of 8
PARTIES
8.
Plaintiff is a natural person, and a citizen of the State of Florida, residing in Broward
County, Florida.
9.
Plaintiff is a “consumer” within the meaning of the FDCPA. See 15 U.S.C §1692a.
10.
Defendant is a Pennsylvania corporation, with its principal place of business
located in Dickson City, PA.
11.
Defendant engages in interstate commerce by regularly using telephone and mail
in a business whose principal purpose is the collection of debts.
12.
At all times material hereto, Defendant was acting as a debt collector in respect to
the collection of Plaintiff’s debts.
FACTUAL ALLEGATIONS
13.
The debt at issue (the “Consumer Debt”) is a financial obligation Plaintiff incurred
primarily for personal, family, or household purposes.
14.
The Consumer Debt is a “debt” governed by the FDCPA. See 15 U.S.C §1692a(5).
15.
On a date better known by Defendant, Defendant began attempting collect the
Consumer Debts from Plaintiff.
16.
On or about March 29, 2019 Defendant sent a collection letter to Plaintiff (the
“Collection Letter”) in an attempt to collect the Consumer Debt. A copy of the Collection Letter
is attached hereto as Exhibit “A.”
17.
Below is an excerpt taken directly from the Collection Letter which lists the
multiple debts that defendant is attempting to collect and, inter alia, the dates of service:
Page 3 of 8
See Exhibit A.
18.
At the bottom of the Collection Letter, the following disclosure is made:
See Exhibit A.
19.
In Florida, there is a five year statute of limitation for medical debts in which a
written agreement to pay exists.
20.
Here, there are multiple accounts that are less than five years old and therefore,
contrary to the statement made by Defendant regarding the enforceability of the debts listed,
Plaintiff can be sued.
21.
Defendant has therefore violated multiple sections of the FDCPA by making false,
misleading and deceptive statements regarding the enforceability of Plaintiff’s debts.
22.
Any potential bona fide error defense which relies upon Defendant’s mistaken
interpretation of the legal duties imposed upon them by the FDCPA would fail as a matter of law.
Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A., 130 S.Ct. 1605 (2010).
CLASS ACTION ALLEGATIONS
23.
This action is brought on behalf of the following class, to wit, the “Statute of
Limitations Class.”
Page 4 of 8
24.
The “Statute of Limitations Class” consists of:
(i) all persons in the United States (ii) who were mailed a letter (iii)
between April 12, 2018 and April 12, 2019 (iv) by Defendant (v) in
an attempt to collect a debt incurred for personal, family, or
household purposes, (vi) of which Defendant claimed that the statute
of limitations had expired with regard to a debt when it actually did
not.
25.
Plaintiff alleges on information and belief that the Statute of Limitations Class is
so numerous that joinder of all members is impracticable because Defendant has dispatched
thousands of identical dunning letters to consumers attempting to collect consumer debts.
A.
EXISTENCE AND PREDOMINANCE OF COMMON QUESTIONS OF LAW & FACT
26.
Common questions of law and fact exist as to each class, and predominate over any
issues involving only individual class members.
27.
With respect to the Statute of Limitations Class:
(a)
The factual issues common to the class are whether members received a
collection letter from Defendant, in an attempt to collect a consumer debt,
within the class period; and
(b)
The principal legal issue of the class is whether Defendant violated §§
1692e, 1692e(2)(a), 1692e(5), 1692e(10) and/or 1692f by falsely claiming
that a debt was barred by the statute of limitations.
28.
Excluded from each class is Defendant’s agents and employees, Plaintiff’s
attorneys and their employees, the Judge to whom this action is assigned, and any member of the
Judge’s staff and immediate family.
Page 5 of 8
B.
TYPICALITY
29.
Plaintiff’s claims are typical of the claims of each class member and are based on
the same facts and legal theories.
C.
ADEQUACY
30.
Plaintiff is an adequate representative of each of the class.
31.
Plaintiff will fairly and adequately protect the interests of the class.
32.
Plaintiff has retained counsel experienced in handling actions involving unlawful
practices under the FDCPA and other consumer-based class actions. Neither Plaintiff nor
Plaintiff’s counsel have any interests which might cause them (Plaintiff or Plaintiff’s counsel) to
not vigorously pursue this action.
D.
PREDOMINANCE AND SUPERIORITY
33.
Certification of the class under Rule 23(b)(3) of the Federal Rules of Civil
Procedure is also appropriate in that:
(a)
The questions of law or fact common to the members of the class
predominate over any questions affecting an individual member.
(b)
A class action is superior to other available methods for the fair and efficient
adjudication of the controversy.
34.
Certification of a class under Rule 23(b)(2) of the Federal Rules of Civil Procedure
is also appropriate, in that, Defendant has acted on grounds generally applicable to the class
thereby making appropriate declaratory relief with respect to the class as a whole. Plaintiff request
Page 6 of 8
certification of a hybrid class under Rule 23(b)(3) for monetary damages and to Rule 23(b)(2) for
injunctive and equitable relief.
COUNT I.
VIOLATION OF 15 U.S.C §§ 1692e, 1692e(2)(a), 1692e(5), 1692e(10) and/or 1692f
33.
Plaintiff incorporates by reference paragraphs 13-34 of this Complaint as though
fully stated herein.
34.
Pursuant to § 1692e(2)(a) of the FDCPA, Defendant is prohibited from, inter alia,
falsely representing the character, amount or legal status of the consumer debt. See 15 U.S.C. §
1692e(2)(a). Here, by falsely stating that the Plaintiff’s debt(s) were no longer legally enforceable,
Defendant falsely represented the character and legal status of the debts it sought to collect.
35.
Section 1692e(5) of the FDCPA prohibits “the threat to take any action that cannot
legally be taken or that is not intended to be taken.” 15 U.S.C. § 1692e(5). Here, by falsely stating
that the Plaintiff’s debt(s) were no longer legally enforceable, Defendant threatened to take an
action (or omission) that it cannot legally take nor did it intend to take.
36.
Section 1692e(10) of the FDCPA prohibits “the use of any false representation or
deceptive means to collect or attempt to collect any debt or to obtain information concerning a
consumer.” 15 U.S.C. § 1692e(10). Here, by falsely stating that the Plaintiff’s debt(s) were no
longer legally enforceable, Defendant made false, misleading and/or deceptive representations to
members of the class with regards to their actual rights.
37.
Section 1692f of the FDCPA prohibits “unfair or unconscionable means to collect
or attempt to collect any debt.” 15 U.S.C. § 1692f. Here, by falsely stating that the Plaintiff’s
Page 7 of 8
debt(s) were no longer legally enforceable, Defendant utilized unfair and/or unconscionable means
in collecting debts from members of the class.
WHEREFORE, Plaintiff, individually and on behalf of the Statute of Limitations Class
request that the Court enter judgment in favor of Plaintiff and the G-Notice Class and against
Defendant for:
(1)
Statutory damages, as provided under 15 U.S.C. § 1692k(a)(2)(B);
(2)
Attorney’s fees, litigation expenses and costs of the instant suit, as provided under
15 U.S.C. § 1692k(a)(3); and
(1)
Such other or further relief as the Court deems proper. Such other or further relief
as the Court deems proper.
DATED: April 14, 2019
Respectfully Submitted,
/s/ Jibrael S. Hindi .
JIBRAEL S. HINDI, ESQ.
Florida Bar No.: 118259
E-mail:
jibrael@jibraellaw.com
THE LAW OFFICES OF JIBRAEL S. HINDI
110 SE 6th Street, Suite 1744
Fort Lauderdale, Florida 33301
Phone:
954-907-1136
Fax:
855-529-9540
Page 8 of 8
| consumer fraud |
YADQFIcBD5gMZwczLTf1 | LEON GREENBERG, ESQ.
Law Office of Leon Greenberg
2965 South Jones Boulevard #E-4
Las Vegas, Nevada 89146
13
CV
(702) 383-6085
(702) 385-1827 (fax)
leongreenberg@overtimelaw.com
Attorney for Plaintiff
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
X
SABRINA PENCEAL, SHIREEF
Case No :
JONES and KRISTY WALDRIP,
2013
Individually and on behalf of
)
all others similarly
)
COMPLAINT
situated,
CLASS ACTION
Plaintiffs,
)
VS.
)
)
)
EMPIRE BEAUTY SCHOOL INC. / EEG
)
INC., EEG LLC, CHIC SCHOOLS,
)
INC., , EMPIRE EDUCATION GROUP,
)
INC., FRANK SCHOENEMAN, MICHAEL
)
D. BOUMAN, REGIS CORPORATION,
)
and "John Doe Entities", name
)
fictitious, name and number
)
unknown, all conducting
)
business as the Empire
)
Education Group,
)
)
Defendants.
)
)
allege:
JURISDICTION AND VENUE
1.
use or handling of goods that have moved or were moving in
interstate commerce, as those terms are defined in the FLSA.
2.
and fact as the FLSA claims. CAFA jurisdiction is properly
under CAFA over such claims are present.
3.
made herein at that location.
PARTIES
York.
Pennsylvania.
6.
and performed uncompensated labor for defendants in Colorado.
7.
State of New York is in New York County.
8.
Defendant EEG Inc. (one of the "Empire Corporation"
various states besides the State of Delaware.
9.
Defendant EEG LLC (one of the "Empire Corporation"
10.
Defendant Chic Schools, Inc. (one of the "Empire
the laws of the State of Michigan.entity its jurisdiction of incorporation is unknown.
to reflect their true names.
14.
stock is publicly traded on the New York Stock Exchange.
through one or more intermediaries, of one or more Empire
defendants.
and/or one or more of the "John Doe" entity defendants.
17.
through one or more intermediaries, of one or more Empire
defendants.
18.
Corporation Defendants.
19.
defendants in Arizona, Colorado, Florida, Georgia, Illinois,
Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan,
operation, both in terms of students, revenue, and number of
including the Empire Beauty School name.
CLASS ACTION AND REPRESENTATIVE ALLEGATIONS
20. The named Plaintiffs bring this action on their own
and on behalf of the general public.
Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan,
Rhode Island, Tennessee, Virginia and Wisconsin (the "state
for the reasons alleged herein.
of this action through the date of any judgment, such claims
commencement of this action through the date of any judgment.
the class is impracticable.
24.
for in 29 U.S.C. § 206, such conduct also violating the legalthe class to the relief requested in this Complaint.
the claims of those in the class. The named plaintiffs have
defendants towards the class and/or the risk of inconsistent
met warranting the class action certification of such claims.
26.
court.
RELEVANT FACTS OF THE DEFENDANTS' BUSINESS
OPERATIONS AND THE PARTIES' RELATIONSHIP
for-profit business, meaning it is not registered with, or
charitable enterprise.
or returns.
practice, as regulated by various state laws, the trades of
manicuring.
services, for a fee, to members of the public (the "personal
manicuring services.
the receipt of such services.
services business.
labor.
public paid a fee to the Empire Beauty School, was furnished
exclusively or predominately by the class members.
the FLSA and such state laws.of the typical prices it charges for those services.
37. The Empire Beauty School competes with other profit
personal services.
38. The Empire Beauty School is able to advantageously
those charged by its competitors.
operating costs in its personal services business because it
wage required by the FLSA or state law to their employees who
provide the same labor and services to the public.
consumed in providing such personal services.
the educational services business.
43.
School's personal services business benefits them in securing
ultimate goal of being licensed to practice their desired
occupation, defendants' decision to operate the Empire Beauty
fee for such personal services, or if it only charged a fee
sufficient to cover the actual cost of the materials, if any,
services.unpaid labor of the class members.
competitors must charge, such competitors paying at least the
unpaid labor in the Empire Beauty School's personal services
46. The amount of hours of unpaid labor that the class
business is known to the defendants who kept detailed
500 hours.
HOW THE RELEVANT FACTS ESTABLISH AN
EMPLOYMENT RELATIONSHIP FOR THE PURPOSES
OF THE FLSA AND STATE LAW
putative class members in the Empire Beauty School's personal
the following reasons:
labor;
their labor in the Empire Beauty School's personal
them in achieving their occupational goals, were
charges;
(c) The class members' labor in the Empire Beauty
not confer any educational or occupational benefit
necessary for the conducting of the Empire Beauty
to pay the class members any wages whatsoever; and
(e) For the reasons stated in paragraph 45, as
personal services business depresses the wages of
opportunities in that industry.
HOW THE RELEVANT FACTS RENDER THE
DEFENDANTS OTHER THAN THE EMPIRE
CORPORATIONS LEGALLY RESPONSIBLE
FOR THE PLAINTIFFS' CLAIMSstate law alleged in this complaint.
in this complaint.
FLSA and the state minimum wage laws that are alleged in this
Beauty School.
School.
upon the unpaid labor of the class members.
laws in the states where the Empire Beauty School operated.
and the class members, were made aware that the use of unpaid
using uncompensated student labor in a profit making personal
services business.
and the class members, were made aware that the use of unpaid
been found by at least one court to violate the FLSA. The
using uncompensated student labor in a profit making personal
services business.
and/or they acquiesced to the continuation of such violationscivilly liable for such violations of law.
FIRST CLAIM FOR RELIEF UNDER
THE FAIR LABOR STANDARDS ACT
though fully set forth herein.
currently $7.25 an hour, for each hour that they labored in
hours per week.
a week, the overtime pay requirements of 29 U.S.C. $ 207.
in that defendants were aware they were running a for profit
hourly wage requirements of the FLSA.
FLSA.
SECOND CLAIM FOR RELIEF UNDER
STATE LAWS REQUIRING A MINIMUM HOURLY WAGE
AND UNDER CERTAIN CIRCUMSTANCES AN OVERTIME WAGE
though fully set forth herein.
Illinois, Kentucky, Maine, Maryland, Massachusetts, Michigan,
that right through civil action) ;
Wage Order (s) issued thereunder, and Section 15 of
the payment of minimum wages;
(c)
the payment of minimum wages;
(d) Illinois Statutes Chapter 820, Section 105 et seq.;
(e)
Kentucky Revised Statutes 337.275;
(f)
Maine Revised Statutes Title 26, Section 664;
(g)
Maryland Labor and Employment Code § 3-413;
(h)
wage claims) ;
(i) Michigan Statutes Section 408.384;
Chapter 177;
(k)
New Jersey Statutes Section 34:11-56a4;(1) New York Labor Law Section 652;
(m)
4111 of the Ohio Revised Code;
(n)
333.104;
(o) Rhode Island General Laws § 28-12-3;
the same.
Colorado, Florida, Illinois, Kentucky, Maine, Maryland,
such states' laws.
Colorado, Florida, Illinois, Kentucky, Maine, Maryland,
states' minimum wage or overtime wage payment requirements.
THIRD CLAIM FOR RELIEF UNDER
STATE STATUTES REQUIRING THE
PAYMENT OF EARNED AND UNPAID WAGES
though fully set forth herein.
minimum hourly wages required by the FLSA and in certain
(a)
Arizona Revised Statutes, §§ 23-351, 23-355, 23-353
(b)
(c) Georgia Code § 34-7-2;
(e) Indiana Code 22-2-5-1;
(f) Kentucky Revised Statutes 337.020;
(h)
of triple damages) ;
(j) Michigan Statutes Section 408.384;
(k) Minnesota Statutes § 181.10, 181.171;
(1) New Jersey Statutes $34.11-4.2 and § 34:11-4.7;
(m) New York Labor Law Section 198;
(n)
and 95-25.22;
(o) Ohio Revised Code Sec. 4113.15;
other applicable provisions;
(r)
Tennessee Code Annotated § 50-2-103;
thereof including Wis. Stat. § 109.03.
69.
pursuant to such states' laws.pursuant to such states' laws.
continuing to fail to pay the wages of the class members, as
Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts,
Pennsylvania, Rhode Island, Tennessee and Wisconsin.
FOURTH CLAIM FOR RELIEF UNDER
STATE STATUTES IMPOSING PENALTIES OR
CONTINUING WAGE PAYMENT OBLIGATIONS
though fully set forth herein.
continuing wages to such persons or other monetary damages,
including, but not necessarily limited to, the following:
damages on unpaid wage claims) ;
(b) Colorado Statutes Title 8, Article 4, Section 109;
(c)
115/14(a) et seq.
(d)
Indiana Code. 22-2-5-1, 22-2-9-4 & 22-2-5-2;
(e)
Kentucky Revised Statutes 337.385 (1) ;
(f)
Maine Revised Statutes Title 26, Section 626;
(g)
Maryland Labor and Employment code § 3-507. (b) ;
of triple damages) ;
(i) Michigan Statutes Section 408.393;
(j) Minnesota Statutes § 181.13;
(k) New York Labor Law Section 198;
(1)
North Carolina General Statutes 95-25.22;
(n) Wisconsin Statutes 109.11.
74.
Colorado, Illinois, Indiana, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, New York, North Carolina,
Pennsylvania and Wisconsin the wages defendants were legally
addition to such unpaid wages, pursuant to such states' laws.
damages and monetary relief authorized by the state laws of
Massachusetts, Michigan, Minnesota, New York, North Carolina,
same arising as a result of defendants' failure to pay the
all class members as follows:
1.
with an award of costs and attorney's fees;
2.
and overtime wages as required by the applicable state laws
plaintiffs and the class members;
3.
the plaintiffs and the class members;applicable state laws;
reasonable attorney's fees; and
a trial by jury.
Dated this 24th day of October, 2013
Leon Greenberg, Esq.
By: you REZ
Leon Greenberg, Esq.
2965 South Jones Boulevard E-4
Las Vegas, NV 89146
(702) 383-6085
leongreenberg@overtimelaw.com
Attorney for Plaintiffs
CONSENT TO JOINDER
Sabrina Penceal, by signing
Sabrina Penceal
CONSENT TO JOINDER
Shireef Jones, by signing below,
Shrung
Shireef Jones Jones
CONSENT TO JOINDER
Kristy Waldrip, by signing below,
Kristy Waldrip | employment & labor |
kvn2E4cBD5gMZwczMWCW | Additional counsel for plaintiff Martin R. Aranas:
PUBLIC LAW CENTER
Julie Greenwald (Cal. Bar No. 233714)
Monica Ashiku (Cal. Bar No. 263112)
601 Civic Center Drive West
Santa Ana, CA 92701
Telephone: (714) 541-1010 (Greenwald Ext. 263, Ashiku Ext. 249)
Facsimile: (714) 541-5157
jgreenwald@publiclawcenter.org
mashiku@publiclawcenter.org
ASIAN LAW ALLIANCE
Beatrice Ann M. Pangilinan (Cal. Bar No. 271064)
184 Jackson Street, San Jose, CA 95112
Telephone: (408) 287-9710
Facsimile: (408) 287-0864
Email: bpangilinan@asianlawalliance.org
Additional counsel for plaintiffs Irma Rodriguez and Jane DeLeon:
LAW OFFICES OF MANULKIN & BENNETT
Gary H. Manulkin (Cal. Bar No. 41469)
Reyna M. Tanner (Cal. Bar No. 197931)
10175 Slater Avenue, Suite 111
Fountain Valley, CA 92708
Telephone: 714-963-8951
Facsimile: 714-968-4948
gmanulkin@mgblaw.com
reynatanner@yahoo.com
Plaintiffs allege as follows:
I
PRELIMINARY STATEMENT
1.
Plaintiffs Irma Rodriguez and Jane DeLeon are married and of the same sex.
Plaintiff Rodriguez is a U.S. citizen and resident of California. Plaintiff DeLeon is a
Filipino national and a resident of California. Plaintiff Martin Aranas is the son of
plaintiff DeLeon and at all relevant times was eligible for lawful permanent resident
status as a derivative beneficiary of the application to confer lawful permanent residence
on his mother. Defendants denied plaintiff DeLeon’s Form I-601 Application for Waiver
of Grounds of Inadmissibility solely because DeLeon is married to a person of the same
sex, and § 3 of the Defense of Marriage Act, 1 U.S.C. § 7, defines “marriage” under
federal law as “only a legal union between one man and one woman as husband and
wife.”
2.
Plaintiffs Rodriquez and DeLeon have been partners for 20 years. They were
lawfully married in California in 2008. They reside together as legally married spouses
and plan to remain together for the rest of their lives. They accept all of the duties and
responsibilities that are commonly associated with marriage. Plaintiff Martin Aranas,
now 25 years old, is the son of plaintiff DeLeon, has lived in the United States since the
age of nine years; he will qualify for adjustment of status if plaintiff DeLeon is granted
adjustment of status.
3.
Plaintiffs allege that defendants’ refusal to grant immigration benefits,
including lawful permanent residence, to the spouses of U.S. citizen petitioners solely
because their spouses are the same sex violates the substantive due process and equal
protection guarantees of the Fifth Amendment to the United States Constitution and 8
U.S.C. § 1152(a)(2), which prohibits discrimination in the issuance of visas based upon a
petitioner’s or an immigrant visa beneficiary’s “sex.”
4.
This is an action for declaratory and injunctive relief pursuant to 28 U.S.C.
§§ 2201-2202 and Fed.R.Civ.Proc. Rule 57, and for review of agency action pursuant to
the Administrative Procedure Act, 5 U.S.C. §§ 701-706. Plaintiffs seek a declaration that
DOMA § 3, 1 U.S.C. § 7, violates the United States Constitution, as applied to plaintiffs
and those similarly situated, by refusing to recognize their lawful marriages for purposes
of conferring family-based immigration waivers and benefits. As a direct and proximate
result of the violations of the Constitution alleged herein, plaintiffs have been denied, and
will continue to be denied, legal protections and benefits under the Immigration and
Nationality Act that would be available to them were they spouses of different sexes.
II
JURISDICTION
5. This Court has jurisdiction pursuant to U.S. Const. Art. III; 28 U.S.C. § 1331
(federal question jurisdiction); 28 U.S.C. § 1361 (mandamus jurisdiction), and 28 U.S.C.
§ 2241 (habeas corpus jurisdiction).
6. Plaintiffs’ prayer for declaratory relief is brought pursuant to 28 U.S.C. §§ 2201
and 2202.
7. Venue is properly in this court pursuant to 28 U.S.C. § 1391(b) and (e)(1), (2),
and (4), because acts complained of occurred in this district, the plaintiffs reside in this
district, defendants have offices in this district, and no real property is involved in this
action.
III
PARTIES
8.
Plaintiff, Irma Rodriguez is a U.S. citizen, a resident of California, and is the
lawful spouse of plaintiff Jane DeLeon.
9.
Plaintiff Jane DeLeon is a citizen of the Philippines, the lawful spouse of
Plaintiff Rodriquez, a resident of California, and the beneficiary of an approved
employment-based immigrant visa petition.
10.
Plaintiff Martin R. Aranas is the biological son of plaintiff DeLeon, a citizen
of the Philippines, a resident of California, and would qualify for lawful permanent
resident status were his mother is granted lawful permanent resident status.
11.
Defendant Janet Napolitano is the Secretary of the United States Department
of Homeland Security. Defendant Napolitano is charged with the administration of the
United States Department of Homeland Security. Defendant United States Citizenship
and Immigration Services is a subordinate agency within the Department of Homeland
Security, and as such is under the authority and supervision of defendant Napolitano. She
is sued in her official capacity.
12.
Defendant Alejandro Mayorkas is the Director of defendant the United
States Citizenship and Immigration Services, an entity within the Department of
Homeland Security with statutory responsibility for adjudicating petitions filed by United
States citizens and lawful permanent residents for benefits to “immediate relative”
immigrant family members, including lawful spouses of United States citizens and lawful
permanent residents. He is sued in his official capacity.
13.
Defendant the United States Citizenship and Immigration Service
(“USCIS”) is an entity within the Department of Homeland Security with statutory
responsibility for the constitutional and lawful adjudication of petitions and applications
filed by United States citizens and lawful permanent residents to grant benefits to
immigrant family member beneficiaries, including lawful spouses of United States
citizens and lawful permanent residents.
IV
CLASS ACTION ALLEGATIONS
14.
Pursuant to Rules 23(a)(1)-(4) and (b)(2) of the Federal Rules of Civil
Procedure, plaintiffs bring this action as a class action on behalf of the following
proposed class:
All members of lawful marriages whom the Department of Homeland Security,
pursuant to § 3 of the Defense of Marriage Act, 1 U.S.C. § 7, refuses to recognize
as spouses for purposes of conferring lawful status and related benefits under the
Immigration and Nationality Act, 8 U.S.C. §§ 1101 et seq.
15.
The size of the class is so numerous that joinder of all members is
impracticable.
16.
The claims of plaintiffs and those of the proposed class members raise
common questions of law and fact concerning the constitutionality of DOMA as
applied to deny family-based immigration benefits under the INA. This question is
common to the named parties and to the members of the proposed class because
defendants have acted or will act on grounds generally applicable to both the named
parties and proposed class members. Plaintiffs’ claims are also typical of the class
claims.
17.
The prosecution of separate actions by individual members of the class
would create a risk of inconsistent or varying adjudications establishing incompatible
standards of conduct for defendants. Prosecution of separate actions would also
create the risk that individual class members will secure court orders that would as a
practical matter be dispositive of the claims of other class members not named parties
to this litigation, thereby substantially impeding the ability of unrepresented class
members to protect their interests.
18. Defendants, their agents, employees, and predecessors and successors in
office have acted or refused to act, or will act or refuse to act, on grounds generally
applicable to the class, thereby making appropriate injunctive relief or corresponding
declaratory relief with respect to the class as a whole. Plaintiffs will vigorously represent
the interests of unnamed class members. All members of the proposed class will benefit
by the action brought by plaintiffs. The interests of the named plaintiffs and those of the
proposed class members are identical. Plaintiffs’ counsel include attorneys highly
experienced in federal class action litigation and litigation involving the INA and the
Fifth Amendment of the United States Constitution.
V
FACTUAL ALLEGATIONS
19.
Plaintiff DeLeon was born on August 21, 1964 in the Philippines. She is a
citizen of the Philippines. From about 1984 to 1989 plaintiff DeLeon lived in a common-
law “marriage” with Joseph Randolph Aranas. They have two sons born in the
Philippines, Mikkel R. Aranas, born in 1985, and plaintiff Martin Aranas, born in 1986.
20. Plaintiff DeLeon was admitted to the United States on or about December
18, 1989, on a B-2 visitor’s visa and has resided here continuously since that time.
21. When plaintiff DeLeon left the Philippines the country was in turmoil,
poverty was endemic, armed opposition groups were confronting the government, and
sexual discrimination and repression of women were rampant.
22. When plaintiff DeLeon entered the United States in 1989, her passport listed
her occupation as “housewife” and her name as Jane Francis L. Aranas, although she was
not legally married to Joseph Aranas. So-called common-law “marriages” are not unusual
in the Philippines and are governed by Article 147 of the Family Code which reads in
part, for example, that “[w]hen a man and a woman … live exclusively with each other as
husband and wife without the benefit of marriage …, their wages and salaries shall be
owned by them in equal shares and the property acquired by both of them through their
work or industry shall be governed by the rules on co-ownership.”
23. In the Philippines, plaintiff DeLeon used the name Jane Francis L. Aranas,
Francis being her middle name and the “L” standing for DeLeon, her maiden name. It is
common in the Philippines for women to adopt the names of their husbands with whom
they live exclusively as husband and wife without the benefit of marriage.
24. Joseph Randolph Aranas followed plaintiff DeLeon to the United States
shortly after her entry. Plaintiff DeLeon and Mr. Aranas resided together in the United
States until in or about 1991.
25. Plaintiffs Rodriquez and DeLeon met in Westminster, California, in 1992.
They have resided together in a committed life-long relationship for 20 years. They were
lawfully married under the laws of California on August 22, 2008. They continue to
reside together as a married couple and plan to do so for the rest of their lives.
26. On or about March 2, 2006, plaintiff DeLeon’s employer applied for
permanent resident status on her behalf. The visa petition was approved on or about May
22, 2006. Her “priority date” (date in line for a visa) was March 2, 2006. On or about
August 16, 2007, plaintiff DeLeon filed an application for adjustment of status under §
245 of the Immigration and Nationality Act, as amended (“INA”). At the time she applied
for adjustment of status her priority date was current (there were visa numbers available
for the quota under which her employment-based visa was approved). Plaintiff Martin
Aranas also applied for adjustment of status as a derivative beneficiary of his mother.
27. On April 14, 2011, defendants notified plaintiff DeLeon that she appeared to
be inadmissible to the United States because she had entered the United States in 1989 as
a “housewife,” under the name Jane L. Aranas, but was not legally married to Mr. Aranas
at the time. The notice alleged that plaintiff DeLeon had entered the U.S. in 1989 by
misrepresenting her name and marital status, and was therefore inadmissible under INA §
212(a)(6)(C), which makes inadmissible anyone who obtains a visa or admission to the
U.S. by misrepresenting a material fact.
28. Defendants nevertheless provided plaintiff DeLeon specific instructions on
how to apply for a waiver of inadmissibility pursuant to INA § 212(i), 8 U.S.C. § 1182(i),
which requires a showing that her removal or denial of adjustment of status would “result
in extreme hardship to [her] citizen … spouse or parent …” Id.
29. Plaintiffs did not believe plaintiff DeLeon was eligible for a waiver of
inadmissibility based upon hardship to plaintiff Rodriguez. On July 5, 2011, plaintiff
DeLeon instead filed an Application for Waiver of Grounds of Inadmissibility, Form I-
601, based on the hardship her removal would cause her 92-year old citizen father, who
resides both in the U.S. and in the Philippines.
30. On September 1, 2011, defendants denied plaintiff DeLeon’s applications
for a waiver of inadmissibility and adjustment of status. Defendants denied plaintiff
DeLeon’s I-601 waiver application on the ground she had failed to establish that denial of
lawful permanent resident status would cause extreme hardship to her citizen father. The
waiver denial automatically resulted in a denial of the application for adjustment of
status.
31.
After consulting counsel, plaintiffs Rodriquez and DeLeon then determined
that pursuant to INA § 212(i) they could renew the I-601 waiver application based upon
extreme hardship that plaintiff Rodriquez would suffer if plaintiff DeLeon were denied
lawful resident status and required to depart the country.
32. On or about September 27, 2011, plaintiff DeLeon submitted a timely
Motion to Reopen/Reconsider I-601 Denial (“I-601 Motion to Reopen”) on the ground
that denying her lawful permanent residence and requiring her departure from the United
States would cause extreme hardship to her U.S. citizen spouse, plaintiff Rodriquez.
33. If plaintiff DeLeon is forced to depart the United States, plaintiff Rodriquez
will be forced to leave the United States and relocate to the Philippines, abandon her
employment, and leave her immediate family members, or end a 20-year committed
lifetime relationship and effectively end her marriage.
34. Factors typically considered by defendants to determine extreme hardship
needed to approve a waiver of inadmissibility are (1) presence of U.S. citizen family
member, (2) ties to the U.S., (3) qualifying relatives, (4) ties outside the U.S., (5)
conditions in the country to which the qualifying relative would relocate, (6) the financial
impact of departure, and (7) significant issues of health “particularly when tied to the
unavailability of suitable medical care in a country to which the qualifying relocating
relative would relocate.” In re Cervantes-Gonzalez, 22 I&N Dec. 560 (BIA 1999) (en
35. Applying these standards to this case:
(1) Plaintiff DeLeon has a U.S. citizen spouse,
(2) Both plaintiff Rodriguez and plaintiff DeLeon have a wide range of ties in the
U.S. through their gainful employment, extended family, friends and community ties they
have developed over the course of their twenty years together in the U.S.
(3) Plaintiff DeLeon has two sons who reside in the United States. Her sister and a
niece also reside in the United States as lawful permanent residents. Plaintiff Rodriguez’s
father, mother, three sisters and one brother all are U.S. citizens and reside permanently
in the United States.
(4) Plaintiff Rodriguez has no immediate relatives living in the Philippines. She
has no social, economic, or community ties in the Philippines.
(5) The conditions in the Philippines continue to be marked by rampant
discrimination against women in general and lesbians in particular, criminalization of
lesbians and gay men who show public affection, endemic poverty, substandard housing,
and armed insurgency. Under Article 200 of the Revised Penal Code of the Philippines,
homosexual displays of affection may be penalized by “arresto mayor and public
censure,” as it is subject to the “grave scandal” prohibition. Article 27 of the Revised
Penal Code of the Philippines provides for incarceration for one month and one day to six
months for a violation of Article 200. The U.S. State Department reports that treatment of
women in the Philippines is highly discriminatory with respect to employment and public
safety. Fifteen percent of women in the Philippines have been raped. http:www.state.gov
(Philippines Report Release April 8, 2011). The State Department reports that women in
police custody are frequently raped, particularly women from marginalized groups, such
as lesbians. The report also notes that the Philippines “has yet to even approve any anti-
discrimination legislation” to protect gay and lesbian citizens. Id. The married life shared
by plaintiffs Rodriquez and DeLeon would more likely than not result in their persecution
and possible prosecution were they forced to relocate to the Philippines.
(6) Plaintiffs’ relocating to the Philippines would have a catastrophic impact on
plaintiff Rodriguez’s economic situation inasmuch as she would have to abandon her
employment in the United States and seek employment in the Philippines where
joblessness is endemic and wages perhaps 10-20 percent of what they are in the United
States.
(7) Plaintiffs’ relocating to the Philippines could significantly and adversely impact
plaintiff Rodriguez’s medical condition because of inadequate available care there and
the unavailability of prescription medications she is required to take. Plaintiff Rodriguez
suffers from stenosis of the left brain that causes extreme pain, disorientation, and
numbness. She also suffers hypertension. She may require surgery in the future to address
her stenosis, and if her condition worsens rapidly, surgery may be required immediately.
Due to her illnesses, plaintiff Rodriguez is required to take several prescription
medications. Large areas of the Philippines have no routine access to pharmacies, and
one of the prescription medications she is required to take for pain control, Ultram, is not
available in the Philippines. The provision of health services in the Philippines is
extremely poor for the vast majority of people. Relocating there may well cause plaintiff
Rodriguez’s medical condition to deteriorate and, if brain surgery is needed, it is unlikely
she will receive the medical care possibly needed to save her life, which she would be
able to obtain if she remained in the U.S.
36.
The facts presented in plaintiff DeLeon’s motion to reopen her I-601
Application for Waiver of Grounds of Inadmissibility would in any similar case (not
involving a same sex marriage) result in approval of a waiver of inadmissibility. On
information and belief, defendants routinely approve waiver applications based on far
less compelling facts than those underlying plaintiff’s application.
37.
On November 9, 2011, defendants denied the Motion to Reopen and waiver
not because the application failed to show that plaintiff DeLeon’s departure from the
country would cause plaintiff Rodriquez extreme hardship, but solely because, under
DOMA § 3, plaintiff DeLeon was married to someone of the “wrong” sex. The denial
states that under the DOMA “Jane DeLeon’s ‘same-sex spouse’ does not qualify as a
relative for purposes of establishing hardship.” Defendants also informed plaintiff
DeLeon that she was no longer authorized for employment. She was further advised that
she was now accruing “unlawful presence” in this country; that if she accrues more than
six months of unlawful presence she will be barred from the United States for three years;
and that if she remains for more than one year she will be barred from the United States
for ten years.
38.
Plaintiff Martin Aranas’s immigration status is wholly dependent on that of
his mother. He is a derivative beneficiary of plaintiff De Leon’s visa petition and
application to adjust status. A child under the age of 21 receives the same priority date as
his or her parent. 22 C.F.R. § 42.53(a). Sons and daughters who are derivative
beneficiaries of a parent’s priority date in employment-based categories remain eligible
for derivative immigration benefits so long as they are under 21 at the time a visa
becomes immediately available. INA § 203(h). Child Status Protection Act, Pub. L. 107-
208, 116 Stat. 927 (Aug. 6, 2002) (“CSPA of 2000”).
39.
Defendants approved plaintiff De Leon’s I-140 Petition in 2006, and an
immigrant visa became immediately available to her in July 2007. In August 2007
plaintiff De Leon timely filed an I-485 application for adjustment of status seeking lawful
permanent residence for plaintiff Martin Aranas as a derivative beneficiary. Plaintiff
Martin Arana was 20 years old at the time of the I-485 filing. His reaching the age of 21
after the date a visa became available to his mother does not bar him from derivative
immigration status. However, defendants’ denying plaintiff DeLeon’s application for
adjustment of status disqualifies plaintiff Martin Arana from receiving derivative
immigration benefits through any future application for immigration benefits filed on his
mother’s behalf and strips him of his protection under CSPA of 2000 against aging-out.
40. Plaintiffs seek preliminary relief to save plaintiff DeLeon and Aranas from
forced unemployment or illegal employment and the forced separation of the plaintiffs’
family or involuntary relocation to the Philippines pendent lite. They seek permanent
relief restoring plaintiffs DeLeon and Aranas to the position they would now be in but for
the constitutional violations alleged herein.
Application of the INA
41.
The purpose of INA § 212(i) is to keep families together when the departure
of an immediate family member would cause extreme hardship to a United States citizen
or lawful permanent resident spouse or parent. Defendants routinely apply INA 212(i) so
as to preserve family units in cases in which refusal to grant an inadmissible immigrant a
waiver leading to denial of adjustment of status would cause extreme hardship to a U.S.
citizen or lawful permanent resident spouse or parent.
42. The INA nowhere limits the term “spouse” to only include a union between
“one man and one woman.” The INA does not exclude from its definition of “spouse”
those spouses who are the same sex as one another. To the contrary, the INA disallows
discrimination in the issuance of visas on the basis of sex. 8 U.S.C. § 1152(a)(2).
43.
In 1990, Congress amended the INA to provide that immigrants could not be
denied visas or admission to the United States based on sexual orientation. Immigration
Act of 1990, Pub. L. No. 101-649, 104 Stat. 4978 (1990).
44.
A marriage is usually valid for immigration purposes if it is recognized by
the law of the state where it occurs. Matter of Lovo-Lara, 23 I&N Dec. 746, 748 (BIA
2005). Historically, as long as two people intend to establish a life together at the time of
the marriage, the marriage is valid for immigration purposes. Bark v. INS, 511 F.2d 1200
(9th Cir. 1975). Under the Tenth Amendment to the U.S. Constitution, states reserve all
powers not assigned to the federal government, including the classification of a person’s
sex and determining the lawfulness of marriages. Matter of Lovo-Lara, 23 I&N Dec. at
748.
DOMA’s Enactment
45.
DOMA’s legislative history identifies several interests that Congress
purportedly sought to advance through the law’s enactment. The House Report
acknowledged that federalism constrained Congress’s power, and that “[t]he
determination of who may marry in the United States is uniquely a function of state law.”
H.R. Rep. No. 104-664, at 3 (1996), reprinted in 1996 U.S. Code Cong. & Admin. News
2905, 2906-07 (“H. Rep.”). Nonetheless, the Report stated that Congress was not
“supportive of (or even indifferent to) the notion of same-sex ‘marriage’.” Id. at 12. The
authoritative House Report provides several purported reasons for the enactment of
DOMA: (1) defending and nurturing the institution of traditional, heterosexual marriage;
(2) defending traditional notions of morality; (3) protecting state sovereignty and
democratic self-governance; and (4) preserving scarce government resources. Id. The
Report also claimed interests in “encouraging responsible procreation and child-rearing,”
and conserving scarce resources. Id. at 13, 18.
46.
Although DOMA amended the eligibility criteria for a vast number of
federal benefits, rights, and privileges dependent upon marital status either directly under
federal law or controlled in some fashion by federal law, the relevant committees did not
engage in any meaningful examination of the scope or effect of the law, much less detail
the ways in which federal interests underlying numerous programs would be affected.
47. The interests identified by Congress and all other interests that might be
advanced to justify DOMA’s constitutionality are inapposite in the context of federal
immigration benefits, and/or are not rationally related to discriminating against married
same-sex couples.
48. Procreation, which Congress erroneously deemed the unique province of
“traditional, heterosexual marriage[s],” is not a precondition of marriage, of receipt of
federal marital protections, or of the issuance of a family-based immigrant benefits. The
federal government’s refusal to recognize the marriages of same-sex couples does not
nurture, improve, stabilize or enhance the marriages of other married couples. Nor would
the federal government’s recognition of the marriage of plaintiffs Rodriguez and DeLeon
or of other married, same-sex couples degrade, destabilize or have any other deleterious
effect on the marriages of other married couples. The claimed federal “interest” in
“defending” “traditional heterosexual marriage” simply states the government’s intent to
discriminate against same-sex couples and provides no independent justification for such
discrimination.
49. The INA sets out several acts involving immoral conduct that make
immigrants inadmissible for visas and adjustment of status. E.g. INA§ 212(a) (2)(D)
(excluding aliens who “has engaged in prostitution within 10 years of the date of the
application”); INA § 212(a)(2)(A)(i)(I) (excluding aliens who have committed a crime
involving moral turpitude); INA § 212(a)(2)(D)(iii) (excluding aliens who enter the
United States “to engage in any other unlawful commercialized vice”). Nowhere has
Congress made a finding that granting visas only to heterosexual immigrants protects the
institution of “traditional heterosexual marriage” or “traditional notions of morality.”
50. The INA does not require defendants to deny visas or adjustment of status
based upon an immigrant’s sex or sexual orientation. There is no credible evidence that
lesbian and gay married couples in any way increase the immorality of the communities
or countries in which they reside. There is no evidence or rational basis to believe that
granting plaintiff DeLeon or similarly situated immigrants adjustment of status will in
any way negatively impact “traditional notions of morality.”
51. Nor does DOMA advance any interest in protecting states’ sovereignty over
marriage; instead, it negates and disregards states’ decisions regarding the institution of
marriage. The INA and federal immigration authorities fully embrace the myriad of state
marriage laws by recognizing as valid for federal immigration purposes heterosexual
marriages that have been declared valid pursuant to state law, notwithstanding that the
requirements for a valid marriage differ from state to state.
52. Application of DOMA to prevent plaintiffs from obtaining immigration
benefits does nothing to preserve the resources of the federal Government. The
Congressional Budget Office has correctly found that enforcing the DOMA saves the
federal government no money, but to the contrary, results in net costs. Cong. Budget
Office, U.S. Cong., The Potential Budgetary Impact of Recognizing Same-Sex Marriages
1 (June 21, 2004), http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/55xx/doc5 5
59/06-2 l-samesexmarriage.pdf.
53.
DOMA and its application to plaintiffs Rodriquez and DeLeon and their
proposed class members deprives plaintiffs and putative class members of substantive
due process by burdening the integrity of their lawful marriages and their most intimate
family relationships.
54. DOMA on its face discriminates on the basis of sex and implicitly on the
basis of sexual orientation. Such a law requires heightened scrutiny. A classification
triggers heightened scrutiny when (1) the target group has suffered a history of invidious
discrimination, and (2) the characteristics that distinguish the group’s members bear no
relation to their ability to perform or contribute to society. In applying heightened
scrutiny courts also have considered the group’s minority status and/or relative lack of
political power, and whether group members have obvious, immutable, or distinguishing
characteristics that define them as a discrete group.
55.
The target group in this case has clearly suffered a history of invidious
discrimination. “[F]or centuries there have been powerful voices to condemn homosexual
conduct as immoral,” Lawrence v. Texas, 539 U.S. 558, 571 (2003), and “state-
sponsored condemnation” of homosexuality has led to “discrimination both in the public
and in the private spheres.” Id. at 575. To this day, lesbians and gay men remain the
subjects of public opprobrium, face the ever-present threat of anti-gay violence, and
remain vulnerable to discrimination in employment, housing, and public
accommodations.
56. The characteristics that distinguish the group’s members, including plaintiffs
DeLeon and Rodriquez, bear no relation to their ability to perform or contribute to
society. There exists no credible evidence that sexual orientation bears any relation to
one’s ability to perform or contribute to society. The psychological and medical
community has long confirmed that homosexuality per se entails no impairment in
judgment, stability, reliability or general social or vocational capabilities. Gay men and
lesbians serve in Congress, in the federal judiciary, and in the Executive Branch of
government. Empirical studies have consistently found that lesbians and gay men are as
able as heterosexuals to form loving, committed relationships. Plaintiffs Rodriguez and
DeLeon illustrate this: They have had a relationship of almost 20 years. They were
married as soon as they were legally permitted to do so. They have made a commitment
to live together as a family. Like millions of their fellow lesbians and gay men, they are
woven into the fabric of everyday America, leading productive lives as spouses, family
members, friends, neighbors, and coworkers.
57.
The obstacles to political power for gay men and lesbians are well known.
Gay men and lesbians are, both nationally and locally, a minority, comprising about 3.5
percent of the population. They are geographically dispersed, and, unlike many
minorities, may go unidentified out of fear of ostracism and even violence, further
eroding the potential for political mobilization. Political opposition to legal protections
and benefits for gay men and lesbians is powerful, mobilized, and well-funded. There is
no federal prohibition against discrimination based on sexual orientation in employment,
housing, public accommodations, or education, nor any such protection in 29 states.
Openly gay officials are significantly underrepresented in political office in proportion to
the gay and lesbian population.
58.
Although not essential to heightened scrutiny, laws that discriminate based
on obvious, immutable, or distinguishing characteristics that define persons as a discrete
group may trigger heightened scrutiny. Sexual orientation and sexual identity are entirely
or largely immutable; they are so fundamental to one’s identity that a person should not
be required to abandon them. Sexual orientation is inherent to one's very identity as a
person. It would work a fundamental injustice to require gay men and lesbians to chose
between retaining their identity and somehow changing (if that were even possible) to
gain parity with their heterosexual brethren.
59.
Heightened scrutiny is also warranted because DOMA unequally burdens
plaintiffs’ constitutionally protected interest in the integrity of their families. By its
sweeping reclassification of the plaintiffs as “single” or “unmarried” for all federal
purposes, DOMA erases their marriages under federal law. By throwing plaintiffs’
marriages into a confusing legal status in which their marriages “count” for some
purposes but not others, DOMA erases much of the meaning their marriages would
otherwise have—in both public and private settings—and relegates them to second-class
status. The right to maintain family relationships free from undue government restrictions
is a long-established and fundamental liberty interest.
60.
Heightened scrutiny is also warranted because DOMA intrudes into an area
of traditional state prerogative—regulation of marriage and family—and accordingly
raises federalism concerns. DOMA represents the first time that the federal government
has attempted to mandate a uniform definition of marriage. The absence of precedent for
this legislative classification demonstrates an impermissible animus and hostility toward
same-sex couples and individuals based upon their sexual orientation.
61. There exists no fairly conceivable set of facts that could ground a substantial
or rational relationship between DOMA and a legitimate government objective in this
case. Congress has yet to identify a reason why gay and lesbian individuals who have met
their obligations as taxpaying citizens and who are married to someone of the same sex
must be denied family benefits available to persons who are married to someone of a
different sex. Singling out same-sex couples that are married among all married persons
for denial of waivers of inadmissibility is simply an expression of the intent to
discriminate against gay people. At bottom, DOMA, 1 U.S.C. § 7, is motivated by
disapproval of gay men and lesbians and their relationships, an illegitimate federal
interest.
62.
On February 23, 2011, the Attorney General notified congressional
leadership that the Administration had determined that § 3 of DOMA is unconstitutional
as applied to same-sex couples whose marriages are legally recognized under state law
and that the Department of Justice would no longer defend DOMA § 3 before the federal
courts. The Department of Justice believes that discrimination on the basis of sexual
orientation must withstand heightened scrutiny and that DOMA § 3 fails to do so.
63.
While defendants rely on DOMA § 3 to deny U.S. citizen plaintiff
Rodriquez the right to reside in her own country with her spouse who has an approved
visa petition, and to deny plaintiff DeLeon a waiver of inadmissibility, defendants permit
a range of non-citizen temporary visitors (students, temporary employees, investors, etc.)
to have their spouses live with them through the issuance of “accompanying” relative
visas. See, e.g., INA §§ 101(a)(15)(E) (Treaty Investor Spouse), 101(a)(15)(F) (student
spouse); 101(a)(15)(H)(temporary worker spouse). There is no rational basis for
permitting non-citizen visiting immigrants to live with their different-sex spouses in the
U.S., while not permitting U.S. citizens to live with their spouses simply because they are
of the same sex.
64. While defendants rely on DOMA § 3 to deny Rodriguez—a U.S. citizen in a
20 year relationship (and three year marriage)—the ability to live here with her spouse,
defendants approve otherwise identical waiver applications sought by different-sex
married couples who may have met only a handful of weeks ago over the internet.
65.
At the same time as defendants automatically deny immigration benefits to
plaintiffs and their putative class members, defendants have granted and continue to grant
family based petitions and waivers to, inter alia, different-sex married couples who
remain childless for whatever reason, immigrant beneficiaries convicted of crimes or who
have engaged in other conduct involving moral turpitude, fiancés of U.S. citizens who are
not even married, and different-sex married couples who met over the internet and have
been married for only a few days or weeks.
66.
Despite the willingness of plaintiffs Rodriguez and DeLeon to assume the
legally imposed responsibilities of marriage at the federal level, just as they do at the state
level, and plaintiff DeLeon’s willingness to accept all of the responsibilities associated
with becoming a lawful permanent resident of the United States, plaintiffs are prevented
from doing so by defendants’ implementation of the DOMA § 3, 1 U.S.C. § 7.
VI
IRREPARABLE INJURY
67. Plaintiffs have suffered and will continue to suffer irreparable harm because
of defendants’ applying DOMA § 3 as alleged herein. Defendants’ policies and practices
have deprived and will continue to deprive plaintiffs of substantive due process and equal
protection in violation of the Fifth Amendment to the United States Constitution.
68.
As a result of defendants’ applying DOMA § 3 as alleged herein, plaintiffs
Rodriguez and DeLeon imminently face either living apart in different countries, or U.S.
citizen plaintiff Rodriquez having to abandon the United States in order to maintain her
family life with plaintiff DeLeon. The denial of plaintiff DeLeon’s waiver also
terminated her and plaintiff Martin Aranas’s temporary lawful status and employment
authorization of many years, effectively placing in immediate jeopardy their right to
continue to be employed, and to remain here other than in “illegal” status pending entry
of judgment in this case.
VII
FIRST CLAIM FOR RELIEF
[Fifth Amendment Equal Protection]
69.
Plaintiffs hereby incorporate by reference ¶¶ 1-68 of this Complaint as
though fully set forth herein.
70.
Defendants’ applying DOMA § 3 to deny family-based immigration waivers
and petitions solely based upon a married couples’ sexual orientation, and/or the fact that
the petitioning party and the immigrant beneficiary are of the same sex, violate the equal
protection guarantee of the Fifth Amendment inasmuch as DOMA treats identically
situated married persons differently based on their sexual orientation and sex, with no
permissible or constitutionally adequate justification.
/ / /
VIII
SECOND CLAIM FOR RELIEF
[Denial of substantive due process]
71.
Plaintiffs hereby incorporate by reference ¶¶ 1-68 of this Complaint as
though fully set forth herein.
72.
DOMA and its application to plaintiffs deprives plaintiffs Rodriquez and
DeLeon of substantive due process by burdening the integrity of their lawful marriage
and their most intimate family relationships. The right to maintain family relationships
and personal choice in matters of marriage and family life free from undue government
restrictions is a fundamental liberty interest. Lawrence v. Texas, 539 U.S. 558 (2003).
DOMA substantially burdens plaintiffs’ fundamental interest in their existing familial
relationships without a rational, substantial, or compelling reason for doing so.
73.
When the government intrudes upon the personal and private lives of
lesbians and gay men in a manner that implicates the rights identified in Lawrence v.
Texas, supra, the government must advance an important governmental interest, which it
has not done in this case; the government must show that the intrusion significantly
furthers that interest, which has not been shown in this case; and the government must
show that the intrusion is necessary to further that interest, which it has not shown in this
case. Witt v. Dep’t of the Airforce, 527 F.3d 806 (9th Cir. 2008).
X
PRAYER FOR RELIEF
WHEREFORE, plaintiffs pray that this Court —
1. assume jurisdiction of this cause;
2. certify a class of similarly situated same-sex married couples as proposed
herein;
3. enter declaratory judgment that defendants’ applying DOMA § 3 in this and
similar cases, and defendants’ regulations, policies and practices applying DOMA § 3
against plaintiffs and those similarly situated are unlawful;
4. issue a temporary injunction enjoining defendants—
a) from removing or detaining plaintiffs DeLeon and Arenas and those similarly
situated;
b) from revoking or denying employment authorization to plaintiffs DeLeon and
Arenas and those similarly situated; and
c) from deeming plaintiffs DeLeon and Arenas and those similarly situated
inadmissable pursuant to 8 U.S.C. § 1182(a)(9)(B)(i), where such persons would
not have accrued more than six months in unlawful status but for DOMA § 3;
5. issue a permanent injunction enjoining defendants from denying United States
citizen petitioners and their immigrant spouses approvals of benefits under the INA solely
| criminal & enforcement |
fuasEYcBD5gMZwczNfXF | 12-cv-1952
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. ________________
SETH WARNICK, on behalf of himself and all others similarly situated,
Plaintiff,
v.
DISH NETWORK LLC,
Defendant.
CLASS ACTION COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF
PURSUANT TO THE TELEPHONE CONSUMER PROTECTION ACT,
47 U.S.C. § 227 et seq.
Plaintiff SETH WARNICK (hereinafter referred to as “Plaintiff”), individually and on
behalf of all others similarly situated, alleges on personal knowledge, investigation of his
counsel, and on information and belief as follows:
NATURE OF ACTION
1.
Plaintiff brings this action for damages, and other legal and equitable remedies,
resulting from the illegal actions of Dish Network LLC (hereinafter referred to as “DISH” or
“Defendant”) in negligently, knowingly, and/or willfully contacting Plaintiff on Plaintiff’s
cellular telephone without his prior express consent within the meaning of the Telephone
Consumer Protection Act, 47 U.S.C. § 227 et seq. (hereinafter referred to as the
“TCPA”).
2.
“Consumer complaints about abuses of telephone technology – for example,
computerized calls to private homes – prompted Congress to pass the Telephone Consumer
Protection Act of 1991, 47 U.S.C. § 227 et seq. Congress determined that federal legislation was
needed because telemarketers, by operating interstate, were escaping state-law prohibitions on
intrusive nuisance calls.” Mims v. Arrow Financial Services, LLC, Slip Opinion, Case No. 10-
1195 (United States Supreme Court January 18, 2012) (internal citations omitted). In an effort to
enforce this fundamental federal right to privacy, Plaintiff files the instant class action complaint
alleging violations of the TCPA.
3.
Defendant has caused consumers actual injury in fact, not only because plaintiff
and the putative class were subjected to the aggravation that necessarily accompanies these calls,
but also because consumers frequently have to pay their cell phone service providers for the
receipt of such calls and such calls are an intrusion upon seclusion, diminish cellular battery life,
and waste data storage capacity.
JURISDICTION AND VENUE
4.
This Court has jurisdiction under 28 U.S.C. § 1331 under the Telephone
Consumer Protection Act, 47 U.S.C. §227 (TCPA).
5.
Venue is proper in the United States District Court for the District of
Colorado pursuant to 28 U.S.C. § 1391(b)-(c) and 1441(a), because Defendant is headquartered
in this District, and because Defendant’s contacts with this District are sufficient to subject it to
personal jurisdiction.
PARTIES
6.
Plaintiff is, and at all times mentioned herein was, an individual citizen of the
State of Texas, who resides in Spring Branch, Texas.
7.
DISH is a Colorado limited liability company that maintains its headquarters at
9601 S. Meridian Blvd, Englewood, CO 80112. DISH provides direct broadcast satellite service
throughout the United States. The telecommunications company post annual revenues in excess
of eleven billion dollars and is a Fortune 200 Company.
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
(TCPA), 47 U.S.C. § 227
8.
In 1991, Congress enacted the TCPA, in response to a growing number of
consumer complaints regarding certain telemarketing practices.
9.
The TCPA regulates, among other things, the use of automated telephone
equipment, or “autodialers.” Specifically, the plain language of section 227(b)(1)(A)(iii)
prohibits the use of autodialers to make any call to a wireless number in the absence of an
emergency or the prior express consent of the called party.
10.
According to findings by the Federal Communication Commission (“FCC”), the
agency Congress vested with authority to issue regulations implementing the TCPA, such calls
are prohibited because, as Congress found, automated or prerecorded telephone calls are a
greater nuisance and invasion of privacy than live solicitation calls, and such calls can be costly
and inconvenient. The FCC also recognized that wireless customers are charged for incoming
calls whether they pay in advance or after the minutes are used.
11.
On January 4, 2008, the FCC released a Declaratory Ruling wherein it confirmed
that autodialed and prerecorded message calls to a wireless number by a creditor (or on behalf of
a creditor) are permitted only if the calls are made with the “prior express consent” of the called
party. The FCC “emphasize[d] that prior express consent is deemed to be granted only if the
wireless number was provided by the consumer to the creditor, and that such number was
provided during the transaction that resulted in the debt owed.”
FACTUAL ALLEGATIONS
12.
Plaintiff is, and at all times mentioned herein was, a “person” as defined by 47
U.S.C. § 153(10).
13.
Seth Warnick never had an account with DISH nor did his wife. Mr. Warnick has
not conducted any business with DISH, nor did he have any prior business relationship.
Moreover, Mr. Warnick has never made telephonic contact with DISH such that DISH would
have permission or consent to contact him.
14.
DISH is, and at all times mentioned herein was, a company and a “person”, as
defined by 47 U.S.C. § 153(10).
15.
Notwithstanding the fact Plaintiff did not provide DISH with his cellular number,
DISH repeatedly contacted Plaintiff via pre-recorded messages on Plaintiff’s cellular telephone.
Plaintiff received numerous calls on his cellular phone that were attempts to collect upon a debt.
Plaintiff avers that these collection attempts occurred within four years of filing this action.
16.
All telephone contact by DISH to Plaintiff on his cellular telephone occurred via
an “automatic telephone dialing system,” as defined by 47 U.S.C. § 227(a)(1), and all calls that
are the subject of this Complaint occurred within four years of the filing of this Complaint.
17.
The telephone calls placed by DISH to Plaintiff’s cellular telephone via the
automatic telephone dialing system used “an artificial or prerecorded voice” as described in 47
U.S.C. § 227(b)(1)(A).
18.
The telephone number that DISH used to contact Plaintiff, with a “prerecorded
voice” made by an “automatic telephone dialing system,” was assigned to a cellular telephone
service as specified in 47 U.S.C. § 227(b)(1)(A)(iii).
19.
Plaintiff did not provide his wireless number to DISH “during the transaction that
resulted in the debt owed” because the Plaintiff does not owe a debt to Dish. Moreover, he never
otherwise provided express consent to receive prerecorded calls by DISH on Plaintiff’s cellular
telephone.
20.
DISH did not make telephone calls to Plaintiff’s cellular phone “for emergency
purposes” utilizing an “artificial or prerecorded voice” or placed by an “automatic telephone
dialing system,” as described in 47 U.S.C. § 227(b)(1)(A).
21.
Under the TCPA and pursuant to the FCC’s January 2008 Declaratory Ruling, the
burden is on DISH to demonstrate that Plaintiff and the class members provided express consent
within the meaning of the statute, because there is a question as to whether express consent was
ever provided and it is the best entity to determine how such consent was attained.
22.
To the extent that DISH retained or otherwise caused a third party to make the
calls to plaintiff and the putative class, the FCC’s January 2008 Declaratory Ruling provides that
creditors, like DISH, are liable for third party calls under the TCPA.
CLASS ACTION ALLEGATIONS
23.
Plaintiff brings this action on behalf of himself and on behalf of all other persons
similarly situated (hereinafter referred to as “the Class”).
24.
Plaintiff proposes the following Class definition, subject to amendment as
appropriate:
(a)
All persons within the United States to whose cellular telephone
number;
(b)
Dish or an entity on its behalf, placed a non-emergency telephone
call;
(c)
through the use of an automatic telephone dialing system or an
artificial or prerecorded voice;
(d)
within four years prior to filing this lawsuit;
(e)
where Dish cannot show that the person provided prior express
consent for such calls.
25.
Plaintiff represents and is a member of the Class. Excluded from the Class are
Defendant and any entities in which Defendant has a controlling interest, Defendant’s agents and
employees, the Judge to whom this action is assigned and any member of the Judge’s staff and
immediate family, and claims for personal injury, wrongful death and/or emotional distress.
26.
Plaintiff does not know the exact number of members in the Class, but based upon
the size of DISH, Plaintiff reasonably believes that Class members number at minimum in the
tens of thousands.
27.
Plaintiff and all members of the Class have been harmed by the acts of DISH not
only because consumers were subjected to the aggravation that necessarily accompanies these
calls, but also because consumers frequently have to pay their cell phone service providers for
the receipt of such calls and such calls are an intrusion upon seclusion, diminish cellular battery
life, and waste data storage capacity.
28.
This Class Action Complaint seeks money damages and injunctive relief.
29.
The joinder of all Class members is impracticable due to the size and relatively
modest value of each individual claim. The disposition of the claims in a class action will
provide substantial benefit the parties and the Court in avoiding a multiplicity of identical suits.
The Class can be identified easily through records maintained by DISH.
30.
There are well-defined, nearly identical, questions of law and fact affecting all
parties. The questions of law and fact involving the class claims predominate over questions,
which may affect individual Class members. Those common questions of law and fact include,
but are not limited to, the following:
(a)
Whether DISH made nonemergency calls to Plaintiff and Class members’
cellular telephones using an automatic telephone dialing system or an
artificial or prerecorded voice;
(b)
Whether DISH can meet its burden of showing it obtained prior express
consent (i.e., consent that is clearly and unmistakably stated), during the
transaction that resulted in the debt owed, to make such calls;
(c)
Whether DISH’s conduct was knowing and/or willful;
(d)
Whether DISH is liable for damages, and the amount of such damages;
and
(e)
Whether DISH should be enjoined from engaging in such conduct in the
future.
31.
As a person who received numerous and repeated telephone calls using an
automatic telephone dialing system or an artificial or prerecorded voice, without his prior express
consent within the meaning of the TCPA, Plaintiff asserts claims that are typical of each Class
member. Plaintiff will fairly and adequately represent and protect the interests of the Class, and
he has no interests that are antagonistic to any member of the Class.
32.
Plaintiff has retained counsel experienced in handling class action claims
involving violations of federal and state consumer protection statutes such as the TCPA.
33.
A class action is the superior method for the fair and efficient adjudication of this
controversy. Class wide relief is essential to compel DISH to comply with the TCPA.
The interest of Class members in individually controlling the prosecution of separate claims
against DISH is small because the statutory damages in an individual action for violation of the
TCPA are small. Management of these claims is likely to present significantly fewer difficulties
than are presented in many class claims because the calls at issue are all automated and the Class
members, by definition, did not provide the prior express consent required under the statute to
authorize calls to their cellular telephones.
34.
DISH has acted on grounds generally applicable to the Class, thereby making
final injunctive relief and corresponding declaratory relief with respect to the Class as a whole
appropriate. Moreover, on information and belief, Plaintiff alleges that the TCPA violations
complained of herein are substantially likely to continue in the future if an injunction is not
entered.
CAUSES OF ACTION
FIRST COUNT: NEGLIGENT VIOLATIONS OF THE TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C. § 227 et seq.
35.
Plaintiff incorporates by reference the foregoing paragraphs of this Complaint as
if fully set forth herein.
36.
The foregoing acts and omissions of DISH constitute numerous and multiple
negligent violations of the TCPA, including but not limited to each of the above cited provisions
of 47 U.S.C. § 227 et seq.
37.
As a result of DISH’s negligent violations of 47 U.S.C. § 227 et seq., Plaintiff and
Class members are entitled to an award of $500.00 in statutory damages for each and every call
in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3)(B).
38.
Plaintiff and Class members are also entitled to and do seek injunctive relief
prohibiting DISH’s violation of the TCPA in the future.
39.
Plaintiff and Class members are also entitled to an award of attorneys’ fees and
WHEREFORE, Plaintiff respectfully requests that the Court grant Plaintiff and all Class
members the following relief against Defendant:
A.
As a result of DISH’s negligent violations of 47 U.S.C. § 227(b)(1), Plaintiff
seeks for himself and each Class member the greater of $500.00 in statutory damages or actual
damages for each and every call that violated the TCPA;
B.
Injunctive relief prohibiting such violations of the TCPA by DISH in the future;
C.
An award of attorneys’ fees and costs to counsel for Plaintiff and the Class;
D.
An order certifying this action to be a proper class action pursuant to Federal
Rule of Civil Procedure 23, establishing an appropriate Class and any Subclasses the Court
deems appropriate, finding that Plaintiff is a proper representative of the Class, and appointing
the lawyers and law firms representing Plaintiff as counsel for the Class;
E.
Such other relief as the Court deems just and proper.
SECOND COUNT: KNOWING AND/OR WILLFUL VIOLATIONS OF THE
TELEPHONE CONSUMER PROTECTION ACT, 47 U.S.C. § 227 et seq.
40.
Plaintiff incorporates by reference the foregoing paragraphs of this Complaint as
if fully stated herein.
41.
The foregoing acts and omissions of DISH constitute numerous and multiple
knowing and/or willful violations of the TCPA, including but not limited to each of the above-
cited provisions of 47 U.S.C. § 227 et seq.
42.
As a result of DISH’s knowing and/or willful violations of 47 U.S.C. § 227 et
seq., Plaintiff and each member of the Class is entitled to treble damages of up to $1,500.00 for
each and every call in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3).
43.
Plaintiff and all Class members are also entitled to and do seek injunctive relief
prohibiting such conduct violating the TCPA by DISH in the future.
44.
Plaintiff and Class members are also entitled to an award of attorneys’ fees and
WHEREFORE, Plaintiff respectfully requests that the Court grant Plaintiff and all Class
members the following relief against Defendant:
A.
As a result of DISH’s willful and/or knowing violations of 47 U.S.C. §
227(b)(1), Plaintiff seeks for himself and each Class member the greater of treble damages, as
provided by statute, of up to $1,500.00 or actual damages for each and every call that violated
the TCPA;
B.
Injunctive relief prohibiting such violations of the TCPA by DISH in the future;
C.
An award of attorneys’ fees and costs to counsel for Plaintiff and the Class;
D.
An order certifying this action to be a proper class action pursuant to Federal
Rule of Civil Procedure 23, establishing an appropriate Class and any Subclasses the Court
deems appropriate, finding that Plaintiff is a proper representative of the Class, and appointing
the lawyers and law firms representing Plaintiff as counsel for the Class;
E.
Such other relief as the Court deems just and proper.
Dated: July 26, 2012
Respectfully Submitted,
By: /s/ Steven L. Woodrow
Steven L. Woodrow (SBN 43140)
Megan Lindsey (SBN 43817)
EDELSON MCGUIRE LLC
999 W. 18th Street, Suite 3000
Denver, CO 80202
Tel: (303) 357-4878
Fax: (303) 446-911
swoodrow@edelson.com
mlindsey@edelson.com
Keith J. Keogh (Pro Hac Vice to be filed)
Timothy Sostrin (Pro Hac Vice to be filed)
KEOGH LAW, LTD
101 N Wacker Drive, Suite 605
Chicago, IL 60606
Tel: (312) 726-1092
Fax: (312) 726-1093
Keith@KeoghLaw.com
TSostrin@Keoghlaw.com
David Schafer (Pro Hac Vice to be filed)
Brian Trenz (Pro Hac Vice to be filed)
THE LAW OFFICES OF DAVID SCHAFER, PLLC
7800 IH-10 West, Suite 830
San Antonio, TX 78230
Tel: (210) 348-0500
david@helpingtexas.com
brian@helpingtexas.com
| privacy |
QuIVEYcBD5gMZwcziTm1 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Blima Lebron, individually and on behalf of all others
similarly situated;
Civil Action No:
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Credit Control, LLC dba Credit Control & Collections, LLC
and
John Does 1-25
Defendants.
Plaintiff Blima Lebron (hereinafter, “Plaintiff”), a New York resident, brings this Class Action
Complaint by and through her attorneys, Stein Saks PLLC, against Defendant Credit Control, LLC
dba Credit Control & Collections, LLC (hereinafter “Defendant CC”), individually and on behalf of
a class of all others similarly situated, pursuant to Rule 23 of the Federal Rules of Civil Procedure,
based upon information and belief of Plaintiff’s counsel, except for allegations specifically
pertaining to Plaintiff, which are based upon Plaintiff’s personal knowledge.
INTRODUCTION/PRELIMINARY STATEMENT
1.
Congress enacted the Fair Debt Collection Practices Act (hereinafter “the FDCPA”)
in 1977 in response to the “abundant evidence of the use of abusive, deceptive, and unfair debt
collection practices by many debt collectors.” 15 U.S.C. §1692(a). At that time, Congress was
concerned that “abusive debt collection practices contribute to the number of personal
1
bankruptcies, to material instability, to the loss of jobs, and to invasions of individual privacy.”
Id. Congress concluded that “existing laws…[we]re inadequate to protect consumers,” and that
“‘the effective collection of debts” does not require “misrepresentation or other abusive debt
collection practices.” 15 U.S.C. §§ 1692(b) & (c).
2.
Congress explained that the purpose of the Act was not only to eliminate abusive
debt collection practices, but also to “insure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged.” Id. § 1692(e). After
determining that the existing consumer protection laws ·were inadequate. Id § l692(b), Congress
gave consumers a private cause of action against debt collectors who fail to comply with the
Act. Id. § 1692k.
JURISDICTION AND VENUE
3.
The Court has jurisdiction over this class action pursuant to 28 U.S.C. § 1331 and
15 U.S.C. § 1692 et. seq. The Court has pendent jurisdiction over the State law claims in this
action pursuant to 28 U.S.C. § 1367(a).
4.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) as this is
where a substantial part of the events or omissions giving rise to the claim occurred.
5.
Venue is also proper in this judicial district pursuant to 28 U.S.C. § 1392(b)(1) as
this is the defendant’s primary place of business is located here.
NATURE OF THE ACTION
6.
Plaintiff brings this class action on behalf of a class of New York consumers under
§1692 et seq. of Title 15 of the United States Code, commonly referred to as the Fair Debt
Collections Practices Act (“FDCPA”), and
7.
Plaintiff is seeking damages and declaratory relief.
PARTIES
8.
Plaintiff is a resident of the State of New York, County of Rockland, residing at 2
Cedar Lane, Monsey NY 10952-2101.
9.
Defendant Credit Control LLC is a “debt collector” as the phrase is defined in 15
U.S.C. § 1692(a)(6) and used in the FDCPA with an address at 5757 Phantom Drive, Suite 330,
Hazelwood, MO 63042 and can be served upon their registered agent, C T Corporation System,
at 28 Liberty St., New York, New York 10005.
10.
Upon information and belief, Defendant Credit Control LLC is a company that uses
the mail, telephone, and facsimile and regularly engages in business the principal purpose of
which is to attempt to collect debts alleged to be due another.
11.
John Does 1-25, are fictitious names of individuals and businesses alleged for the
purpose of substituting names of Defendants whose identities will be disclosed in discovery and
should be made parties to this action.
CLASS ALLEGATIONS
12.
Plaintiffs bring this claim on behalf of the following case, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
13.
The Class consists of:
a. all individuals with addresses in the State of New York;
b. to whom Defendant CC sent a collection letter attempting to collect a consumer
debt;
c. and in response a consumer called up the Defendant to dispute the validity of the
debt;
d. and the Defendant responded by questioning the validity of the dispute and
asking for the reasons for the dispute;
14.
The identities of all class members are readily ascertainable from the records of
Defendants and those companies and entities on whose behalf they attempt to collect and/or
have purchased debts.
15.
Excluded from the Plaintiff Class are the Defendants and all officer, members,
partners, managers, directors and employees of the Defendants and their respective immediate
families, and legal counsel for all parties to this action, and all members of their immediate
families.
16.
There are questions of law and fact common to the Plaintiff Class, which common
issues predominate over any issues involving only individual class members. The principal issue
is whether the Defendant’s response to Plaintiffs oral dispute, violated 15 U.S.C. §1692g, 1692e.
17.
The Plaintiff’s claims are typical of the class members, as all are based upon the same
facts and legal theories. The Plaintiff will fairly and adequately protect the interests of the
Plaintiff Class defined in this complaint. The Plaintiff has retained counsel with experience in
handling consumer lawsuits, complex legal issues, and class actions, and neither the Plaintiff
nor her attorneys have any interests, which might cause them not to vigorously pursue this
action.
18.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a
well-defined community interest in the litigation:
a. Numerosity: The Plaintiff is informed and believes, and on that basis alleges,
that the Plaintiff Class defined above is so numerous that joinder of all members
would be impractical.
b. Common Questions Predominate: Common questions of law and fact exist as
to all members of the Plaintiff Class and those questions predominance over any
questions or issues involving only individual class members. The principal issue
is whether the Defendant’s response to the Plaintiff’s oral dispute, violated 15
U.S.C. §1692g, 1692e.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class members.
The Plaintiff and all members of the Plaintiff Class have claims arising out of the
Defendant’s common uniform course of conduct complained of herein.
d. Adequacy: The Plaintiff will fairly and adequately protect the interests of the
class members insofar as Plaintiff has no interests that are adverse to the absent
class members. The Plaintiff is committed to vigorously litigating this matter.
Plaintiff has also retained counsel experienced in handling consumer lawsuits,
complex legal issues, and class actions. Neither the Plaintiff nor her counsel has
any interests which might cause them not to vigorously pursue the instant class
action lawsuit.
e. Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all
members would be impracticable. Class action treatment will permit a large
number of similarly situated persons to prosecute their common claims in a single
forum efficiently and without unnecessary duplication of effort and expense that
individual actions would engender.
19.
Certification of a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure
is also appropriate in that the questions of law and fact common to members of the Plaintiff
Class predominate over any questions affecting an individual member, and a class action is
superior to other available methods for the fair and efficient adjudication of the controversy.
20.
Depending on the outcome of further investigation and discovery, Plaintiff may, at
the time of class certification motion, seek to certify a class(es) only as to particular issues
pursuant to Fed. R. Civ. P. 23(c)(4).
FACTUAL ALLEGATIONS
21.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
numbered above herein with the same force and effect as if the same were set forth at length
herein.
22.
Some time prior to August 21, 2019, an obligation was allegedly incurred to JP
Morgan Chase Bank N.A.
23.
The JP Morgan Chase Bank N.A. obligation arose out of transactions to purchase
items which were primarily for personal, family or household purposes.
24.
The alleged JP Morgan Chase Bank N.A. obligation is a “debt” as defined by 15
U.S.C. § 1692a(5).
25.
JP Morgan Chase Bank N.A. is a “creditor” as defined by 15 U.S.C. § 1692a(4).
26.
Defendant CC contracted with JP Morgan Chase Bank N.A. to collect the alleged
debt.
27.
Defendant collects and attempts to collect debts incurred or alleged to have been
incurred for personal, family or household purposes on behalf of creditors using the United
States Postal Service, telephone and internet.
Phone Call Violation
28.
On or about August 21, 2019, Defendant sent the Plaintiff notice (the “Letter”),
hereto attached as Exhibit A, regarding the alleged debt.
29.
Plaintiff called Defendant on or around September 18, 2019, to dispute the debt as
per her rights under the FDCPA section 1692g.
30.
When asked the reason for his contacting Defendant CC at that time, Plaintiff
replied that she was disputing the validity of the debt, as per her rights.
31.
Defendant’s representative refused to accept the Plaintiff’s dispute.
32.
Defendant’s representative demanded that the Plaintiff give reasons for the dispute
and demanded that Plaintiff give specifics regarding the validity of the dispute.
33.
Plaintiff’s dispute, made by telephone, meets the criteria set forth by § 1692g, as he
unequivocally stated that she was disputing the validity of the debt and has no requirement to
give any reason or proof regarding the validity of the dispute.
34.
Furthermore, it well established in the 2nd Circuit that oral disputes are a completely
valid method of asserting a consumer’s rights under § 1692g.
35.
Requiring that the Plaintiff prove the validity of her dispute and provide reasons for
the dispute violates the consumer rights as provided for under the Fair Debt Collection Practices
Act.
36.
Defendant’s demand for reason for the dispute overshadowed Plaintiff’s §1692g
right to dispute the debt over the phone, or in general as no reason is required to be given by the
Plaintiff to validly exercise her dispute rights under 1692g.
37.
This false and deceptive tactic of demanding a specific reason before “accepting a
dispute as valid” is misleading because it confuses the consumer as to how to exert her dispute
and validation rights under FDCPA.
38.
Defendant intentionally chose to make it difficult for the Plaintiff to dispute the debt,
even though she did it in a proper manner.
39.
As a result of Defendant’s deceptive, misleading and false debt collection practices,
Plaintiff has been damaged.
COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT 15 U.S.C. §1692g
et seq.
40.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
above herein with the same force and effect as if the same were set forth at length herein.
41.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692g.
42.
The Defendant violated 15 U.S.C. §1692g:
a. By demanding a reason for Plaintiff’s dispute and rejecting the Plaintiff’s dispute,
despite the fact she validly exercised his dispute rights under the FDCPA.
43.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant’s
conduct violated Section 1692g et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
COUNT II
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT 15 U.S.C. §1692e
et seq.
44.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
above herein with the same force and effect as if the same were set forth at length herein.
45.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692e.
46.
Pursuant to 15 U.S.C. §1692e, a debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.
47.
Defendant violated §1692e:
a. By requiring Plaintiff to submit a reason for her dispute, as opposed to accepting
an oral dispute of the account without a reason.
b. By making a false and misleading representation in violation of §1692e(10).
48.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant’s
conduct violated Section 1692e et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
DEMAND FOR TRIAL BY JURY
49.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby requests
a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Blima Lebron, individually and on behalf of all others similarly situated,
demands judgment from Defendant CC as follows:
1.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Raphael Deutsch, Esq. as Class Counsel;
2.
Awarding Plaintiff and the Class statutory damages;
3.
Awarding Plaintiff and the Class actual damages;
4.
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees and
expenses;
5.
Awarding pre-judgment interest and post-judgment interest; and
6.
Awarding Plaintiff and the Class such other and further relief as this Court may deem
just and proper.
Dated: Hackensack, New Jersey
August 31, 2020
/s/ Raphael Deutsch
By: Raphael Deutsch, Esq.
Stein Saks, PLLC
285 Passaic Street
Hackensack, NJ 07601
Phone: 201-282-6500
Fax: 201-282-6501
Email: rdeutsch@steinsakslegal.com
Attorneys for Plaintiff
| consumer fraud |
18ELDYcBD5gMZwczVajk | Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
Meghan E. George (SBN 274525)
Tom E. Wheeler (SBN 308789)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 877-206-4741
Fax: 866-633-0228
tfriedman@ toddflaw.com
abacon@ toddflaw.com
mgeorge@toddflaw.com
twheeler@toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ABANTE ROOTER AND
PLUMBING, INC., individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
BF ADVANCE LLC, and DOES 1
through 10, inclusive, and each of them,
Defendant.
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
DEMAND FOR JURY TRIAL
Plaintiff ABANTE ROOTER AND PLUMBING, INC. (“Plaintiff”),
individually and on behalf of all others similarly situated, alleges the following
upon information and belief based upon personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action individually and on behalf of all others
similarly situated seeking damages and any other available legal or equitable
remedies resulting from the illegal actions of BF ADVANCE LLC (“Defendant”),
in negligently, knowingly, and/or willfully contacting Plaintiff on Plaintiff’s
cellular telephone in violation of the Telephone Consumer Protection Act, 47.
U.S.C. § 227 et seq. (“TCPA”) and related regulations, thereby invading Plaintiff’s
privacy and causing it to incur unnecessary and unwanted expenses.
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff,
a resident of California, seeks relief on behalf of a Class, which will result in at
least one class member belonging to a different state than that of Defendant, a
limited liability company of New York State. Plaintiff also seeks up to $1,500.00
in damages for each call in violation of the TCPA, which, when aggregated among
a proposed class in the thousands, exceeds the $5,000,000.00 threshold for federal
court jurisdiction. Therefore, both diversity jurisdiction and the damages threshold
under the Class Action Fairness Act of 2005 (“CAFA”) are present, and this Court
has jurisdiction.
3.
Venue is proper in the United States District Court for the Northern
District of California pursuant to 28 U.S.C. § 1391(b)(2) because Defendant does
business within the State of California and Plaintiff resides within this district.
PARTIES
4.
Plaintiff, ABANTE ROOTER AND PLUMBING, INC. (“Plaintiff”),
is a natural person residing in Alameda, California and is a “person” as defined by
47 U.S.C. § 153 (39).
5.
Defendant, BF ADVANCE LLC (“Defendant”), is a business
financing company, and is a “person” as defined by 47 U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in or around June of 2017, Defendant contacted Plaintiff
on Plaintiff’s cellular telephone numbers ending in -6147 and-7200, in an attempt
to solicit Plaintiff to purchase Defendant’s services.
9.
Defendant used an “automatic telephone dialing system” as defined
by 47 U.S.C. § 227(a)(1) to place its call to Plaintiff seeking to solicit its services.
10.
Defendant contacted or attempted to contact Plaintiff from telephone
numbers confirmed to belong to Defendant, including without limitation (929) 384-
1009 and (646) 813-7886.
11.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
12.
Defendant’s calls were placed to telephone number assigned to a
cellular telephone service for which Plaintiff incurs a charge for incoming calls
pursuant to 47 U.S.C. § 227(b)(1).
13.
During all relevant times, Defendant did not possess Plaintiff’s “prior
express consent” to receive calls using an automatic telephone dialing system or an
artificial or prerecorded voice on his cellular telephone pursuant to 47 U.S.C. §
227(b)(1)(A).
14.
Defendant placed multiple calls soliciting its business to Plaintiff on
its cellular telephones ending in -6147 and -7200 beginning in or around June of
2017 and continued through June of 2018.
15.
Such calls constitute solicitation calls pursuant to 47 C.F.R. §
64.1200(c)(2) as they were attempts to promote or sell Defendant’s services.
16.
Plaintiff received numerous solicitation calls from Defendant within a
12-month period.
17.
Upon information and belief, and based on Plaintiff’s experiences of
being called by Defendant despite having no prior relation to Plaintiff whatsoever,
and at all relevant times, Defendant failed to establish and implement reasonable
practices and procedures to effectively prevent telephone solicitations in violation
of the regulations prescribed under 47 U.S.C. § 227(c)(5).
CLASS ALLEGATIONS
18.
Plaintiff brings this action individually and on behalf of all others
similarly situated, as a member of the proposed class (hereinafter, “The Class”),
defined as follows:
All persons within the United States who received any
solicitation/telemarketing
telephone
calls
from
Defendant to said person’s cellular telephone made
through the use of any automatic telephone dialing
system or an artificial or prerecorded voice and such
person had not previously consented to receiving such
calls within the four years prior to the filing of this
Complaint
19.
Plaintiff represents, and is a member of, The Class, consisting of all
persons within the United States who received any solicitation/telemarketing
telephone calls from Defendant to said person’s cellular telephone made through
the use of any automatic telephone dialing system or an artificial or prerecorded
voice and such person had not previously not provided their cellular telephone
number to Defendant within the four years prior to the filing of this Complaint.
20.
Defendant, its employees and agents are excluded from The Class.
Plaintiff does not know the number of members in The Class, but believes the
Class’s members number in the thousands, if not more. Thus, this matter should
be certified as a Class Action to assist in the expeditious litigation of the matter.
21.
The Class is so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Class
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Class includes thousands of members. Plaintiff alleges that The Class
members may be ascertained by the records maintained by Defendant.
22.
Plaintiff and members of The Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiff
and The Class members via their cellular telephones thereby causing Plaintiff and
The Class members to incur certain charges or reduced telephone time for which
Plaintiff and The Class members had previously paid by having to retrieve or
administer messages left by Defendant during those illegal calls, and invading the
privacy of said Plaintiff and The Class members.
23.
Common questions of fact and law exist as to all members of The
Class which predominate over any questions affecting only individual members of
The Class. These common legal and factual questions, which do not vary between
Class members, and which may be determined without reference to the individual
circumstances of any Class members, include, but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any telemarketing/solicitation call
(other than a call made for emergency purposes or made with
the prior express consent of the called party) to a Class member
using any automatic telephone dialing system or any artificial
or prerecorded voice to any telephone number assigned to a
cellular telephone service;
b.
Whether Plaintiff and The Class members were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such
conduct in the future.
24.
As a person that received numerous telemarketing/solicitation calls
from Defendant using an automatic telephone dialing system or an artificial or
prerecorded voice, without Plaintiff’s prior express consent, Plaintiff is asserting
claims that are typical of The Class.
25.
Plaintiff will fairly and adequately protect the interests of the members
of The Class. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
26.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Class members is impracticable. Even if every Class’s member could afford
individual litigation, the court system could not. It would be unduly burdensome
to the courts in which individual litigation of numerous issues would proceed.
Individualized litigation would also present the potential for varying, inconsistent,
or contradictory judgments and would magnify the delay and expense to all parties
and to the court system resulting from multiple trials of the same complex factual
issues. By contrast, the conduct of this action as a class action presents fewer
management difficulties, conserves the resources of the parties and of the court
system, and protects the rights of each Class member.
27.
The prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Class members not parties to such
adjudications or that would substantially impair or impede the ability of such non-
party Class members to protect their interests.
28.
Defendant has acted or refused to act in respects generally applicable
to The Class, thereby making appropriate final and injunctive relief with regard to
the members of the Classes as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b).
On Behalf of The Class
29.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-28.
30.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227(b), and in particular
47 U.S.C. § 227 (b)(1)(A).
31.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b),
Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
32.
Plaintiff and The Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
On Behalf of The Class
33.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-28.
34.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227(b),
and in particular 47 U.S.C. § 227 (b)(1)(A).
35.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(b), Plaintiff and The Class members are entitled an award of
$1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
36.
Plaintiff and the Class members are also entitled to and seek injunctive
relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b)
As a result of Defendant’s negligent violations of 47 U.S.C.
§227(b)(1), Plaintiff and The Class members are entitled to and
request $500 in statutory damages, for each and every violation,
pursuant to 47 U.S.C. 227(b)(3)(B).
Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(b)(1), Plaintiff and The Class members are entitled to
and request treble damages, as provided by statute, up to $1,500, for
each and every violation, pursuant to 47 U.S.C. §227(b)(3)(B) and 47
U.S.C. §227(b)(3)(C).
Any and all other relief that the Court deems just and proper.
JURY DEMAND
37.
Pursuant to the Seventh Amendment to the Constitution of the United
States of America, Plaintiff is entitled to, and demands, a trial by jury.
Respectfully Submitted this 1st Day of October, 2018.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: /s/ Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
| privacy |
BrxwDIcBD5gMZwcz8c-n | UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
TIARA PAYNE, individually and on
behalf of all other similarly situated
individuals,
Plaintiff,
Civil Action No.:
v.
WBY, INC. d/b/a THE FOLLIES,
Defendant.
COLLECTIVE ACTION COMPLAINT
__________________________________________________________________
Plaintiff Tiara Payne (“Plaintiff”), by and through her attorneys, Mays &
Kerr, LLP and Nichols Kaster, PLLP, on behalf of herself and the Collective as
defined below, bring this Collective Action Complaint against WBY, Inc. d/b/a
The Follies (“Follies” or “Defendant”). Plaintiff alleges as follows:
JURISDICTION AND VENUE
1.
This Court has original jurisdiction to hear this Complaint and to
adjudicate the claims stated herein pursuant to 28 U.S.C. § 1331 because this
1
action asserts claims arising under federal law, the Fair Labor Standards Act
(“FLSA”), 29 U.S.C. § 201, et seq.
2.
Venue is proper in this District pursuant to 28 U.S.C. § 1391 because
Defendant resides in this District and because a substantial part of the events or
omissions giving rise to the claims occurred in this District.
PARTIES
3.
Defendant Follies is a domestic corporation with its principal place of
business located in Atlanta, Georgia. At times relevant to this action, Follies
qualifies as Plaintiff’s and the Collective’s “employer” within the meaning of the
FLSA, 29 U.S.C. § 203(d), (g).
4.
Plaintiff Tiara Payne is an adult resident of Fulton County, Georgia.
During relevant times, Plaintiff Payne worked as an entertainer for Follies and
qualified as an “employee” as defined by the FLSA, 29 U.S.C. § 203(e)(1).
5.
Plaintiff has consented in writing to assert claims for unpaid minimum
wages under the FLSA, 29 U.S.C. § 216(b). (See Ex. A.) As this case proceeds, it
is likely that other individuals will sign consent forms and join this action as opt-in
Plaintiffs.
2
FACTUAL ALLEGATIONS
6.
Plaintiff re-alleges and incorporates by reference the above paragraphs
as if fully set forth herein.
7.
Plaintiff and the Collective work(ed) for Defendant as exotic dancers,
also referred to as entertainers, during the statutory period.
8.
Entertainers are integral to Defendant’s business operations.
9.
Defendant is a nude, adult entertainment club.
10.
Defendant advertises its entertainment, in part, on twitter, magazines,
and billboards.
11.
Defendant has the occasion to entertain out-of-state customers.
12.
Defendant controls its entire club, including providing the stage,
furniture, lighting, sanitation, music, and other amenities. These items of furniture
and décor together form the aesthetic Defendant desires to maintain, promote, and
sell at the club. This furniture and décor are likely manufactured outside of
Georgia and/or pass through interstate commerce prior to its arrival at Defendant’s
establishment.
13.
Defendant limits its customer base to adults over the age of
twenty-one. Defendant serves domestic and imported alcohol to its customers.
3
14.
Its customers pay an admission for entry. In exchange, entertainers
entertain customers at Defendant’s direction and control.
15.
At relevant times, Defendant exerts control over entertainers, for
example, in the following ways:
a)
Hires and fires entertainers;
b)
Requires that entertainers sign in at the beginning of their
shifts;
c)
Limits the amount of time the entertainers can spend in
the dressing room;
d)
Sets the rates for VIP room usage;
e)
Selects the music to which entertainers dance and
establishes a three-dance rotation for stage dancing;
f)
Prohibits entertainers from working if their attire is
unacceptable;
g)
Requires entertainers sell promotional drink tickets to
customers;
h)
Decides when entertainers may leave the club; and
i)
Requires entertainers get appropriate signatures on their
“see ya passes” before they may leave.
16.
Defendant communicates many of these and other restrictions to
entertainers through posted rules, handouts, and direct communication by
management.
17.
Defendant enjoys the discretion to create, change, implement, and
enforce rules and restrictions for its entertainers as it sees fit.
4
18.
When entertainers violate rules, Defendant has the authority to fine,
suspend, or terminate them at its discretion.
19.
During the relevant time frame, Defendant fired entertainers who took
back their permit from Defendant so that they could work at other clubs.
20.
Entertainers work for Defendant as employees in fact. Nevertheless,
Defendant considers entertainers to be “independent contractors.”
21.
Defendant misclassifies entertainers in part in order to avoid paying
them a minimum wage as required by law.
22.
Indeed, Defendant does not pay entertainers any wages or other
compensation for the work it suffers or permits them to perform.
23.
Defendant instead requires entertainers to pay the club as a
precondition to working at the facility.
24.
Defendant requires entertainers pay, for example, nightly house fees
at the beginning of every shift.
25.
If entertainers wish to leave a shift early, Defendant requires the
entertainers to pay an additional fee and acquire a pass.
26.
If entertainers do not dance on the stage, they must pay the DJ a fee.
27.
Defendant requires entertainers to purchase from it drink tickets,
which entertainers must in turn sell to customers. If the entertainers are
5
unsuccessful in their attempts to sell these tickets to customers, Defendant does
reimburse them for the cost of the tickets.
28.
Defendant requires the entertainers to pay Defendant’s other
employees. Entertainers must tip out the DJ, house mom, bartenders, valets, and
security. Entertainers cannot leave at the end of their shift until they distribute all
required tip outs.
29.
Defendant cannot avail itself of the federal tipped minimum wage rate
because Defendant does not provide notice to its employees of its intention to take
a tip credit and because Defendant forbids its entertainers from keeping all of their
tip money. See 29 U.S.C. § 201.
30.
Defendant also imposes fines on the entertainers. At relevant times,
Defendant has issued fines to entertainers for the following offenses by way of
example: spending too much time in the dressing room and for failing to tip
Defendant’s other employees.
31.
Defendant requires entertainers to pay fees, buy drink tickets, tip out
other employees, and pay fines regardless of whether or not entertainers earned
enough tips from customers to cover these charges.
6
32.
Because Defendant directly controls entertainers, it is aware that
entertainers work as employees in fact; yet, Defendant still fails to classify
entertainers as employees under federal law.
33.
This District has found entertainers who worked under similar
circumstances to qualify as “employees” under the FLSA under similar
circumstances, see Stevenson v. Great Am. Dream, Inc., No. 1:12-CV-3359, 2013
WL 6880921 (N.D. Ga. Dec. 31, 2013); Clincy v. Galardi S. Enter., Inc., 808 F.
Supp. 2d 1326 (N.D. Ga. 2011).
34.
Defendant is aware of pending and/or prior litigation against its
competitors and has responded, in part, by requiring entertainers sign contracts that
identify them as “independent contractors.”
35.
Defendant’s failure to pay entertainers prescribed wages under these
circumstances is willful and reckless.
COLLECTIVE ACTION ALLEGATIONS
36.
Plaintiff re-alleges and incorporates by reference the above paragraphs
as if fully set forth herein.
37.
Like Plaintiff, there are members of this putative Collective who are
or were legally employed by Defendant who have also been denied minimum
wages. These individuals would benefit from the issuance of court-supervised
7
notice of this lawsuit and the opportunity to join by filing their written consent.
Defendant can readily identify these similarly situated entertainers through its
business records.
38.
Plaintiff therefore brings Count One of this Complaint pursuant to the
FLSA, 29 U.S.C. § 216(b) as a putative Collective on behalf of herself and other
similarly situated entertainers. Specifically, this putative Collective includes:
All persons who work(ed) as entertainers for Defendant at any time
within three years of the filing of this Complaint.
COUNT ONE
MINIMUM WAGE VIOLATION
Fair Labor Standards Act, 29 U.S.C. § 201, et. seq.
39.
Plaintiff re-alleges and incorporates by reference the above paragraphs
as if fully set forth herein.
40.
The FLSA requires covered employers to pay employees no less than
$7.25 for each hour worked in a workweek. 29 U.S.C. § 206.
41.
The minimum wage requirement must be satisfied “free and clear” of
any deductions or “kickbacks.” 29 C.F.R. § 531.35 (“For example, if it is a
requirement of the employer that the employee must provide tools of the trade
which will be used in or are specifically required for the performance of the
employer’s particular work, there would be a violation of the Act in any workweek
8
when the cost of such tools purchased by the employee cuts into the minimum or
overtime wages required to be paid him under the Act.”).
42.
Defendant is an “enterprise,” as that term is defined by the FLSA, 29
U.S.C. § 203(r)(1), and is engaged in commerce within the meaning of the FLSA,
29 U.S.C. § 203(b), (s)(1).
43.
Defendant is an “employer” of Plaintiff and the Collective, who are
“employees in fact,” as defined by the FLSA, 29 U.S.C. § 203(d), (e)(1), (g).
44.
Defendant failed to pay Plaintiff and the Collective any wages, much
less free and clear minimum wages.
45.
In failing to provide wages at the minimum rate and in taking monies
in the form of fees, fines, drink ticket sales, and tip-outs, Defendant violated the
FLSA.
46.
Defendant did not and has not made a good-faith effort to comply
with the FLSA as it relates to the compensation of Plaintiff and the Collective.
47.
Defendant knew Plaintiff and the Collective worked as employees in
fact, and it willfully failed and refused to pay Plaintiff and the Collective the
required minimum wages.
48.
Defendant’s willful failure and refusal to pay Plaintiff and the
Collective minimum wages for time worked violates the FLSA. 29 U.S.C. § 206.
9
49.
As a result of these unlawful practices, Plaintiff and the Collective
suffered and continue to suffer wage loss and are therefore entitled to recover
unpaid minimum wages for up to three years prior to the filing of their claims,
liquidated damages or prejudgment interest, attorneys’ fees and costs, and such
other legal and equitable relief as the Court deems just and proper.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of herself, and all others similarly
situated, pray for judgment against Defendant as follows:
a.
A finding that Plaintiff and the Collective are similarly
situated;
b.
Certification of this case as a collective action pursuant to
29 U.S.C. § 216(b);
c.
Authorization for the prompt issuance of notice to all
those similarly situated employees, apprising them of the pendency of
this action and providing them with the opportunity to assert timely
FLSA claims by filing individual consent forms;
d.
Judgment that Plaintiff and the Collective are non-
exempt employees entitled to protection under the FLSA;
e.
Judgment against Defendant for violation of the
minimum wage provisions of the FLSA;
f.
Judgment that Defendant acted willfully and without
good faith in violating the FLSA;
g.
An award to Plaintiff and those similarly situated for the
amount of unpaid minimum wages owed free and clear, and liquidated
damages;
10
h.
An award of prejudgment interest to the extent liquidated
damages are not awarded;
i.
An award of reasonable attorneys’ fees and costs;
j.
Leave to add additional plaintiffs by the filing of written
consent forms, or any other method approved by the Court; and
k.
For such other relief as the Court may deem just.
Dated: March 28, 2014
MAYS & KERR, LLC
/s/ Jeff Kerr
Jeff Kerr, GA Bar No. 634260
Craig Nydick, GA Bar No. 760565
235 Peachtree St. NE #202
Atlanta, GA 30303
Telephone: (404) 410-7998
Fax: (404) 855-4066
jeff@maysandkerr.com
craig@maysandkerr.com
NICHOLS KASTER, PLLP
Michele R. Fisher, GA Bar No. 76198
Anna Prakash, MN Bar No. 0351362*
Rebekah L. Bailey, MN Bar No. 0389599*
4600 IDS Center, 80 South 8th Street
Minneapolis, MN 55402
Telephone: (612) 256-3200
Fax: (612) 215-6870
fisher@nka.com
bailey@nka.com
*pro hac vice admissions forthcoming
ATTORNEYS FOR PLAINTIFF AND
THE COLLECTIVE
11
| employment & labor |
gMWFDYcBD5gMZwczQ37i | Charles H. Field (CA SBN 189817)
Edward D. Chapin (CA SBN 53287)
SANFORD HEISLER SHARP, LLP
655 West Broadway, Suite 1700
San Diego, CA 92101
Telephone: (619) 577-4253
Facsimile: (619) 577-4250
cfield@sanfordheisler.com
echapin2@sanfordheisler.com
Kevin Sharp (TN SBN 016287, Pro Hac Vice forthcoming)
SANFORD HEISLER SHARP, LLP
611 Commerce St., Suite 3100
Nashville, TN 37203
Telephone: (615) 434-7001
Facsimile: (615) 434-7020
ksharp@sanfordheisler.com
David Sanford (DC SBN 457933, Pro Hac Vice forthcoming)
Andrew Miller (DC SBN 1047209, Pro Hac Vice forthcoming)
SANFORD HEISLER SHARP, LLP
1666 Connecticut Avenue NW, Suite 310
Washington, D.C. 20009
Telephone: (202) 499-5200
Facsimile: (202) 499-5199
dsanford@sanfordheisler.com
amiller@sanfordheisler.com
David Tracey (NY SBN 5232624, Pro Hac Vice forthcoming)
SANFORD HEISLER SHARP, LLP
1350 Avenue of the Americas, 31st Floor
New York, NY 10019
Telephone: (646) 402-5650
Facsimile: (646) 402-5651
dtracey@sanfordheisler.com
Attorneys for Plaintiffs and the Class
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
CLASS ACTION
COMPLAINT
'17CV1960
BLM
CAB
KRISTI HASKINS, LAURA SCULLY,
and DONALD J. JANAK, individually
and as representatives of a class of
similarly situated persons in the General
Electric Retirement Savings Plan and the
General Electric Savings and Security
Program,
Plaintiffs,
GENERAL ELECTRIC COMPANY,
GENERAL ELECTRIC RETIREMENT
SAVINGS PLAN TRUSTEES, and
DOES 1-30,
Defendants.
I. INTRODUCTION
1.
Plaintiffs Kristi Haskins, Laura Scully, and Donald J. Janak (“Plaintiffs”),
individually and as representatives of a class of similarly situated persons in General
Electric’s 401(k) Plan a/k/a the General Electric Retirement Savings Plan and its
predecessor, the General Electric Savings and Security Program (“Plan”) between January
1, 2011 and June 30, 2016 (“Class Period”), bring this action under the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001, et seq. (“ERISA”),
against the Plan’s fiduciaries: General Electric Company (“GE”), General Electric
Retirement Savings Plan Trustees (“GE Plan Trustees”), and DOES 1 through 30 inclusive
(“DOES”) (collectively, “Defendants”). As described herein, Defendants have breached
their fiduciary duties and engaged in prohibited transactions and unlawful self-dealing in
violation of ERISA and to the detriment of Plaintiffs. Defendants’ harm to Plaintiffs arises
from five of the Plan’s funds: GE Institutional International Equity Fund (“International
Fund”), GE Institutional Strategic Investment Fund (“Strategic Fund”), GE RSP U.S.
Equity Fund (“RSP Equity Fund”), GE RSP U.S. Income Fund (“RSP Income Fund”)
(collectively, “GE Funds”) and GE Institutional Small Cap Equity Fund (“Small Cap
Fund”). Plaintiffs bring this action to remedy Defendants’ harm, unlawful conduct, prevent
further mismanagement of the Plan, and obtain equitable and other relief as provided by
ERISA.
2.
This Court has exclusive jurisdiction over the subject matter of this action
under 28 U.S.C. § 1331 and ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1).
3.
This district is the proper venue for this action under 28 U.S.C. § 1391(b) and
ERISA § 502(e)(2), 29 U.S.C. § 1132(e)(2) because it is the district where the Plan is
administered, where at least one of the alleged breaches took place, or where at least one
Defendant may be found. All Defendants are subject to nationwide service of process under
29 U.S.C. § 1132(e)(2).
III. PARTIES
A. Plaintiffs
4.
Plaintiff KRISTI HASKINS is a participant in the Plan and a resident of San
Diego, California. Plaintiff Haskins suffered harm from her ownership of the GE Funds
and the Small Cap Fund during the Class Period.
5.
Plaintiff LAURA SCULLY is a participant in the Plan and a resident of San
Diego, California. Plaintiff Scully suffered harm from her ownership of the RSP Equity
Fund and Small Cap Fund, among other investments she may have made in other GE
Funds, during the Class Period.
6.
Plaintiff DONALD J. JANAK is a participant in the Plan and a resident of
Carrollton, Texas. Plaintiff Janak suffered harm from his ownership of the International
Fund, RSP Equity Fund, RSP Income Fund, and Small Cap Fund, among other investments
he may have made in other GE Funds, during the Class Period.
7.
During the Class Period, Plaintiffs suffered harm from GE’s selection of poor-
to mediocre-performing investment options. GE’s management and administration of the
Plan deprived Plaintiffs of the investment returns GE could and should have pursued and
earned.
B. Defendants
8.
Defendant GENERAL ELECTRIC COMPANY (“GE”) is a New York
corporation that operates a global digital industrial company and, until 2016, operated an
investment management business through GE Asset Management Incorporated
(“GEAM”). GE is the Plan’s sponsor and administrator and one of the Plan’s fiduciaries.
As the Plan’s administrator, GE is entrusted with the power to make the Plan’s rules and
regulations as well as use its discretion to control, manage, and administer the Plan’s
investment options. GE is obligated to act for the exclusive benefit of the Plan’s
participants and beneficiaries, select prudent investments for the Plan, monitor their
selected investments’ performance, and accordingly modify the Plan’s investment options
to maximize the benefits accruing to the Plan’s participants and beneficiaries.
9.
Defendant GENERAL ELECTRIC RETIREMENT SAVINGS PLAN
TRUSTEES (“GE Plan Trustees”) are fiduciaries of the Plan and were officers of GEAM.
GE Plan Trustees were obligated to act for the exclusive benefit of the Plan’s participants
and beneficiaries, select prudent investments for the Plan, monitor their selected
investments’ performance, and accordingly modify the Plan’s investment options to
maximize the benefits accruing to the Plan’s participants and beneficiaries. To the extent
that GE Plan Trustees delegated any of their fiduciary functions to another person or entity,
that person or entity has not been disclosed to Plaintiffs and is also a fiduciary under 29
U.S.C. § 1002(21)(A).
10.
DOE DEFENDANTS 1 to 30 (“DOES”) are sued herein under fictitious
names because after diligent and good faith efforts, their names, identities, and capacities,
whether individual, corporate, associate, or otherwise, are presently unknown to Plaintiffs.
Plaintiffs will make the names or identities of said Defendants known to the Court after the
information has been ascertained. Plaintiffs are informed and believe, and based thereupon
allege, that each of the Defendants designated herein as a DOE DEFENDANT has taken
part in some or all of the matters referred to herein and is thus responsible in some manner
for the allegations in this Complaint and is liable for the relief sought herein.
11.
The Defendants are also subject to co-fiduciary liability under 29 U.S.C. §
1105(a)(1)(3) because they enabled other fiduciaries to commit breaches of fiduciary duties
through their appointment powers, failed to comply with 29 U.S.C. § 1104(a)(1) in the
administration of their duties, and failed to remedy the breach of duties they knew other
fiduciaries carried out.
IV. PRELIMINARY STATEMENT
12.
Plaintiffs and the almost quarter of a million employees who participated in
the Plan (“the Plan’s participants”) during the Class Period are victims of Defendants’
failure to uphold their fiduciary duties.
13.
The Plan is a profit-sharing plan that includes a “qualified cash or deferred
arrangement” as described in Section 401(k) of the Internal Revenue Code, I.R.C. § 401(k)
(1986) and is subject to the provisions of ERISA. The Plan is established and maintained
under a written document in accordance with 29 U.S.C. § 1102(a). The Plan has over $28
billion in assets and is one of the largest 401(k) plans in the country. The Plan provides
retirement income for GE’s current and former employees. The retirement income the Plan
can provide depends on the amount the Plan’s participants invest, the amount the Company
contributes on behalf of its employees, and the performance of selected investment options
less the investments’ fees and expenses. The Plan’s fiduciaries exclusively control the
investment options selected and the costs of the Plan’s investments.
14.
Each year, the Plan’s participants collectively invested billions of dollars in
the Plan. GE representatives encouraged the Plan’s participants at company meetings to
invest their 401(k) account assets in GE’s proprietary mutual funds, which GEAM
managed until July 1, 2016. GE was aware that despite the performance of the proprietary
mutual funds it selected for the Plan, GE would stand to earn significant revenues and
profits in investment management fees that GEAM would charge the Plan’s participants.
15.
The Plan’s participants trusted GE to construct a 401(k) plan that prioritized
their interests over its profit and that offered superior investment options and world-class
investment management. Instead, GE prioritized profit over its fiduciary duty and saddled
the Plan’s participants with substandard proprietary mutual funds.
16.
As of December 31, 2015, 68% of the Plan’s assets comprised GE-related
investment options and approximately 56% of the pooled investment fund options
available in the Plan consisted of five of GE’s proprietary mutual funds.
17.
The Plan was vital to GE’s mutual fund business and the healthy growth of its
bottom line. According to public documents, as of December 31, 2015, the Plan owned the
vast majority of assets in the following proprietary mutual funds:
Fund Name
Percentage Owned by the Plan
GE Institutional International Equity Fund
90%
GE Institutional Small Cap Equity Fund
84%
GE Institutional Strategic Investment Fund
75%
GE RSP U.S. Income Fund
75%
GE RSP U.S. Equity Fund
70%
18.
GE’s selection of its proprietary mutual funds for the Plan provided GEAM a
constant source of fees and helped inflate the market value of GEAM, which GE sold to
State Street for a reported $485 million on July 1, 2016. At the time of the sale, GEAM
managed approximately $8 billion of the Plan’s assets.
19.
Tainted by self-interest, GE’s investment conduct was imprudent and disloyal.
GE selected and retained its poor-performing proprietary mutual funds for the Plan when
superior investment options were readily available. Moreover, to the detriment of the
Plan’s participants, GE through GEAM profited from an arrangement where investment
sub-advisers managed the Plan for a rate less than the amount GEAM earned from the
Plan’s participants in investment management fees.
20.
During the Class Period, GE earned hundreds of millions of dollars from
GEAM and its management of the Plan, while the Plan’s participants whom GE owed a
fiduciary duty suffered losses in the hundreds of millions of dollars.
A. GE Selected and Retained Poor-Performing Proprietary Mutual Funds
21.
GE selected and retained four of its proprietary mutual funds in the Plan: the
International Fund, Strategic Fund, RSP Equity Fund, and RSP Income Fund (collectively,
“GE Funds”). GE Funds’ poor performance is demonstrated by comparing GE Funds’
annual and rolling investment returns to a broad measure of related market performance.1
This comparative measure consists of various data points, including: (i) the fund’s own
broad based securities market index (e.g., the S&P 500 Index); (ii) the funds’ rankings and
ratings among Morningstar’s compilation of hundreds of funds with equivalent investment
strategies;2 and, (iii) the investment leaders’ individual funds with an equivalent investment
strategy.
22.
Any prudent fiduciary would have viewed each of the following GE Funds
during the Class Period as poor investments and would not have selected any of them or
would have promptly selected a superior investment option after it underperformed relative
to its benchmark:
i.
International Fund. The International Fund suffered from chronic
underperformance relative to its benchmark and other readily available
alternatives dating back to January 2008. In the 9-year period between 2008
and 2016, the International Fund’s annual returns fell short of the benchmark
every year but 2012 and 2015. During that same period, the International
Fund underperformed relative to most of the comparable international equity
mutual funds Morningstar identified. In 2010, the International Fund
performed worse than 90% of the hundreds of international equity mutual
funds available on the market. The International Fund also performed worse
than 78%, 87%, and 73% of international equity mutual funds in 2011, 2014,
1 The United States Securities and Exchange Commission recognizes this comparative measure as the
prevailing method of evaluating a fund’s performance.
2 Morningstar, Inc. is a leading provider of independent investment research products (e.g., data and
research insights on managed investment products, publicly listed companies, and private capital
markets) for individual investors, financial advisors, asset managers, retirement plan providers and
sponsors, and institutional investors in the private capital markets in North America, Europe, Australia,
and Asia.
and 2016, respectively. Morningstar’s total number of identified comparators
ranged between 339 and 592 mutual funds.
ii.
Strategic
Fund.
The
Strategic
Fund
suffered
from
chronic
underperformance relative to its benchmark and other readily available
alternatives dating back to January 2008. In the 9-year period between 2008
and 2016, the Strategic Fund’s annual returns were below most of the
moderate-risk, target mutual funds Morningstar identified. In 2010, Strategic
Fund performed worse than 85% of the hundreds of moderate risk target
mutual funds available on the market. The Strategic Fund also performed
worse than 81%, 53%, 69%, and 78% of moderate risk target mutual funds
in 2011, 2013, 2014, and 2016, respectively. Morningstar’s total number of
identified comparators ranged between 431 and 727 mutual funds.
iii.
RSP Equity Fund. The RSP Equity Fund suffered from chronic
underperformance relative to its benchmark and other readily available
alternatives dating back to January 2009. In the 8-year period between 2009
and 2016, the RSP Equity Fund’s annual returns were below the benchmark
in every year but 2009, 2012, and 2013. The underperformance was
significant in 2010, 2011, and 2015. During that same period, the RSP Equity
Fund underperformed relative to most of the comparable large cap mutual
funds Morningstar identified. In 2010, the RSP Equity Fund performed worse
than 87% of the hundreds of large cap mutual funds available on the market.
In 2011, 2015, and 2016, the RSP Equity Fund ranked in the bottom half of
large cap mutual funds. Morningstar’s total number of identified comparators
exceeded 1,000 mutual funds.
iv.
RSP Income Fund. From 2008 through 2010, the RSP Income Fund
underperformed its benchmark (i.e., the Bloomberg Barclays U.S. Aggregate
Bond Index) by 3.65%. During the same three-year period, the RSP Income
Fund also significantly underperformed relative to the comparable mutual
funds of investment leaders (e.g., Vanguard, PIMCO, and BlackRock) in the
fixed income asset class. The RSP Income Fund’s underperformance relative
to comparable fixed income mutual funds continued until July 2016 when
GE sold GEAM to State Street.
23.
Any reasonable, disinterested investor monitoring their investments would
have viewed these funds as imprudent investments. In fact, from 2011 through 2016, the
International Fund suffered significant redemptions as investors sought to distance
themselves from this fund and GE’s advisory services. Similarly, from 2013 through 2016,
the Strategic Fund, RSP Equity Fund, and RSP Income Fund experienced net redemptions
as potential new investors sought to avoid these funds and GE’s investment advisory
services.
24.
As the investment adviser to GE Funds, GEAM—and by extension GE—was
or should have been aware of GE Funds’ annual investment performance and investor
redemptions.
25.
GEAM’s poor management of GE Funds should have prompted GE to select
a more lucrative investment option for the Plan’s participants. Instead, GE retained GE
Funds because it stood to benefit from the investment management fees GEAM was
collecting from the Plan’s participants. GE’s self-interest and failure of effort and/or
competence cost the Plan’s participants at least tens of millions of dollars in fees and poor
investment performance every year.
B. GE Charged the Plan’s Participants Unreasonable Fees
26.
The Small Cap Fund was the only GE proprietary fund that consistently
outperformed its benchmark. However, in contrast to its practice with the GE Funds,
GEAM did not actively manage the Small Cap Fund’s assets. Instead, it hired and
negotiated a fee with multiple investment sub-advisers to manage the fund. GEAM
collected an investment management fee from the Small Cap Fund’s performance and
retained for itself the difference between the management fee it collected from the fund
and the fee it agreed to pay its investment sub-advisers. From this arrangement, GEAM—
and thereby GE—collected millions of dollars in unreasonable and/or excessive fees for
services that GE was ultimately responsible for performing as the Plan’s administrator.
27.
As the Plan’s administrator, GE owed fiduciary duties to the Plan’s
participants. By charging excessive fees incident to administering the Plan, GE breached
its fiduciary duties and engaged in transactions prohibited under ERISA.
28.
GE flouted its fiduciary duties and wrongfully wasted and mismanaged the
Plan’s assets. The Plan, as a whole, lost hundreds of millions of dollars due to GE’s
breaches of fiduciary duties. The approximately 250,000 current and former GE employees
who participated in the Plan deserved better from a leading global investment firm that
touts its investment acumen.
V. ERISA’S FIDUCIARY STANDARDS
29.
ERISA imposes strict fiduciary duties of loyalty and prudence upon the
Defendants as fiduciaries of the Plan. 29 U.S.C. § 1104(a)(1), states, in relevant part, that
“a fiduciary shall discharge his duties with respect to a plan solely in the interest of the
participants and beneficiaries and—(A) for the exclusive purpose of (i) providing benefits
to participants and their beneficiaries; and (ii) defraying reasonable expenses of
administering the plan; (B) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of like character and with like aims.”
30.
Under 29 U.S.C. § 1103(c)(1), with certain exceptions not relevant here, “the
assets of a plan shall never inure to the benefit of any employer and shall be held for the
exclusive purposes of providing benefits to participants in the plan and their beneficiaries
and defraying reasonable expenses of administering the plan.”
31.
ERISA’s fiduciary duties are “the highest known to the law” and must be
performed “with an eye single” to the interests of participants. Donovan v. Bierwirth, 680
F.2d 263, 271-272 n.8 (2d Cir. 1982). Thus, “in deciding whether and to what extent to
invest in a particular investment, a fiduciary must ordinarily consider only factors relating
to the interests of plan participants and beneficiaries . . . . A decision to make an investment
may not be influenced by [other] factors unless the investment, when judged solely on the
basis of its economic value to the plan, would be equal or superior to alternative
investments available to the plan.” Dep’t of Labor ERISA Advisory Op. 88-16A, (Dec. 19,
1988) (emphasis added).
32.
Under ERISA section 406(b)(1), 29 U.S.C. § 1106(b)(1), “[a] fiduciary with
respect to a plan shall not deal with the assets of the plan in his own interest or for his own
account.”
33.
In measuring fiduciary conduct, courts have made it clear that the key element
is the process for considering and examining relevant information. As one court explained,
“ERISA § 404(a)(1)(B) requires only that [fiduciaries] vigorously and independently
investigate the wisdom of a contemplated investment; it matters not that the investment
succeeds or fails, as long as the investigation is intensive and scrupulous and . . . discharged
with the greatest degree of care that could be expected under all the circumstances by
reasonable beneficiaries and participants of the plan.” Donovan v. Walton, 609 F. Supp.
1221, 1238 (S.D. Fla. 1985).
34.
Thus, to meet the prudent process requirement, fiduciaries must vigorously
and thoroughly investigate the investment options to obtain relevant information and then
base their decisions on the information obtained. This means considering competing funds
to determine which fund should be included in the plan’s investment line-up. “A fiduciary
must engage in an objective, thorough, and analytical process that involves consideration
of the quality of competing providers and investment products, as appropriate.” 72 Fed.
Reg. 60453 (October 24, 2007) (Preamble).
35.
In satisfying these duties, fiduciaries should consider a variety of funds and
the expenses associated with the possible funds. See Tibble v. Edison International, 49
EBC 1725 (C.D. Cal. 2010) (noting that fiduciaries must engage in a thorough investigation
of the merits of an investment and noting that the fiduciaries considered five investment
criteria, including the expense ratio, when selecting funds).
36.
Furthermore, under ERISA, a fiduciary “has a continuing duty to monitor
[plan] investments and remove imprudent ones” that exists “separate and apart from the
[fiduciary’s] duty to exercise prudence in selecting investments.” Tibble v. Edison Int’l,
135 S. Ct. 1823, 1828 (2015). If an investment is imprudent, the plan fiduciary “must
dispose of it within a reasonable time.” Id. (citation omitted).
37.
ERISA also imposes explicit co-fiduciary liability on plan fiduciaries. 29
U.S.C. § 1105(a) provides for fiduciary liability for a co-fiduciary’s breach: “In addition
to any liability which he may have under any other provision of this part, a fiduciary with
respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary
with respect to the same plan in the following circumstances: (1) if he participates
knowingly in, or knowingly undertakes to conceal, an act or omission of such other
fiduciary, knowing such act or omission is a breach; or (2) if, by his failure to comply with
section 404(a)(1) in the administration of his specific responsibilities which give risk to his
status as a fiduciary, he has enabled such other fiduciary to commit a breach; or (3) if he
has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts
under the circumstances to remedy the breach.”
38.
29 U.S.C. § 1132(a)(2) authorizes a plan participant to bring a civil action to
enforce a breaching fiduciary’s liability to the plan under 29 U.S.C. § 1109. Section
1109(a) provides in relevant part: “Any person who is a fiduciary with respect to a plan
who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries
by this title shall be personally liable to make good to such plan any losses to the plan
resulting from each such breach, and to restore to such plan any profits of such fiduciary
which have been made through use of assets of the plan by the fiduciary, and shall be
subject to such other equitable or remedial relief as the court may deem appropriate,
including removal of such fiduciary.”
39.
Under ERISA, “[t]he question of loss to the Plan . . . requires a comparison
between the actual performance of the Plan and the performance that would have otherwise
taken place.” Bierwirth, 754 F.2d at 1057.
VI. FACTS APPLICABLE TO ALL COUNTS
A. The Plan’s Investments
40.
As of December 31, 2015, the Plan had approximately $28.5 billion in assets,
with approximately $14.5 billion in pooled investment funds. The GE Funds and the Small
Cap Fund comprised about 56% of the Plan’s assets among pooled investment funds.
Value of Plan
Plan Investments
Investment (as of
December 31, 2015)
GE Common Stock Fund
$11,046,325,391
GE Investment Funds:
GE RSP U.S. Income Fund
$1,856,666,000
GE RSP U.S. Equity Fund
$3,496,467,000
GE Institutional International Equity Fund
$1,151,000,000
GE Institutional Small Cap Equity Fund
$1,101,531,000
GE Institutional Strategic Investment Fund
$595,930,000
Total GE Investment Funds
$8,201,594,422
Non-GE Investment Funds:
Non-U.S. Equity Index Fund
$844,833,545
U.S. Aggregate Bond Index Fund
$645,596,009
U.S. Large-Cap Equity Index Fund
$3,115,339,870
U.S. Mid-Cap Equity Index Fund
$902,027,992
U.S. Small-Cap Equity Index Fund
$576,134,517
U.S. Treasury Inflation-Protected Securities Index Fund
$281,069,727
Total Non-GE Investment Funds
$6,365,001,660
Other Individual Investments
$2,524,200,670
41.
GE controlled the menu of investment options that were available to the Plan’s
participants. Despite the market’s many high-quality investment options, GE invested the
Plan’s assets in five of its proprietary mutual funds. Each of these funds was the exclusive
investment option in its respective category of actively managed investment strategy. For
example, if a Plan participant wanted to invest in an actively managed large cap strategy,
RSP Equity Fund was the only available option.
42.
GE managed each of these proprietary funds for a profit by charging
investors—including the Plan’s participants—fees for services. The fee revenue and
GEAM’s management of the Plan’s assets enhanced the value of GEAM. GE realized the
value of GEAM—$485 million—in its sale to State Street. GE therefore gained profits by
including each of these funds in the Plan.
43.
GE’s imprudent investment decisions, tainted through a process rife with self-
dealing, is evidenced in four principal ways: (A) GE year in and year out retained four
poor-performing proprietary mutual funds relative to their stated benchmarks and/or other
readily available mutual funds with comparable investment strategies; (B) GE, through
GEAM, collected millions of dollars of investment management fees despite GE Funds’
poor performance; (C) through the Plan, GE built and prolonged its investment
management business, which it then sold to State Street for a reported $485 million; and
(D) GE, through GEAM, collected an investment management fee from the Small Cap
Fund’s performance and retained for itself the difference between the management fee it
collected and the fee it agreed to pay its investment sub-advisers. In each case, GE
promoted its own business interests at the expense of the Plan’s participants.
44.
These incentives tainted GE’s investment decisions. GE selected its
proprietary funds not based on their merits as investments or because doing so was in the
interest of the Plan’s participants, but because these products provided significant revenues
and profits to GE. The GE Funds and the Small Cap Fund consistently suffered from high
fees, poor performance, or both, relative to comparable, readily apparent investment
options. A prudent, loyal fiduciary under these circumstances would not have selected or
retained such expensive, poor-performing investments.
B. GE Failed to Remove Their Poor-Performing Proprietary Mutual Funds
45.
For the actively managed investment strategies—stock/bond allocation,
international equity, and U.S. equity—GE offered participants the single option of a GE
proprietary mutual fund geared to that strategy, even though comparable but better-
performing investment options were readily available. Indeed, these GE funds were so
under-performing—and superior investment options were so readily apparent—that an
adequate investigation would have revealed them as imprudent investments.
46.
The Strategic Fund, International Fund, Small Cap Fund, RSP Equity Fund,
and RSP Income Fund are known in the industry as “actively managed” funds, which
means that each fund’s investment objective is to outperform a targeted “benchmark”
through superior stock picking skills after accounting for all expenses. “Actively managed”
funds stand in contrast to “passively managed” or index funds, which simply buy and hold
all the stocks within a given index.
47.
Benchmarks can include broad based securities market indices such as the
Standard & Poor’s 500 Index (“S&P 500”), or the Morgan Stanley Europe, Australasia and
the Far East Index (“MSCI EAFE”). Benchmarks can also include a universe of hundreds
and thousands of funds with equivalent investment strategies, such as the Morningstar
Moderate Allocation Fund Category. Measuring a mutual fund’s performance against an
established benchmark is the most recognized method used by investors to assess the
success or failure of the mutual fund. When active fund managers succeed in beating their
benchmarks, this is commonly referred to as “beating the market.”
48.
Three of the proprietary GE funds (i.e., the Strategic Fund, International Fund,
and RSP Equity Fund) consistently underperformed relative to not only their
benchmarks—and thus the market—but also the majority of available alternative funds.
Options that were readily apparent included the investment funds offered by highly
reputable groups such as T. Rowe Price, Fidelity, American Funds, and
Vanguard/Wellington.
49.
The annual returns of the three funds were regularly below those of their T.
Rowe Price, Fidelity, American Funds, and Wellington counterparts. Moreover,
Morningstar consistently rated the three Funds in the bottom 50th and 75th percentile among
hundreds of funds with equivalent strategies. Accordingly, for each Fund, superior
alternative investments were readily apparent such that an adequate investigation would
have uncovered those alternatives.
50.
The fourth proprietary GE fund, the RSP Income Fund, consistently
underperformed relative to other fixed income asset class mutual funds managed by
industry leaders Vanguard, PIMCO, and BlackRock. Accordingly, superior alternative
investments were readily apparent such that an adequate investigation would have
uncovered those alternatives.
51.
Despite their ongoing underperformance during the Class Period, GE
continued to retain the GE Funds when any prudent fiduciary monitoring the Plan would
have removed them as early as 2011.
52.
GE stood to, and did, benefit from the fees it charged the Plan’s participants
for managing the GE Funds. Of course, had GE offered any of the readily apparent better-
performing, non-proprietary alternatives, it would have stood to lose tens of millions of
dollars, both from a loss of the fee revenue stream worth millions of dollars, and from a
reduction to GEAM’s reported $485 million price tag in the tens of millions of dollars.
Accordingly, the process used by GE to select and maintain its investment options was
tainted by failure of effort, competence, and/or loyalty.
53.
Plaintiffs did not have knowledge of all material facts (including, among other
things, comparisons of the Plan’s costs and investment performance versus other available
alternatives, comparisons to other similarly-sized plans, and information regarding
separate accounts and collective trusts) necessary to understand that Defendants breached
their fiduciary duties and engaged in other unlawful conduct in violation of ERISA, until
shortly before this suit was filed. Further, Plaintiffs do not have actual knowledge of the
specifics of Defendants’ decision-making processes with respect to the Plan, including
Defendants’ processes for selecting, monitoring, and removing the Plan’s investments,
because this information is solely within the possession of Defendants prior to discovery.
For purposes of this Complaint, Plaintiffs have drawn reasonable inferences regarding
these processes based upon information and belief and the facts set forth herein.
54.
Below, Plaintiffs describe in detail the performance of the Strategic Fund,
International Fund, RSP Equity Fund, and RSP Income Fund.
1.
Strategic Fund
55.
The Strategic Fund invests primarily in a combination of U.S. and foreign
(non-U.S.) equity and debt securities and cash. The Strategic Fund measures relative
investment performance by comparing the weighted average performance of U.S., equity,
foreign equity, and fixed income securities to three indexes: S&P 500 Index, Barclay’s
Aggregate U.S. Bond Index, and MSCI AWCI ex-US Index. Given the complexities of
trying to apply three different indexes to measure the weighted average of the Strategic
Fund’s portfolio, Plaintiffs are relying on Morningstar for benchmark data for illustrative
purposes. Morningstar has identified the Strategic Fund’s benchmark as Moderate Target
Risk Index and its fund category as Moderate Allocation.
56.
During the Class Period, the Plan’s assets under management in the Strategic
Fund ranged between approximately $450 million and $620 million. If a participant in
GE’s 401(k) Plan sought a balanced-style investment portfolio that allocated between
stocks and bonds, the Strategic Fund was the only option available to the participant.
57.
The placement of the Strategic Fund into GE’s 401(k) was an important
arrangement for GE. The Plan’s participants represented approximately 75% of the
Strategic Fund’s total assets.
58.
For the three-year period from 2008 through 2010, the Strategic Fund was
clearly an underachiever relative to its Morningstar Moderate Target Risk Index and the
approximately 500 other mutual funds in the Morningstar Moderate Allocation category.
The Strategic Fund also underperformed other well-known, readily available funds with
comparable investment strategies (e.g., T. Rowe Price Capital Appreciation Fund,
American Balanced Fund, Fidelity Puritan Fund, and Vanguard/Wellington Fund).
59.
From January 1, 2008 through December 31, 2010, the Strategic Fund had a
cumulative return of 2.27%. The Moderate Target Risk Index, had a return of 11.91%. The
Strategic Fund also performed worse than 55%, 67%, and 85% of the mutual funds within
the Moderate Allocation category in 2008, 2009, and 2010, respectively. The T. Rowe
Price Capital Appreciation Fund had a return of 19.95%. The American Funds Balanced
Fund had a return of 9.95%. The Fidelity Puritan Fund had a return of 11.57%. The
Vanguard/Wellington Fund had a return of 11.15%.
60.
During this same period, the Strategic Fund had fees that were 20% higher
than the better-performing American Balanced Fund, and 100% more expensive than the
better-performing Vanguard/Wellington Fund.
61.
A
reasonable
investigation
in
2010
would
have
revealed
the
underperformance of the Strategic Fund. It would have also uncovered these readily-
apparent alternative investments that were better performing and in some cases cheaper. In
light of the available alternatives, a prudent fiduciary monitoring the Plan would not have
offered the Plan’s participants the Strategic Fund. But GE did just that.
62.
Investment performance did not improve from there. The Strategic Fund
performed worse than 81%, 53%, 69%, and 78% of funds within the Morningstar Moderate
Allocation category in 2011, 2013, 2014, and 2016, respectively. Morningstar’s total
number of identified comparator mutual funds within the category ranged between 431 and
727 mutual funds.
63.
From the beginning of calendar year 2011 through the end of calendar year
2016, the performance of the Strategic Fund was significantly below that of the comparable
T. Rowe Price, Fidelity, Vanguard/Wellington, and American Funds.
64.
The chart provided immediately below this paragraph shows the relative
annual and cumulative performances of the Strategic Fund and the comparable mutual
funds of T. Rowe Price, Fidelity, Vanguard/Wellington, and American Funds. The
underperformance of the GE Fund is striking.
Fund
2011
2012
2013
2014
2015
2016
Cumulative
12.85 16.78
4.88
-1.18
5.52
+36.29%
Strategic Fund
-2.56
3.19
14.70
22.43
12.25
5.42
8.34
+66.33%
T. Rowe Price
Capital
Appreciation
Fund
GE +/-
-5.75
-1.85
-5.65
-7.37
-6.60
-2.82
+/- Cumulative
-7.6
-13.25
-20.62
-27.22 -30.04 -30.04%
.74
13.94 20.48
10.86
1.82
5.20
+53.04%
Fidelity Puritan
Fund
GE +/-
-3.30
-1.09
-3.70
-5.98
- 3.00
+.32
+/- Cumulative
-4.39
-8.09
-14.07
-17.07 -16.75 -16.75%
Vanguard/
Wellington Fund
3.95
12.67
19.96
9.90
.14
11.09
+57.71%
GE +/-
-6.51
+.18 -3.18
-5.02
-1.32
-5.57
+/- Cumulative
-6.33
-9.51
-14.53
-15.85 -21.42 -21.42%
American Funds
Balanced Fund
4.16
14.57
22.12
9.22
2.03
8.90
+61.00%
GE +/-
-6.72
-1.72
-5.34
-4.34
-3.21
-3.38
+/- Cumulative
-8.44
-13.78
-18.12
-21.33 -24.71 -24.71%
65.
During this period, the money flowing out of the Strategic Fund exceeded new
money flowing into the Strategic Fund, as potential new investors sought to avoid the poor-
performing fund and GE’s investment advisory services. As the investment adviser to the
Strategic Fund, GEAM would have been aware of the redemptions and lack of new sales
aside from the reinvestment of dividends by existing shareholders. Despite chronic
underperformance and net redemptions, GE continued to offer the Strategic Fund in the
66.
The funds listed in the tables above are well known, readily available, and
easily accessible to all investors. These superior alternative investments were readily
apparent such that an adequate investigation and prudent monitoring would have uncovered
them. GE would not have had to scour the market to find them, particularly given GE’s
presence in the investments marketplace. On the contrary, GE would likely have had to
scour the market to find an offering as poor-performing as the Strategic Fund.
67.
Nevertheless, GE retained the Strategic Fund in the Plan when any reasonable
investor that was monitoring the investment would have weeded it out. GE did so even
after it became apparent that its performance was inferior to alternative, readily available
funds with an equivalent investment strategy. A fiduciary acting in the best interest of the
Plan’s participants and with due care would have removed the Strategic Fund from the
68.
However, GE had business and financial incentives to select and maintain the
Strategic Fund in the Plan. Even though the Strategic Fund performed poorly, GEAM—
and thereby GE—collected millions of dollars in advisory fees from the fund. Furthermore,
the Strategic Fund’s fee revenue enhanced the sale value of GEAM, which factored into
the reported $485 million price GE received from its sale of GEAM. This by itself is
suggestive of improper self-dealing.
69.
Not replacing the Strategic Fund with a better option had a negative impact
on participants. Listed in the table below is the hypothetical growth in investment value of
a $400 million fund based on the investment performance of each fund for the period
beginning six years prior to the filing of this suit through June 30, 2016, the day before GE
sold GEAM.
Growth of $400
Fund Name
Cumulative
Performance
Annualized
Performance
Million
Strategic Fund
49.48%
7.03%
$598 million
101.47%
12.57%
$806 million
T. Rowe Price
Capital
Appreciation
Fund
75.95%
10.01%
$703 million
Fidelity Puritan
Fund
Vanguard
Wellington Fund
76.52%
10.08%
$706 million
American Funds
Balanced Fund
88.66%
11.33%
$750 million
70.
GE’s process for selecting, maintaining, and monitoring the Strategic Fund as
a Plan investment option was tainted by a failure of effort, competence, and/or loyalty. The
Plan’s participants suffered millions of dollars in losses as a result of GE’s breach of
fiduciary duty.
2.
International Fund
71.
Another chronic underperforming mutual fund option through June 2016 was
the International Fund. The International Fund invested primarily in companies located in
developed and emerging market countries outside the U.S. The International Fund’s
prospectus identified the MSCI EAFE Index as it primary benchmark against which the
fund compared its investment performance.
72.
If a participant in the Plan sought to invest with an actively managed
international large cap strategy, the International Fund was the only option available to the
participant. Between 2010 and 2015, the Plan’s assets under management in the
International Fund ranged between approximately $940 million and $1.3 billion.
73.
The placement of the International Fund into GE’s 401(k) was an important
arrangement for GE. The Plan’s participants represented approximately 90% of the
International Fund’s total assets.
74.
For the three-year period from 2008 through 2010, the International Fund was
clearly an underachiever relative to the MSCI EAFE Index and the approximately 500 other
mutual funds in the Morningstar Foreign Large Blend Category. The International Fund
also underperformed other well-known, readily available funds with comparable
investment strategies (e.g., T. Rowe Price Overseas Stock Fund, the American Funds
EuroPacific Growth Fund, and the Fidelity Diversified International Fund)3.
75.
From January 1, 2008 through December 31, 2010, the International Fund had
a cumulative negative return of -11.51%. The MSCI EAFE Index had a negative return of
-3.85%. The International Fund also performed worse than 55%, 70%, and 90% of the over
300 mutual funds within Morningstar’s Foreign Large Blend Category in 2008, 2009, and
2010, respectively. On an individual fund level, the Fidelity Diversified International Fund
had a negative return of -3.78%; the T. Rowe Price Overseas Stock Fund had a positive
return of 2.21%; and the American Funds EuroPacific Growth Fund had a positive return
of 8.58%.
76.
A
reasonable
investigation
in
2010
would
have
revealed
the
underperformance of the International Fund. It would have also uncovered these readily
apparent better-performing, alternative investments. In light of the available alternatives, a
prudent fiduciary monitoring the Plan would not have offered the Plan’s participants the
International Fund. But GE did just that.
77.
The poor performance did not end there. In 2011, 2014, and 2016, the
International Fund performed worse than 78%, 87%, and 73% of international equity
mutual funds, respectively. Morningstar’s total number of identified comparators ranged
between 339 and 592 mutual funds.
78.
As the investment adviser to the International Fund, GEAM—and thereby
GE—would have been aware of the investment performance of the International Fund on
an annual basis, both in terms of its absolute performance and its benchmark, the MSCI
EAFE. Each year the International Fund’s prospectuses disclosed the fund’s annual
investment returns relative to the MSCI EAFE. Here are excerpts from the International
Fund’s prospectuses for each year between, and including, 2008 and 2015:
3 Vanguard does not offer an actively managed fund for this investment strategy.
-44.35 27.35 5.49
-15.89 20.79
21.65
-7.68
-1.46
Fund’s
Returns
-43.38 31.78 7.75% -12.14 17.32
22.78
-4.90
-0.81
MSCI EAFE
Index
79.
Other than 2012, the International Fund underperformed its benchmark every
single year. Given these overall investment results, adequate monitoring would have
revealed the imprudence of investing in the International Fund. Furthermore, an adequate
investigation would have revealed superior, readily apparent funds with an international
large cap investment strategy.
80.
From the beginning of calendar year 2011 through the end of calendar year
2016, the International Fund’s performance was significantly below that of the comparable
funds of T. Rowe Price, Fidelity, and American Funds.
81.
The chart provided immediately below shows the relative annual and
cumulative performances of the International Fund and other mutual funds with equivalent
investment strategies. The differences are striking.
Fund
2011
2012
2013
2014
2015
2016
Cumulative
-15.89
20.79 21.65
-7.68
-0.46
-0.97
17.44%
International
Fund
-10.12
18.59
21.75
-4.49
-2.45
3.01
26.29%
T. Rowe Price
Overseas Stock
Fund
GE +/-
-5.77
+2.20 -0.10
-3.19
+1.99
-3.98
+/- Cumulative
-3.57
-3.67
-6.86
-4.87
-8.85
-8.85%
Fidelity Overseas
Fund
-15.80
25.30
26.97
-3.52
8.42
-1.20
40.17%
GE +/-
-0.09
-4.51
-5.32
-4.17
-8.87
+0.23
+/- Cumulative
-4.60
-9.92
-14.09 -22.96
-22.73 -22.73%
-13.31
19.64 20.58
-2.29
-0.48
1.01
25.15
American Funds
EuroPacific Fund
GE +/-
-2.58
+1.15 +1.07
-5.39
+0.02
-1.98
+/- Cumulative
-1.43
-.36
-5.75
-5.73
-7.71
-7.71%
82.
For each fiscal year from fiscal year 2011 through fiscal year 2016, the
International Fund suffered massive redemptions as investors sought to distance
themselves from the poor-performing fund and GE’s investment advisory services. As the
investment adviser to the International Fund, GEAM would have been aware of the mass
redemptions. Despite chronic underperformance and redemptions, GE continued to offer
the International Fund in the Plan.
83.
The funds listed in the tables above are well known, readily available, and
easily accessible to all investors. These superior alternative investments were readily
apparent such that an adequate investigation would have uncovered them. GE would not
have had to scour the market to find them, particularly given GE’s presence in the
investments market place. On the contrary, GE would likely have had to scour the market
to find an offering as poor-performing as the International Fund.
84.
Nevertheless, GE retained the International Fund in the Plan when any
reasonable investor monitoring the investment would have weeded it out. It did so even
after it became apparent that its performance was inferior to alternative, readily available
funds with an equivalent investment strategy. A fiduciary acting in the best interest of the
Plan’s participants and with due care would have removed the International Fund from the
85.
However, GE had business and financial incentives to select and maintain the
International Fund in the Plan. Even though the International Fund performed poorly,
GEAM—and thereby GE—collected millions of dollars in advisory fees from the fund.
Furthermore, the International Fund’s fee revenue enhanced the sale value of GEAM,
which factored into the reported $485 million price GE received from its sale of GEAM.
This by itself is suggestive of improper self-dealing.
86.
Not replacing the International Fund with a better option had a negative
impact on the Plan’s participants. Listed in the table below is the hypothetical growth in
investment value of a $1 billion fund based on the investment performance of each fund
for the period beginning approximately six years prior to the filing of this suit through June
30, 2016, the day before GE sold GEAM.
Growth of $1
Fund Name
Cumulative
Performance
Annualized
Performance
Billion
International Fund
22.19%
3.44%
$1.22 billion
T. Rowe Price
Overseas Fund
34.17%
5.09%
$1.34 billion
Fidelity Overseas
Fund
57.03%
7.93%
$1.57 billion
American Funds
EuroPacific Fund
34.10%
5.08%
$1.34 billion
87.
GE’s process for selecting and maintaining the International Fund as a Plan
investment option was tainted by a failure of effort, competence, and/or loyalty. The Plan’s
participants suffered millions of dollars in losses as a result of GE’s breach of fiduciary
3.
RSP Equity Fund
88.
The RSP Equity Fund provides yet another example of a poor-performing
proprietary fund that GE loaded onto the Plan despite superior, readily apparent alternative
funds. The RSP Equity Fund invested primarily in large capitalized U.S. companies. If a
Plan participant wanted to invest in an actively managed U.S. large cap stock fund, the
RSP Equity Fund was the only option available to the participant.
89.
According to annual 401(k) disclosure statements GE furnished to the Plan’s
participants, GE measured the RSP Equity Fund’s investment results relative to the S&P
500 Index. During the Class Period, the Plan’s assets under management in the RSP Equity
Fund ranged between approximately $2.4 billion and $3.8 billion.
90.
The placement of the RSP Equity Fund into GE’s 401(k) was an important
arrangement for GE. The Plan’s participants represented approximately 70% of the RSP
Equity Fund’s total assets.
91.
In 2008 and 2009, the RSP Equity Fund performed favorably against its
benchmark, the S&P 500 Index. However, the RSP Equity Fund’s investment performance
relative to the S&P 500 Index turned sour in 2010 and never recovered, as illustrated in the
chart below:
2010
2011
2012
2013
2014
2015
2016
10.71 -2.16
16.78
35.15
13.27
-2.05
10.13
RSP Equity
Fund’s
Returns
S&P 500 Index 15.06 2.11
16.00
32.38
13.69
1.38
11.96
Fund +/- Index -4.35
-4.27
+0.77
+2.76
-0.42
-3.43
-1.83
Cumulative
-4.35
-8.62
-7.85
-5.09
-5.51
-8.94
-10.77
92.
In the three-year period between 2008 through 2010, the RSP Equity Fund
had an investment return of +7.7%, which was below the investment returns generated by
comparable funds managed by T. Rowe Price, Fidelity, Vanguard, and American Funds.
For the same three-year period, the T. Rowe Price Institutional Large Cap Growth Fund
had an investment return of +8.83%; the Fidelity Large Cap Stock Fund had an investment
return of +21.21%; the Vanguard Institutional Total Stock Market Index Fund had an
investment return of +9.22%; and the American Funds AMCAP Fund had an investment
return of +16.23%.
93.
A reasonable investigation in 2010 would have uncovered these alternative,
readily apparent investments and thus revealed the underperformance of the RSP Equity
Fund relative to these funds. In light of the available alternatives, a prudent fiduciary
monitoring the Plan would not have offered the Plan’s participants the RSP Equity Fund.
But GE did just that.
94.
The RSP Equity Fund’s poor performance relative to the funds offered by T.
Rowe Price, Fidelity, Vanguard, and American Funds did not end there. The chart listed
below shows the relative annual and cumulative performances of the RSP Equity Fund and
the funds offered by T. Rowe Price, Fidelity, Vanguard, and American Funds. Again, the
differences are striking.
Fund
2011
2012
2013
2014
2015
2016
Cumulative
-2.16
16.78 35.15
13.27 -2.05
10.13
+71.12%
RSP Equity
Fund
T. Rowe Price
Institutional
Large Cap
Growth Fund
GE +/-
-0.76
-0.77 -9.29
+4.55 -12.13 +7.28
-1.53 -10.82 -6.27 -18.4
-11.12 -11.12%
+/-
Cumulative
-1.62
20.71 39.24
10.13 -3.17
16.70
+81.99%
Fidelity Large
Cap Stock Fund
GE +/-
-0.54
-3.93 -4.09
+3.14 +1.12
-6.57
-4.47 -8.56
-5.42 -4.30
-10.87 -10.87%
+/-
Cumulative
1.09
16.47
33.64
12.60
0.45
12.75
+77%
Vanguard
Institutional
Total Stock
Market Index
Fund
GE +/-
-3.25
+0.31 +1.51
+0.67 -2.50
-2.62
+/- Cumulative
-2.94 -1.43
-.76
-3.26
-5.88
-5.88%
0.71
16.13 37.26
12.48 1.11
9.37
+77.06%
American Funds
AMCAP Fund
GE +/-
-2.87
+0.65 -2.11
+0.79 -3.16
+0.76
+/- Cumulative
-2.22 -4.33
-3.54 -6.7
-5.94
-5.94%
95.
During this period, the money flowing out of the RSP Equity Fund exceeded
new money flowing into the RSP Equity Fund, as potential new investors sought to avoid
the poor-performing fund and GE’s investment advisory services. As the investment
adviser to the RSP Equity Fund, GEAM would have been aware of the net redemptions
and lack of new sales aside from the reinvestment of dividends by existing shareholders.
Despite chronic underperformance and redemptions, GE continued to offer the RSP Equity
Fund in the Plan.
96.
The funds listed in the tables above are well known, readily available, and
easily accessible to all investors. These superior alternative investments were readily
apparent such that an adequate investigation would have uncovered them. GE would not
have had to scour the market to find them, particularly given GE’s presence in the
investments marketplace.
97.
Nevertheless, GE retained the RSP Equity Fund in the Plan when any
reasonable investor monitoring the investment would have weeded it out. GE did so even
long after it became apparent that the RSP Equity Fund’s performance was inferior to
alternative, readily available funds with an equivalent investment strategy. A fiduciary
acting in the best interest of the Plan’s participants and with due care would have removed
the RSP Equity Fund from the Plan.
98.
However, GE had business and financial incentives to select and maintain the
RSP Equity Fund in the Plan. Even though the RSP Equity Fund performed poorly,
GEAM—and thereby GE—collected millions of dollars in advisory fees from the fund.
Furthermore, the RSP Equity Fund’s fee revenue enhanced the sale value of GEAM, which
factored into the reported $485 million price GE received from its sale of GEAM. This by
itself is suggestive of improper self-dealing.
99.
Not replacing the RSP Equity Fund with a better option had a negative impact
on the Plan’s participants. Listed in the table below is the hypothetical growth in investment
value of a $2 billion fund based on the investment performance of each fund for the period
beginning approximately six years prior to the filing of this suit through June 30, 2016, the
day before GE sold GEAM.
Growth of $2
Fund Name
Cumulative
Performance
Annualized
Performance
Billion
RSP Equity Fund
98.07%
12.25%
$3.96 billion
124.20%
14.62%
$4.48 billion
T. Rowe Price
Institutional Large
Cap Growth Fund
Fidelity Large Cap
Stock Fund
109.43%
13.31%
$4.18 billion
115.03%
13.81%
$4.3 billion
Vanguard
Institutional Total
Stock Market
Index Fund
American Funds
AMCAP Fund
115.98%
13.90%
$4.31 billion
100.
GE’s process for selecting, maintaining, and monitoring the RSP Equity Fund
as a Plan investment option was tainted by a failure of effort, competence, and/or loyalty.
The Plan’s participants suffered millions of dollars in losses as a result of GE’s breach of
fiduciary duty.
4.
RSP Income Fund
101.
The RSP Income Fund provides yet another example of a poor-performing
proprietary fund that GE loaded onto the Plan despite superior, readily apparent alternative
funds. The RSP Income Fund invested primarily in bonds with durations of one year or
more. If a Plan participant wanted to invest in an actively managed bond fund, the RSP
Income Fund was the only option available to the participant.
102.
The placement of the RSP Income Fund into GE’s 401(k) was an important
arrangement for GE. The Plan’s participants represented approximately 75% or more of
the RSP Income Fund’s total assets.
103.
According to the RSP Income Fund’s annual report, GE measured the RSP
Income Fund’s investment results relative to the Barclays US Aggregate Bond Index.4
104.
During the Class Period, the Plan’s assets under management in the RSP
Income Fund ranged between approximately $1.8 billion and $2.2 billion.
105.
In the three-year period between 2008 through 2010, the RSP Income Fund
had cumulative investment returns of 14.06%, which was 3.65% less than the cumulative
return of 17.71% that Barclays U.S. Aggregate Bond Index generated during the same
period.
4 The Barclays U.S. Aggregate Bond Index is a market value weighted index of taxable investment grade
debt issues, including government, corporate, asset-backed and mortgage-backed securities, with
maturities of one year or more. This index is designed to represent the performance of the U.S.
investment grade first rate bond market.
106.
The RSP Income Fund’s investment return of 14.06% was also considerably
less than comparable bond funds managed by large, highly regarded fixed income
managers such as Vanguard, PIMCO, and BlackRock. The Vanguard Intermediate-Term
Bond Index Fund had a cumulative return of 21.53%. The PIMCO Income Fund had a
cumulative return of 34.2%. The BlackRock Total Return Fund had a cumulative return of
15.03%.
107.
A reasonable investigation in 2010 would have uncovered these alternative,
readily apparent investments and thus revealed the underperformance of the RSP Income
Fund relative to these funds. In light of the available alternatives, a prudent fiduciary
monitoring the Plan would not have offered the Plan’s participants the RSP Income Fund.
But GE did just that.
108.
The RSP Income Fund’s poor performance relative to the mutual funds
offered by Vanguard, PIMCO, and BlackRock did not end there. The chart listed below
shows the relative annual and cumulative performances of the RSP Income Fund and the
funds offered by Vanguard, PIMCO, and BlackRock. The underperformance is striking.
Fund
2011
2012
2013
2014
2015
2016
Cumulative
8.01
5.87
-0.85
5.83
0.34
3.50
22.70%
RSP Income
Fund
10.78
7.05
-3.42
6.99
1.30
2.85
25.55%
Vanguard
Intermediate-
Term Bond
Index Fund
GE +/-
-2.77
-1.18
+2.57
-1.16
-.96
+.65
+/- Cumulative
-3.95
-1.38
-2.54
-3.51
-2.85
-2.85%
6.37
22.17
4.80
7.18
2.64
8.72
51.88%
PIMCO Income
Fund
GE +/-
-1.64
-16.3
-5.65
-1.35
-2.3
-5.22
+/- Cumulative
-14.66 -20.31 -21.66
-23.96 -29.18 -29.18%
4.53
10.16
-0.20
8.05
0.35
3.45
26.34%
BlackRock
Total Return
Fund
GE +/-
+3.48 -4.29
-.65
-2.22
-.01
+.05%
+/- Cumulative
-0.81
-1.46
-3.68
-3.69
-3.64
-3.64%
109.
Beginning in 2012, the RSP Income Fund suffered from significant mass
redemptions as investors sought to distance themselves from the poor-performing fund and
GE’s investment advisory services. As the investment adviser to the RSP Income Fund,
GEAM would have been aware of the redemptions and lack of new sales aside from the
reinvestment of dividends by existing shareholders. Despite chronic underperformance and
redemptions, GE continued to offer the RSP Income Fund in the Plan.
110.
The funds listed in the tables above are well known, readily available, and
easily accessible to all investors. These superior alternative investments were readily
apparent such that an adequate investigation would have uncovered them. GE would not
have had to scour the market to find them, particularly given GE’s presence in the
investments marketplace.
111.
Nevertheless, GE retained the RSP Income Fund in the Plan when any
reasonable investor monitoring the investment would have weeded it out. GE did so even
after it became apparent that the RSP Income Fund’s performance was inferior to
alternative, readily available funds with an equivalent investment strategy. A fiduciary
acting in the best interest of the Plan’s participants and with due care would have removed
the RSP Income Fund from the Plan.
112.
However, GE had business and financial incentives to select and maintain the
RSP Income Fund in the Plan. Even though the RSP Income Fund performed poorly,
GEAM—and thereby GE—collected millions of dollars in advisory fees from the fund.
Furthermore, the RSP Income Fund’s fee revenue enhanced the sale value of GEAM,
which factored into the reported $485 million price GE received from its sale of GEAM.
This by itself is suggestive of improper self-dealing.
113.
Not replacing the RSP Income Fund with a better option had a negative impact
on the Plan’s participants. Listed in the table immediately below is the hypothetical growth
in investment value of a $1.8 billion fund based on the investment performance of each
fund for the period beginning approximately six years prior to the filing of this suit through
June 30, 2016, the day before GE sold GEAM.
Fund Name
Cumulative
Performance
Annualized
Performance
Growth of
$1.8 Billion
RSP Income Fund
20.7%
3.91%
$2.17 billion
24.65%
4.58%
$2.24 billion
Vanguard
Intermediate-Term
Bond Index Fund
PIMCO Income Fund
46.69%
8.10%
$2.64 billion
BlackRock Total
Return Fund
26.67%
4.93%
$2.28 billion
114.
GE’s process for selecting, maintaining, and monitoring the RSP Income
Fund as a Plan investment option was tainted by a failure of effort, competence, and/or
loyalty. The Plan’s participants suffered millions of dollars in losses as a result of GE’s
breach of fiduciary duty.
B. The Small Cap Fund Had Unreasonable Fees
115.
The one bright spot, in terms of the Plan’s performance, was the Small Cap
Fund. However, the Small Cap Fund too violated ERISA. In the case of the Small Cap
Fund, GEAM did not actually furnish hands-on investment management of the Small Cap
Fund’s assets. Instead, it hired and negotiated a fee with multiple investment sub-advisers
to manage the fund. GEAM collected an investment management fee from the Small Cap
Fund’s performance and retained for itself the difference between the fee it collected from
the Small Cap Fund and the fee it chose to pay the other investment sub-advisers. Based
on the disclosure in the Small Cap Fund’s registration statement, GE retained for itself
approximately 30% of the annual .88% investment management fee collected on average
assets of about $1 billion per annum during the Class Period.
116.
The placement of the Small Cap Fund into GE’s 401(k) was an important
arrangement for GE. Investment by the Plan’s participants represented approximately 80%
or more of the Small Cap Fund’s total assets. From this arrangement GEAM—and thereby
GE—collected millions of dollars in unreasonable and/or excessive fees for services that
GE was ultimately responsible for performing as the Plan’s administrator.
117.
As the Plan’s administrator, GE owed fiduciary duties to the Plan’s
participants. By charging excessive fees incident to administering the Plan, GE breached
its fiduciary duties and engaged in transactions prohibited under ERISA.
118.
Defendants acted to benefit themselves by using proprietary investment funds
managed by GEAM, thereby enriching themselves at the expense of the Plan’s participants.
Defendants’ enrichment on the backs of the Plan’s participants through the Plan’s poor
investment performance and unreasonable fees was not enough. On July 1, 2016,
Defendants again furthered their own self-interest by selling GEAM to State Street for a
reported $485 million.
119.
By acting for their own benefit rather than solely in the interest of the Plan’s
participants, Defendants breached their fiduciary duties of loyalty and prudence and
engaged in transactions expressly prohibited by ERISA.
VII. CLASS ACTION ALLEGATIONS
120.
29 U.S.C. § 1132(a)(2) authorizes any participant or beneficiary of the Plan
to bring an action individually on behalf of the Plan to enforce a breaching fiduciary’s
liability to the Plan under 29 U.S.C. § 1109(a).
121.
In acting in a representative capacity and to enhance the due process
protections of unnamed participants and beneficiaries of the Plan, Plaintiffs seek to certify
this action as a class action on behalf of all participants and beneficiaries of the Plan (the
“Class”). Plaintiffs seek to certify and to be appointed as a representative of the following
Class:
All participants and beneficiaries of the Plan, excluding the Defendants, from
2011 through June 30, 2016 (“Class Period”).
122.
This action meets the requirements of Federal Rule of Civil Procedure 23(a)
and is certifiable as a class action for the following reasons:
a. The Class includes approximately 250,000 members and is so large that joinder
of all its members is impracticable.
b. There are questions of law and fact common to this Class because the Defendants
owed fiduciary duties to the Plan and to all participants and beneficiaries, and
took the actions and omissions alleged herein as to the Plan and not as to any
individual participant. Thus, common questions of law and fact include the
following without limitation: who are the fiduciaries liable for the remedies
provided by 29 U.S.C. § 1109(a); whether the fiduciaries of the Plan breached
their fiduciary duties to the Plan; what are the losses to the Plan resulting from
each breach of fiduciary duty; and what Plan-wide equitable and other relief the
Court should impose in light of Defendants’ breach of duty.
c. Plaintiffs’ claims are typical of the claims of the Class because each was a
participant during the Class Period. Plaintiffs and all participants in the Plan
were similarly harmed by Defendants’ misconduct. As a result of Defendants’
self-dealing and imprudence, Plaintiffs and all the Plan’s participants suffered
from excessive fees, deficient performance, and inadequate investment options.
This directly caused each of them substantial monetary harm. Plaintiffs and all
other participants’ retirement savings are depleted as compared to what they
could have realized in a robust and cost-effective Plan.
d. Plaintiffs are adequate representatives of the Class because each was a
participant in the Plan during the Class Period, has no interest that is in conflict
with the Class, is committed to the vigorous representation of the Class, and has
engaged experienced, and competent attorneys to represent the Class.
123.
This action may be certified as a class action under Rule 23(b)(1)(A) or (B).
Prosecution of separate actions by individual participants and beneficiaries for Defendants’
breaches of fiduciary duties would create the risk of (A) inconsistent or varying
adjudications that would establish incompatible standards of conduct for Defendants in
respect to the discharge of their fiduciary duties to the Plan and personal liability to the
Plan under 29 U.S.C. § 1109(a), and (B) adjudications by individual participants and
beneficiaries regarding these breaches of fiduciary duties and remedies for the Plan would,
as a practical matter, be dispositive of the interests of the participants and beneficiaries not
parties to the adjudication or would substantially impair or impede those participants’ and
beneficiaries’ ability to protect their interests.
124.
Additionally, or in the alternative, certification under Rule 23(b)(2) is
appropriate because Defendants have acted or refused to act on grounds that apply
generally to the Class, so that final injunctive relief or corresponding declaratory relief is
appropriate respecting the Class as a whole. Plaintiffs seek comprehensive reformation of
the Plan to make it a more viable retirement investment option, which will benefit them
and the Plan’s participants.
125.
Additionally, or in the alternative, this action may be certified as a class under
Rule 23(b)(3). A class action is the superior method for the fair and efficient adjudication
of this controversy because joinder of all participants and beneficiaries is impracticable,
the losses suffered by individual participants and beneficiaries may be small and it is
impracticable for individual members to enforce their rights through individual actions,
and the common questions of law and fact predominate over individual questions. Given
the nature of the allegations, no class member has an interest in individually controlling
the prosecution of this matter and Plaintiffs are aware of no difficulties likely to be
encountered in the management of this matter as a class action.
126.
Additionally, or alternatively, this action may be certified as to particular
issues under Rule 23(c)(4), including, but not limited to, Defendants’ liability to the Class
for their allegedly disloyal and imprudent conduct.
127.
Plaintiffs’ counsel, Sanford Heisler Sharp, LLP, will fairly and adequately
represent the interests of the Class and is best able to represent the interests of the Class
under Rule 23(g).
VIII. CAUSES OF ACTION
COUNT I
Breach of Duties of Loyalty and Prudence by Mismanaging the Investment
Options Selected For and Retained By the Plan During the Class Period
(Violation of ERISA, 29 U.S.C. § 1104)
128.
The allegations set forth in paragraphs 12 through 127 are realleged and
incorporated herein by reference.
129.
GE used the Plan as a strategic and financial benefit to recruit and retain
workers.
130.
In joining GE and subsequently enrolling in the Plan, GE employees trusted
and relied on GE’s resources and expertise to construct and maintain a state-of-the-art
401(k) plan.
131.
At all relevant times during the Class Period, the Defendants acted as
fiduciaries within the meaning of 29 U.S.C. § 1002(21)(A), by exercising authority and
control with respect to the management of the Plan and its assets.
132.
29 U.S.C. § 1104(a)(1) requires plan fiduciaries to act “solely in the interest”
of plan participants and beneficiaries.
a. Subsection (A) of this section requires that the fiduciary act for the “exclusive
purpose” of providing benefits to plan participants and defraying reasonable
expenses of plan administration. 29 U.S.C. § 1104(a)(1)(A).
b. Subsection (B) adds the duty of prudence, requiring a plan fiduciary to act with
the “care, skill, prudence and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims.” 29
U.S.C. § 1104(a)(1)(B).
133.
The scope of the fiduciary duties and responsibilities of Defendants includes
managing the assets of the Plan for the sole and exclusive benefit of the Plan’s participants
and beneficiaries, defraying reasonable expenses, and administering the plan with the care,
skill, diligence, and prudence required by ERISA. Defendants are responsible for selecting
prudent investment options, eliminating imprudent ones, evaluating and monitoring the
Plan’s investment on an on-going basis, and taking all necessary steps to ensure the Plan’s
assets are invested prudently.
134.
Defendants selected and retained the Plan’s investment options. The process
for selecting and retaining the Plan’s investment portfolio options is and has been based on
a faulty investment process that was tainted by Defendants’ self-interest and imprudence.
135.
The faulty process resulted in a plan loaded with relatively poor-to-mediocre
proprietary options which substantially impaired the Plan’s use, its value, and its
investment performance for all the Plan’s participants, past and present. This process
included the retention of these proprietary options despite sustained poor relative
investment performance.
136.
A prudent investigation would have concluded that the process used by
Defendants was causing the Plan to waste hundreds of millions of dollars of the Plan’s
participants’ retirement savings.
137.
The fact that the Plan’s poor investment options have caused material relative
underperformance constitutes a breach of Defendants’ fiduciary duty under ERISA to each
and every person who was a participant in the Plan during the Class Period regardless of
the investment option in which the participant had actually invested.
138.
In failing to adequately consider better-performing investments for the Plan,
Defendants, with respect to the entire Plan, failed to discharge their duties with the care,
skill, prudence, and diligence under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters would use in the conduct of an
enterprise of like character and with like aims.
139.
As a direct and proximate result of these breaches of fiduciary duties, the Plan
and each of its participants have suffered hundreds of millions of dollars of damages and
lost-opportunity costs which continue to accrue and for which Defendants are jointly and
severally liable pursuant to 29 U.S.C. § 1109. Pursuant to ERISA, 29 U.S.C. §§ 1132(a)(2),
1132(a)(3), and 1109(a), Defendants are liable to make good to the Plan the losses resulting
from the aforementioned breaches, to restore to the Plan any profits Defendants made
through the use of Plan assets, to restore to the Plan any profits resulting from the breaches
of fiduciary duties alleged in this Count, and are subject to other equitable or remedial relief
as appropriate.
140.
Each Defendant also knowingly participated in the breach of the other
Defendants, knowing that such acts were a breach; enabled the other Defendants to commit
a breach by failing to lawfully discharge its own fiduciary duties; and knew of the breach
by the other Defendants yet failed to make any reasonable effort under the circumstances
to remedy the breach. Thus, each Defendant is liable for the losses caused by the breach of
its co-fiduciary under ERISA section 409, 29 U.S.C. § 1105(a).
COUNT II
Breach of Duties of Loyalty and Prudence—
Unreasonable Fees
(Violation of ERISA, 29 U.S.C. § 1104)
141.
The allegations set forth in paragraphs 12 through 127 are realleged and
incorporated herein by reference.
142.
Defendants are responsible for ensuring the Plan’s fees are reasonable for the
services provided.
143.
GEAM entered into contracts under which it provided investment advisory
services to the Small Cap Fund offered on the Plan in exchange for compensation.
144.
However, GEAM did not furnish actual hands-on investment management of
the Small Cap Fund’s assets. Instead, it hired and negotiated a fee with multiple investment
sub-advisers to manage the fund. GEAM then collected an investment management fee
from the Small Cap Fund’s performance and retained for itself—and thereby GE—the
difference between the fee it collected from the Small Cap Fund and the fee it agreed to
pay the other investment sub-advisers.
145.
From this arrangement, GE collected millions of dollars in fee revenue for
performing a task that GE was otherwise obligated to perform as the Plan’s administrator.
In other words, this arrangement allowed GE, indirectly through the Small Cap Fund and
GEAM, to receive its own compensation as the administrator of the Plan and to collect
unreasonable and/or excessive fees from the Plan.
146.
The GE Plan Trustees allowed GE and GEAM to make a profit from the Plan
by retaining the difference between what GEAM collected from the Small Cap Fund and
what it paid to investment sub-advisers.
147.
Moreover, the GE Plan Trustees had a potential conflict of interest as
employees of GEAM, and failed to expressly consider the potential effect of that conflict
of interest on their decision-making.
148.
By using its fiduciary authority to affect their own compensation and by
failing to use the excess fees collected from the Small Cap Fund to offset fees the Plan
would have otherwise had to pay, Defendants failed to discharge their duties with respect
to the Plan:
a.
Solely in the interest of the participants and beneficiaries and for the exclusive
purpose of providing benefits to participants and beneficiaries and defraying
reasonable expenses of administering the Plan, in violation of 29 U.S.C. §
1104(a)(1)(A); and
b.
With the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with
like aims, in violation of 29 U.S.C. § 1104(a)(1)(B).
149.
As a direct and proximate result of these breaches of fiduciary duties, the Plan
and each of its participants have suffered millions of dollars of damages for which
Defendants are jointly and severally liable pursuant to 29 U.S.C. § 1109. Pursuant to
ERISA, 29 U.S.C. §§ 1132(a)(2), 1132(a)(3), and 1109(a), Defendants are liable to make
good to the Plan the losses resulting from the aforementioned breaches, to restore to the
Plan any profits Defendants made through the use of Plan assets, to restore to the Plan any
profits resulting from the breaches of fiduciary duties alleged in this Count, and are subject
to other equitable or remedial relief as appropriate.
150.
Each Defendant also knowingly participated in the breach of the other
Defendants, knowing that such acts were a breach; enabled the other Defendants to commit
a breach by failing to lawfully discharge its own fiduciary duties; and knew of the breach
by the other Defendants yet failed to make any reasonable effort under the circumstances
to remedy the breach. Thus, each Defendant is liable for the losses caused by the breach of
its co-fiduciary under ERISA section 409, 29 U.S.C. § 1105(a).
COUNT III
Prohibited Transactions Concerning Investment Management
and Administrative Services Fees
(Violation of ERISA, 29 U.S.C. § 1106)
151.
The allegations set forth in paragraphs 12 through 127 are realleged and
incorporated herein by reference.
152.
ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D), prohibits fiduciaries from
causing plans to engage in transactions that they know or should know constitute direct or
indirect transfers of the Plans’ assets to, or use of the Plans’ assets by or for the benefit of,
parties in interest.
153.
ERISA § 406(b), 29 U.S.C. § 1106(b) prohibits fiduciary self-dealing.
a. Subsection (1) provides that a fiduciary shall not “deal with the assets of the
plan in his own interest or for his own account.”
b. Subsection (2) provides that a fiduciary shall not “in his individual or in any
other capacity act in any transaction involving the plan on behalf of a party (or
represent a party) whose interests are adverse to the interests of the plan or the
interests of its participants or beneficiaries.”
c. Subsection (3) provides that a fiduciary shall not “receive any consideration for
his own personal account from any party dealing with such plan in connection
with a transaction involving the assets of the plan.”
154.
Defendants caused the Plan to utilize the Small Cap Fund.
155.
Throughout the Class Period, Defendants dealt with the assets of the Plan in
their own interest and for their own account when they caused the Plan to pay unreasonable
investment management fees to GEAM. Under the arrangement with the Small Cap Fund,
GEAM charged the fund a separate investment management fee, investment advisory fee,
or similar fee.
156.
Accordingly, Defendants engaged in prohibited transactions as follows:
a. By causing the Plan to engage in transactions that they know or should know
constitute direct or indirect transfers of the Plans’ assets to, or use of the Plans’
assets by or for the benefit of, parties in interest, in violation of 29 U.S.C. §
1106(a)(1)(D); and
b. By causing the Plan to engage in the above conduct and omissions, in which a
fiduciary to the Plan dealt with the assets of the plan in his own interest or for
his own account in violation of 29 U.S.C. § 1106(b)(1); and
c. By causing the Plan to engage in the above conduct and omissions, in which a
fiduciary to the Plan, in his individual or in any other capacity, acted on behalf
of a party whose interests were adverse to the interests of the Plan or the
interests of its participants or beneficiaries, in violation of 29 U.S.C. §
1106(b)(2); and
d. By causing the Plan to engage in the above conduct and omissions, in which a
fiduciary to the Plan received consideration for its own personal account from
any party dealing with the Plan in connection with a transaction involving the
assets of the Plan, in violation of 29 U.S.C. § 1106(b)(3); and
e. By causing the Plan to pay a separate investment management fee, investment
advisory fee, or similar fee violated the terms of Prohibited Transaction
Exemption 77-3.
157.
Pursuant to 29 U.S.C. §§ 1132(a)(2), 1132(a)(3), and 1109(a), Defendants are
liable to restore all losses suffered by the Plan as a result of these prohibited transactions
and disgorge all revenues received and/or earned directly or indirectly by GE resulting
from the above-mentioned prohibited transactions or received in connection with the
management of the Plan’s assets or other services performed for the Plan for more than
reasonable compensation.
COUNT IV
Breach of Duties of Loyalty and Prudence by Failing to Remove or Replace
Certain GE Proprietary Funds as 401(k) Plan Investment Vehicles
(Violation of ERISA, 29 U.S.C. § 1104)
158.
The allegations set forth in paragraphs 12 through 127 are realleged and
incorporated herein by reference.
159.
Defendants breached its duties of loyalty and prudence by selecting and then
failing to timely remove as Plan investment options each of the GE Funds—i.e., the
Strategic Fund, International Fund, RSP Equity Fund, and RSP Income Fund.
160.
The GE Funds exhibited poor performance during and before the Class
Period. GE profited from the Plan by causing the Plan to retain GE’s own poor-performing
proprietary funds.
161.
A prudent investigation not tainted by self-interest would have revealed to a
reasonably prudent fiduciary that the GE Funds were inferior to other readily apparent
investment options. GE’s conduct reflects a failure to consider and obtain better-
performing alternative, unaffiliated funds at the expense and to the detriment of the Plan.
162.
Had a prudent and loyal fiduciary conducted such an investigation, it would
have concluded that the GE Funds were selected and retained for reasons other than the
best interest of the Plan and were causing the Plan to waste hundreds of millions of dollars
of employees’ retirement savings in underperformance relative to prudent investment
options available to the Plan.
163.
Defendants committed these breaches during each of the meetings of the GE
Plan Trustees that occurred periodically during each year of the Class Period. At each of
these meetings, the GE Plan Trustees had cause to remove the GE Funds based on their
poor performance, but failed to do so. A prudent fiduciary would have removed the GE
Funds from the Plan.
164.
As a direct and proximate result of these breaches of fiduciary duties, the Plan
and each of its participants have suffered millions of dollars of damages and lost-
opportunity costs which continue to accrue and for which Defendants are jointly and
severally liable pursuant to 29 U.S.C. § 1109. Pursuant to ERISA, 29 U.S.C. §§ 1132(a)(2),
1132(a)(3), and 1109(a), Defendants are liable to make good to the Plan the losses resulting
from the aforementioned breaches, to restore to the Plan any profits Defendants made
through the use of Plan assets, to restore to the Plan any profits resulting from the breaches
of fiduciary duties alleged in this Count, and are subject to other equitable or remedial relief
as appropriate.
165.
Each Defendant also knowingly participated in the breach of the other
Defendants, knowing that such acts were a breach; enabled the other Defendants to commit
a breach by failing to lawfully discharge its own fiduciary duties; and knew of the breach
by the other Defendants yet failed to make any reasonable effort under the circumstances
to remedy the breach. Thus, each Defendant is liable for the losses caused by the breach of
its co-fiduciary under ERISA section 409, 29 U.S.C. § 1105(a).
COUNT V
Failure to Monitor Fiduciaries
166.
The allegations set forth in paragraphs 12 through 127 are realleged and
incorporated herein by reference.
167.
As alleged above, GE is a fiduciary under 29 U.S.C. § 1002(21), and thus
bound by the duties of loyalty and prudence.
168.
A monitoring fiduciary must ensure that the monitored fiduciaries are
performing their fiduciary obligations, including those with respect to the investment and
holding of plan assets, and must take prompt and effective action to protect the plan and
participants when they are not doing so.
169.
To the extent that the GE Plan Trustees managed the assets of the Plan, GE’s
monitoring duty included an obligation to ensure that any delegated tasks were being
performed prudently and loyally.
170.
The GE Plan Trustees monitoring duty included an obligation to ensure that
any delegated tasks were being performed prudently and loyally.
171.
The Defendants breached their fiduciary monitoring duties, inter alia, by:
a. failing to monitor its appointees, to evaluate their performance, or to have a
system in place for doing so, and standing idly by as the Plan suffered enormous
losses as a result of their appointees’ imprudent actions and omissions with
respect to the Plan;
b. failing to ensure that the monitored fiduciaries considered the ready availability
of comparable investment options for the Plan;
c. failing to remove appointees whose performance was inadequate in that they
continued to maintain imprudent investments; and
d. failing to remove options that did not even keep up with a majority of funds
with comparable investment strategies, all to the detriment of the Plan’s
participants.
172.
As a consequence of Defendants’ breaches of their fiduciary duty to loyally
and prudently select investments and monitor their performance, the Plan failed to accrue
hundreds of millions of dollars of additional investment performance and moreover
suffered very substantial losses. Had Defendants discharged their fiduciary monitoring
duties loyally and prudently as described above, the losses suffered by the Plan would have
been avoided. Therefore, as a direct result of the breaches of fiduciary duty alleged herein,
Plaintiffs and the Plan’s participants lost hundreds of millions of dollars.
173.
Pursuant to 29 U.S.C. §§ 1132(a)(2), 1132(a)(3), and 1109(a), Defendants are
personally liable to make good and restore to the Plan any losses to the Plan resulting from
the breaches of fiduciary duties alleged in this Count, and are subject to other equitable or
remedial relief as appropriate.
IX. PRAYER FOR RELIEF
174.
Plaintiffs, on behalf of the Plan’s participants and beneficiaries, respectfully
request that the Court:
A. Find and declare that the Defendants breached their fiduciary duties as
described above;
B. Find and adjudge that Defendants are personally liable to make good to the Plan
$700 million in losses to the Plan resulting from each breach of fiduciary duty,
and to otherwise restore the Plan to the position it would have occupied but for
the breaches of fiduciary duty;
C. Determine the method by which Plan losses under 29 U.S.C. § 1109(a) should
be calculated;
D. Order Defendants to provide all accountings necessary to determine the
amounts Defendants must make good to the Plan under 29 U.S.C. § 1109(a);
E. Remove the fiduciaries who have breached their fiduciary duties and enjoin
them from future ERISA violations;
F.
Reform the Plan to render it compliant with ERISA;
G. Surcharge against Defendants and in favor of the Plan all amounts involved in
any transactions which such accounting reveals were improper, excessive,
and/or in violation of ERISA;
H. Certify the Class, appoint Plaintiffs as class representatives, and appoint
Sanford Heisler Sharp, LLP as Class Counsel;
I.
Award to the Plaintiffs and the Class their attorney’s fees and costs under 29
U.S.C. § 1132(g)(1) and/or the common fund doctrine;
J.
Order the payment of interest to the extent it is allowed by law; and
K. Grant other equitable or remedial relief as the Court deems appropriate.
Dated: September 26, 2017
Respectfully Submitted,
/s/ Charles Field
Charles H. Field, CA Bar No. 189817
Edward Chapin, CA Bar No. 053287
SANFORD HEISLER SHARP, LLP
655 W. Broadway, 17th floor
San Diego, CA 92101
Phone: (619) 577-4251
Facsimile: (619) 577-4250
cfield@sanfordheisler.com
echapin@sanfordheisler.com
Kevin H. Sharp (Pro Hac Vice forthcoming)
SANFORD HEISLER SHARP, LLP
611 Commerce Street, Suite 3100
Nashville, TN 37203
Phone: (615) 434-7000
Facsimile: (615) 434-7020
ksharp@sanfordheisler.com
David Sanford (Pro Hac Vice forthcoming)
Andrew Miller (Pro Hac Vice forthcoming)
SANFORD HEISLER SHARP, LLP
1666 Connecticut Avenue NW, Suite 310
Washington, D.C. 20009
Telephone: (202) 499-5200
Facsimile: (202) 499-5199
dsanford@sanfordheisler.com
amiller@sanfordheisler.com
David Tracey (Pro Hac Vice forthcoming)
SANFORD HEISLER SHARP, LLP
1350 Avenue of the Americas, 31st Floor
New York, NY 10019
Facsimile: (646) 402-5651
dtracey@sanfordheisler.com
Attorneys for Plaintiffs and the Proposed Class
| consumer fraud |
GGlWrIkBzZV2kahMsU3C | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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JOSUÉ PAGUADA, on behalf of himself and all
others similarly situated,
CLASS ACTION COMPLAINT
Plaintiffs,
AND
v.
DEMAND FOR JURY TRIAL
AS SEEN ON TV DE, LLC,
Defendant.
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INTRODUCTION
1.
Plaintiff JOSUÉ PAGUADA, on behalf of himself and others similarly situated,
asserts the following claims against Defendant AS SEEN ON TV DE, LLC as
follows.
2.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2016 report, approximately
420,000 visually impaired persons live in the State of New York.
3.
Plaintiff brings this civil rights action against Defendant for its failure to design,
construct, maintain, and operate its website to be fully accessible to and
independently usable by Plaintiff and other blind or visually-impaired people.
4.
Plaintiff uses the terms “blind” or “visually-impaired” to refer to all people with
visual impairments who meet the legal definition of blindness in that they have a
visual acuity with correction of less than or equal to 20 x 200.
5.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
Americans with Disabilities Act (“ADA”).
6.
Because Defendant’s website, www.asseenontvlive.com (the “Website” or
“Defendant’s website”), is not equally accessible to blind and visually-impaired
consumers, it violates the ADA. Plaintiff seeks a permanent injunction to cause a
change in Defendant’s corporate policies, practices, and procedures so that
Defendant’s website will become and remain accessible to blind and visually-
impaired consumers.
JURISDICTION AND VENUE
7.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
8.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
9.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, and a substantial portion of the conduct complained of
herein occurred in this District because Plaintiff attempted to utilize, on a number
of occasions, the subject Website within this Judicial District.
10.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury, and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers in this District. A
substantial part of the acts and omissions giving rise to Plaintiff’s claims occurred
in this District: Plaintiff has been denied the full use and enjoyment of the facilities,
goods and services offered to the general public, on Defendant’s Website in New
York County. These access barriers that Plaintiff encountered have caused a denial
of Plaintiff’s full and equal access multiple times in the past, and now deter Plaintiff
on a regular basis from accessing the Defendant’s Website in the future.
11.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
THE PARTIES
12.
Plaintiff JOSUÉ PAGUADA, at all relevant times, is and was a resident of Astoria,
New York.
13.
Plaintiff is a blind, visually-impaired handicapped person and a member of member
of a protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2),
and the regulations implementing the ADA set forth at 28 CFR § 36.101 et seq.,
and NYCHRL.
14.
Defendant is and was at all relevant times a Delaware Limited Liability Company
doing business in New York.
15.
Defendant’s Website, and its goods and services offered thereupon, is a public
accommodation within the definition of Title III of the ADA, 42 U.S.C. § 12181(7).
NATURE OF ACTION
16.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-
impaired persons alike.
17.
In today’s tech-savvy world, blind and visually-impaired people have the ability to
access websites using keyboards in conjunction with screen access software that
vocalizes the visual information found on a computer screen or displays the content
on a refreshable Braille display. This technology is known as screen-reading
software. Screen-reading software is currently the only method a blind or visually-
impaired person may independently access the internet. Unless websites are
designed to be read by screen-reading software, blind and visually-impaired
persons are unable to fully access websites, and the information, products, goods
and contained thereon.
18.
Blind and visually-impaired users of Windows operating system-enabled
computers and devices have several screen reading software programs available to
them. Some of these programs are available for purchase and other programs are
available without the user having to purchase the program separately. NonVisual
Desktop Access, otherwise known as “NVDA” is a popular, screen-reading
software program available for a Windows computer.
19.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same
content available to sighted users.
20.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the
Web Content Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-
established guidelines for making websites accessible to blind and visually-
impaired people. These guidelines are universally followed by most large business
entities and government agencies to ensure their websites are accessible.
STATEMENT OF FACTS
21.
Defendant is a television-advertised products company that owns and operates the
website, www.asseenontvlive.com (its “Website”), offering features which should
allow all consumers to access the goods and services which Defendant ensures the
delivery of throughout the United States, including New York State.
22.
Defendant’s Website offers its products and services for online sale and general
delivery to the public. The Website offers features which ought to allow users to
browse for items, access navigation bar descriptions and prices, and avail
consumers of the ability to peruse the numerous items offered for sale.
23.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff is, however, a proficient
NVDA screen-reader user and uses it to access the Internet. Plaintiff has visited the
Website using a screen-reader.
24.
Plaintiff most recently visited Defendant’s website in August of 2020 to browse
and potentially make a purchase. Despite his efforts, however, Plaintiff was denied
a user experience similar to that of a sighted individual due to the website’s lack of
a variety of features and accommodations, which effectively barred Plaintiff from
being able to enjoy the privileges and benefits of Defendant’s public
accommodation.
25.
For example, many features on the Website lacks alt. text, which is the invisible
code embedded beneath a graphical image. As a result, Plaintiff was unable to
differentiate what products were on the screen due to the failure of the Website to
adequately describe its content.
26.
Many features on the Website also fail to contain a proper label element or title
attribute for each field. This is a problem for the visually impaired because the
screen reader fails to communicate the purpose of the page element. It also leads to
the user not being able to understand what he or she is expected to insert into the
subject field. As a result, Plaintiff was unable to enjoy the privileges and benefits
of the Website equally to sighted users.
27.
Many pages on the Website also contain the same title elements. This was a
problem for Plaintiff because in certain instances the screen reader failed to
distinguish one page from another. In order to fix this problem, Defendant must
change the title elements for each page.
28.
The Website also contains a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, Plaintiff was redirected to an error page. However, the screen-reader failed
to communicate that the link was broken. As a result, Plaintiff could not get back
to his original search.
29.
As a result of visiting Defendant’s Website and from investigations performed on
his behalf, Plaintiff is aware that the Website includes at least the following
additional barriers blocking his full and equal use:
a. The Website does not provide a text equivalent for every non-text element;
b. The purpose of each link cannot be determined from the link text alone or from
the link text and its programmatically determined link context;
c. Web pages lack titles that describe their topic or purpose;
d. Headings and labels do not describe topic or purpose;
e. Keyboard user interfaces lack a mode of operation where the keyboard focus
indicator is visible;
f. The default human language of each web page cannot be programmatically
determined;
g. The human language of each passage or phrase in the content cannot be
programmatically determined;
h. Labels or instructions are not always provided when content requires user input;
i. Text cannot be resized up to 200 percent without assistive technology so that it
may still be viewed without loss of content or functionality;
j. A mechanism is not always available to bypass blocks of content that are
repeated on multiple web pages;
k. A correct reading sequence is not provided on pages where the sequence in
which content is presented affects its meaning;
l. In content implemented using markup languages, elements do not always have
complete start and end tags, are not nested according to their specifications,
may contain duplicate attributes, and IDs are not always unique; and
m. The name and role of all UI elements cannot be programmatically determined;
things that can be set by the user cannot be programmatically set; and/or
notification of changes to these items is not available to user agents, including
assistive technology.
30.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
31.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff,
along with other blind or visually-impaired users, access to Defendant’s website,
and to therefore specifically deny the goods and services that are offered to the
general public. Due to Defendant’s failure and refusal to remove access barriers to
its website, Plaintiff and visually-impaired persons have been and are still being
denied equal access to Defendant’s Website, and the numerous goods and services
and benefits offered to the public through the Website.
32.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from visiting the Website, presently and in the future.
33.
If the Website were equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
34.
Through his attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
35.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually-impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
36.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
37.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
38.
Upon information and belief, because AS SEEN ON TV DE, LLC’s Website has
never been accessible and because AS SEEN ON TV DE, LLC does not have, and
has never had, an adequate corporate policy that is reasonably calculated to cause
its Website to become and remain accessible, Plaintiff invokes 42 U.S.C. §
12188(a)(2) and seeks a permanent injunction requiring:
a. that AS SEEN ON TV DE, LLC retain a qualified consultant acceptable to
Plaintiff (“Mutually Agreed Upon Consultant”) who shall assist it in improving
the accessibility of its Website so the goods and services on them may be
equally accessed and enjoyed by individuals with vision related disabilities;
b. that AS SEEN ON TV DE, LLC work with the Mutually Agreed Upon
Consultant to ensure that all employees involved in website development and
content development be given web accessibility training on a periodic basis,
including onsite training to create accessible content at the design and
development stages;
c. that AS SEEN ON TV DE, LLC work with the Mutually Agreed Upon
Consultant to perform an automated accessibility audit on a periodic basis to
evaluate whether its Website may be equally accessed and enjoyed by
individuals with vision related disabilities on an ongoing basis;
d. that AS SEEN ON TV DE, LLC work with the Mutually Agreed Upon
Consultant to perform end-user accessibility/usability testing on a periodic
basis with said testing to be performed by individuals with various disabilities
to evaluate whether its Website may be equally accessed and enjoyed by
individuals with vision related disabilities on an ongoing basis;
e. that AS SEEN ON TV DE, LLC work with the Mutually Agreed Upon
Consultant to create an accessibility policy that will be posted on its Website,
along with an e-mail address and tollfree phone number to report accessibility-
related problems; and
f. that Plaintiff, their counsel and its experts monitor Defendant’s Website for up
to two years after the Mutually Agreed Upon Consultant validates it is free of
accessibility errors/violations to ensure it has adopted and implemented
adequate accessibility policies.
39.
Web-based technologies have features and content that are modified on a daily, and
in some instances, an hourly, basis, and a one time “fix” to an inaccessible website
will not cause the website to remain accessible without a corresponding change in
corporate policies related to those web-based technologies. To evaluate whether an
inaccessible website has been rendered accessible, and whether corporate policies
related to web-based technologies have been changed in a meaningful manner that
will cause the website to remain accessible, the website must be reviewed on a
periodic basis using both automated accessibility screening tools and end user
testing by disabled individuals.
40.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
41.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining their Website and has generated significant revenue
from the Website. These amounts are far greater than the associated cost of making
their Website equally accessible to visually impaired customers.
42.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
CLASS ACTION ALLEGATIONS
43.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
44.
Plaintiff, on behalf of himself and all others similarly situated, seeks certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
45.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
46.
Plaintiff’s claims are typical of the Class. The Class, similarly to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
47.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
48.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
49.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
50.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
51.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
52.
Defendant’s Website is a public accommodations within the definition of Title III
of the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
53.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
54.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
55.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
56.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
57.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
58.
Plaintiff, on behalf of himself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
59.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
60.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
61.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
62.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
63.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
64.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
65.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
66.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
67.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
68.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
69.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
70.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
71.
Plaintiff, on behalf of himself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
72.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operations
and controls, fails to comply with applicable laws including, but not limited to, Title
III of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., and N.Y.C.
Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
73.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and his attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law and City Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Queens, New York
August 19, 2020
MARS KHAIMOV LAW, PLLC
By: /s/ Mars Khaimov
Mars Khaimov, Esq.
marskhaimovlaw@gmail.com
10826 64th Avenue, Second Floor
Forest Hills, New York 11375
Tel: (929) 324-0717
Attorneys for Plaintiff
| civil rights, immigration, family |
LAxgFocBD5gMZwczks0Z |
20 Civ. 5890
COMPLAINT
JURY DEMAND
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CONTRARIAN EMERGING
MARKETS, L.P., GMO EMERGING
COUNTRY DEBT FUND, GMO
EMERGING COUNTRY DEBT
INVESTMENT FUND PLC, and GMO
EMERGING COUNTRY DEBT (UCITS)
FUND, Individually and On Behalf of All
Others Similarly Situated,
Plaintiffs,
-against-
THE REPUBLIC OF ECUADOR,
Defendant.
Plaintiffs Contrarian Emerging Markets, L.P., GMO Emerging Country Debt Fund, GMO
Emerging Country Debt Investment Fund plc, and GMO Emerging Country Debt (UCITS) Fund,
by their attorneys, bring this federal securities class action on behalf of all tendering and non-
tendering holders of Eligible Bonds (defined below) from the Republic of Ecuador between July
20, 2020 and July 31, 2020 (the “Class Period”). Plaintiffs allege the following:
NATURE OF THE ACTION
1.
This action is brought by Plaintiffs Contrarian Emerging Markets, L.P.
(“Contrarian”) and GMO Emerging Country Debt Fund, GMO Emerging Country Debt
Investment Fund plc, and GMO Emerging Country Debt (UCITS) Fund (collectively, the “GMO
Funds”) against Defendant Republic of Ecuador (the “Republic” or “Ecuador”) for violations of
the federal securities laws arising from a coercive exchange, or tender offer for $17.4 billion of the
Republic’s outstanding bonds (the “Proposal”), based on materially false and misleading
statements made by the Republic in a press release on July 27, 2020 (the “Press Release”) and in
the underlying transaction documents.1 The tender offer expires on Friday, July 31, less than two
weeks after it was commenced. The Republic’s false and misleading Press Release and statements
are designed to deceive and mislead bondholders about the coercive nature of the tender and
exchange offer, which deprives bondholders of key protections and subjects bondholders to
harshly inequitable treatment should they decline to consent. If the tender offer goes forward based
on this false and misleading information, the Court will be without power to unscramble the
proverbial egg and restore Plaintiffs and other bondholders to their previous positions.
2.
If the tender offer is permitted to go forward on the basis of the Republic’s false
and misleading statements, Plaintiffs will be irreparably harmed. Plaintiffs and other bondholders
will be forced to either consent to the unfavorable terms of the Proposal – which seeks to eviscerate
the bargained-for protections that bondholders relied upon in deciding to invest in securities of the
Republic – or will risk facing the significantly less favorable treatment that the Proposal imposes
upon non-tendering bondholders. Courts have enjoined tender offers where, as here, false and
misleading information has been disseminated by the issuer. Such relief is necessary here to
prevent the Republic from implementing its coercive, one-sided Proposal upon investors through
fraudulent and misleading statements.
3.
Furthermore, a suit for money damages will be inadequate. As explained more
fully below, the Republic is admittedly insolvent and has indicated in clear terms that it intends to
oppose efforts to collect on its defaulted debt. If this coercive Proposal is not enjoined, Plaintiffs
will be deprived of any opportunity to adequately recover from the Republic.
1 A true and correct copy of the Republic of Ecuador’s Press Release, dated July 27, 2020, is attached as
Exhibit 1.
4.
Plaintiffs, as part of a group of bondholders, objected in writing to Ecuador that the
coercive tender offer violates the provisions of their bonds because it discriminates against non-
tendering bondholders. The tender offer gives substantially greater consideration to tendering
bondholders in violation of the plain language of the bonds which requires that existing
bondholders receive “no less favorable treatment” in any exchange offer. Instead of receiving no-
less-favorable treatment as required, non-tendering bondholders are punished on the back-end of
the tender offer and are given inferior bonds which have less value and are denied any past due
interest. Further, in the event that the tender is not entirely successful because the requisite consent
thresholds for its acceptance for some of the bonds are not achieved, Ecuador has made clear that
it will not make payment on the existing bonds.
5.
The terms of the tender offer are set forth in an Invitation Memorandum dated July
20, 2020 (the “Invitation Memorandum”),2 in which Ecuador has solicited tenders from existing
bondholders to approve the restructuring, but bondholders who tender receive far better terms than
those who do not. Tendering bondholders will receive a combination of newly-issued bonds (the
“New Securities”) representing significantly greater value – offering higher interest rates, shorter
maturities, and better non-economic terms – than the existing bonds held by non-tendering
bondholders that will be non-consensually modified under the Proposal (the “Modified Bonds”).
Furthermore, if the tender is approved, all bondholders will see their accrued and unpaid interest
eliminated, but only those who tender by July 31, 2020 will receive an additional bond for past
due interest (a so-called “PDI Bond”) that gives them back 86% of their accrued and unpaid
interest. By contrast, existing bondholders who decline to tender will get 0% – none – of their
accrued and unpaid interest. Far from ensuring that existing bondholders receive terms that “are
2 A true and correct copy of the Invitation Memorandum, dated July 20, 2020, is attached as Exhibit 2.
no less favorable” than those of the new bond offering, Ecuador has announced a plan that gives
some bondholders – those who decline to tender or who tender late – terms that are dramatically
worse. Bondholders have until Friday, July 31 to tender. Thus, the tender offer is not only an
undeniable breach of the terms of the existing indentures, but coercive in the extreme.
6.
Further, the Invitation Memorandum – which contains important disclosures
relating to the tender offer – makes perfectly clear in the very first risk factor that in the event some
or all of the tender is not successful the Republic does not intend to pay a penny to any non-
tendering bondholders on those bonds. To further compound the pressure on non-tendering
bondholders, the Invitation Memorandum makes clear that if one or more series of bonds are not
tendered, the Republic will seek to make other changes to the bonds to further diminish their value
and curtail the rights of bondholders.
7.
Through a false and misleading press release, Ecuador has made material
misrepresentations about, among other things, the lack of coercion in the tender offer and the
transparency of the process. As explained more fully below, these statements are not only
materially false and misleading, but contradict other statements made by Ecuador in the Invitation
Memorandum. Nothing compelled Ecuador to misrepresent the process by which the tender offer
was negotiated, except an apparent intent to deceive investors. Unless Ecuador is enjoined from
soliciting, promoting, or implementing the tender offer, corrective disclosures ordered, and future
violations of the federal securities laws enjoined, Plaintiffs and other bondholders will suffer
irreparable harm.
PARTIES
8.
Plaintiff Contrarian Emerging Markets, L.P. is organized under the laws of the State
of Delaware, with its registered office located at 251 Little Falls Drive, Wilmington, Delaware
19807, United States. Contrarian operates as an investment fund, which is managed by Contrarian
Capital Management, LLC. Contrarian holds hundreds of millions of dollars of bonds issued by
the Republic of Ecuador that are subject to the tender offer. Contrarian’s Ecuadorian bonds are
held in the United States through Wells Fargo Securities, LLC.
9.
Plaintiff GMO Emerging Country Debt Fund is organized under the laws of the
Commonwealth of Massachusetts, with its registered office located at 40 Rowes Wharf, Boston,
Massachusetts 02110. GMO Emerging Country Debt Fund operates as an investment fund, and is
managed by Grantham, Mayo, Van Otterloo & Co. LLC. GMO Emerging Country Debt Fund
holds more than $100,000,000 of bonds issued by the Republic of Ecuador that are subject to the
tender offer.
10.
Plaintiff GMO Emerging Country Debt Investment Fund plc is organized under the
laws of Ireland, with its registered office located at 78 Sir John Rogerson’s Quay, Dublin 2, Ireland.
GMO Emerging Country Debt Investment Fund plc operates as an investment fund, which is
managed by Grantham, Mayo, Van Otterloo & Co. LLC. GMO Emerging Country Debt
Investment Fund plc holds tens of millions of bonds issued by the Republic of Ecuador that are
subject to the tender offer.
11.
Plaintiff GMO Emerging Country Debt (UCITS) Fund is organized under the laws
of Ireland, with its registered office located at 78 Sir John Rogerson’s Quay, Dublin 2, Ireland.
GMO Emerging Country Debt (UCITS) Fund operates as an investment fund, and is managed by
Grantham, Mayo, Van Otterloo & Co. LLC. GMO Emerging Country Debt (UCITS) Fund holds
more than ten million dollars of bonds issued by the Republic of Ecuador that are subject to the
tender offer.
12.
Defendant Republic of Ecuador is a “foreign state” within the meaning of 28 U.S.C.
§ 1330 who, as explained below, has engaged in domestic transactions in its sovereign bonds where
irrevocable liability will occur and title will transfer in the United States and therefore is subject
to the United States federal securities laws, including those that make securities fraud unlawful.
JURISDICTION AND VENUE
13.
This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange
Act, 15 U.S.C. § 78aa, 28 U.S.C. § 1331 (federal question jurisdiction), and 28 U.S.C. § 1337
(commerce), as Plaintiffs allege violations of Sections 10(b) of the Exchange Act, 15 U.S.C. §
78j(b), and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5), as well as
seek a declaratory judgment under 28 U.S.C. § 2201.
14.
Venue is proper in this district pursuant to 28 U.S.C. § 1391, in that Defendant is
subject to personal jurisdiction in this judicial district, and a substantial part of the events or
omissions giving rise to Plaintiffs’ claims occurred in this judicial district.
FACTUAL ALLEGATIONS
Ecuador’s History of Defaults
15.
Ecuador has a long and well known history of defaulting on its legal obligations.
From 1826 to 2010, Ecuador has “defaulted nine times on foreign-currency bonds and numerous
times to foreign commercial-bank creditors and others, such that the sovereign has been in default
for at least 109 out of the last 184 years—sixty percent of the time from 1826 through 2010.”3
16.
Ecuador also has a legacy of political instability and corruption scandals that has
been a substantial contributing factor in its economic woes and persistent sovereign debt defaults.
Between 1997 and 2007, Ecuador has had eight presidents, three of whom were overthrown during
periods of political unrest. (Ex. 2, at 32.)
3 Arturo C. Porzecanski, When Bad Things Happen to Good Sovereign Debt Contracts: The Case of
Ecuador, 73 Law and Contemporary Problems 251-271, 251 (Fall 2010), available at
https://scholarship.law.duke.edu/lcp/vol73/iss4/17 (“Porzecanski, supra”).
17.
Since the turn of the 21st century, Ecuador has had three separate sovereign debt
crises within a span of roughly twenty years. Following each crisis, new bonds were issued with
provisions designed to provide additional protections for investors and to avoid future crises. After
each crisis, history repeated itself with the only material difference being that the dollar-size of the
defaults grew ever larger.
18.
In September of 1999, Ecuador defaulted on its interest payments for the so-called
“Brady Bonds” (named after former U.S. Treasury Secretary Nicholas F. Brady). One month later
in October 1999, Ecuador defaulted on a Eurobond interest payment.4
19.
In 2008, the Republic again defaulted on $157 million in interest payments
associated with approximately U.S. $3.2 billion of principal outstanding debt. (Ex. 2, at 30.) At
the time, Ecuador’s then-President Rafael Correa declared that Ecuador’s foreign debt was
“illegal” and “immoral.”5
20.
Ecuador is also no stranger to abusive and hard-ball tactics to intimidate
bondholders into accepting highly unfavorable restructurings of its sovereign bonds. During the
Correa administration, it was reported that after Ecuador defaulted on its bonds, it bought back its
bonds at a fraction of their face value in various ways including through “a modified Dutch auction
with a base price of thirty cents on the dollar.” The disclosure document for the Dutch auction
made plain that Ecuador had “no intention of resuming payments on these bonds” following with
the expiration date of the auction.6
4 Congressional Research Service, “Ecuador’s Brady Bond Default: Background and Implications” (Feb.
1, 2000), available at https://www.everycrsreport.com/reports/RL30348.html.
5 See Forbes, “Boston Investment Company Sues Ecuador Over Bond Default” (Dec. 22, 2014), available
at https://www.forbes.com/sites/nathanvardi/2014/12/22/boston-investment-company-sues-ecuador-over-
bond-default/#75e809082e34.
6 See Porzecanski, supra, at 266.
21.
During the period from 2014 to 2019, Ecuador issued billions of dollars of bonds
and induced investors to purchase them by making a simple contractual promise in the indentures:
if there were any subsequent restructuring, the holders of the bonds who do not tender would
receive terms that “are no less favorable” than the terms of any new bond offering. A variation of
this so-called “No Less Favorable Treatment Provision” is contained in each bond issue that is
subject to the $17.4 billion coercive tender offer.
22.
Now in 2020, Ecuador stands again on the precipice of default, this time on $17.4
billion of existing bonds. In recent months, Ecuador has entered a state of serious financial
distress. This is due in large part to the severe impact of the COVID-19 pandemic on Ecuador’s
economy and the global decrease in demand for crude oil, as well as downturns in Ecuador’s
tourism, transportation, and shipping sectors. (See Ex. 2 at 28-29.) To combat this crisis, Ecuador
has requested at least U.S. $2.9 billion in external financing from the International Monetary Fund,
the World Bank, the International Development Bank, and the Corporation Andina de Fomento
(the Development Bank of Latin America), and has received at least U.S. $1.83 billion to date.
(Id. at 29.) The Republic has also imposed severe austerity measures, cutting its public expenses
by U.S. $1.4 billion, with plans to cut an additional $4 billion. (Id.)
23.
On or about March 23, 2020, Ecuador’s finance minister Richard Martinez
announced that Ecuador would delay approximately $200 million in coupon payments on three
series of bonds due in 2022, 2025, and 2030.7
7 Reuters, “UPDATE 3 – Ecuador to delay bond interest payment to fund coronavirus effort” (Mar. 23,
2020), available at https://www.reuters.com/article/health-coronavirus-ecuador-finance-
idAFL1N2BH004.
24.
In response to Mr. Martinez’s announcement, the bondholders and Ecuador were
able to agree to a grace period deferring certain interest payments of approximately $811 million
until August 15, 2020, pursuant to a consent solicitation.
Ecuador’s Refusal to Negotiate in Good Faith
25.
After Ecuador and the bondholders agreed to a grace period on Ecuador’s interest
payments, a Steering Committee (the “Committee”) for a group of bondholders of which Plaintiffs
are members,8 attempted to negotiate with the Republic regarding a potential debt restructuring,
but the Republic refused to engage with the Committee. The Committee proposed a 30-day
extension of the grace period to reach a resolution, which was rejected by Ecuador.
26.
The Republic instead decided to pursue discussions with another Ad Hoc Group of
bondholders (the “Ad Hoc Group”) and to ignore the Steering Committee. The Republic enlisted
the support of the Ad Hoc Group for its coercive tender offer and then disclosed that to the market
along with the percentage of shares held by the Ad Hoc Group members in order to put further
pressure on undecided or non-tendering bondholders.
27.
Rather than re-engage with the Steering Committee, as explained more fully below,
Ecuador has launched a coercive tender offer to force Plaintiffs and other creditors to accept unfair
terms that violate the underlying bonds the tender offer seeks to replace rather than face the
draconian consequences of receiving less favorable treatment should the tender succeed or, if the
tender were to fail, to being placed on the proverbial island with now worthless bonds that Ecuador
does not intend to make payments on.
8 Contrarian is managed by Contrarian Capital Management LLC. The GMO Funds are managed by
Grantham, Mayo, Van Otterloo & Co. LLC. Contrarian and the GMO Funds were founding members of
the Steering Committee for a group of more than 25 global investors. This group owns bonds issued by
Ecuador across the maturity spectrum with holdings in excess of 25% of all series that are subject to the
Proposal, and more than 35% in certain series of bonds.
The Republic of Ecuador’s Consent Solicitation and Invitation For The Tender Offer
28.
On July 20, 2020, the Republic of Ecuador commenced a coercive tender offer by
which it has proposed to modify the terms of approximately U.S. $17.4 billion of bonds. The
Republic announced the tender offer in a July 20, 2020 press release, in which Ecuador falsely
stated that “throughout its debt restructuring process, Ecuador engaged in good faith with its
bondholders, providing information with transparency and seeking to adjust the terms of its
outstanding debt while respecting inter-creditor equity.”9 In fact, as set forth above, the Republic
had refused to engage with the Steering Committee and was anything but transparent.
29.
The bonds subject to the tender offer Proposal are broadly categorized into two
groups of so-called Eligible Bonds (the “Eligible Bonds”) according to the Invitation
Memorandum: (i) the Aggregated Eligible Bonds, which comprise all series of debt securities other
than the 7.95% Notes due 2024 (the “2024 Bond”), and (ii) the 2024 Bond. The Eligible Bonds
are set forth in the following two tables:
The Aggregated Eligible Bonds
Title of Security
ISIN / Common Code
Outstanding
Issue Date
Amount
U.S.$2,000,000,000
July 28, 2016
XS1458516967;
XS1458514673 /
145851696; 145851467
10.750% Notes due
2022
U.S.$1,000,000,000
June 2, 2017
8.750% Notes due
2023
XS1626768656;
XS1626768730 /
162676865; 162676873
U.S.$600,000,000
September 27,
2019
7.875% Notes due
2025
XS2058848826;
XS2058845210 /
205884882; 205884521
9 A true and correct copy of the Republic of Ecuador’s press release, dated July 20, 2020 is attached as
Exhibit 3.
Title of Security
ISIN / Common Code
Outstanding
Issue Date
Amount
U.S.$1,750,000,000
December 13,
2016
9.650% Notes due
2026
XS1535072109;
XS1535071986 /
153507210; 153507198
U.S.$1,000,000,000
May 30, 2017
9.625% Notes due
2027
XS1626529157;
XS1626530320 /
162652915; 162653032
U.S.$2,500,000,000
October 23, 2017
8.875% Notes due
2027
XS1707041429;
XS1707041262 /
170704142; 170704126
U.S.$3,000,000,000
January 23, 2018
7.875% Notes due
2028
XS1755432363;
XS1755429732 /
175543236; 175542973
U.S.$2,125,000,000
January 31, 2019
10.750% Notes due
2029
XS1929377015;
XS1929376710 /
192937701; 192937671
U.S.$1,400,000,000
September 27,
2019
9.500% Notes due
2030
XS2058866307;
XS2058864948 /
205886630; 205886494
2024 Bond
Title of Security
ISIN / Common Code
Outstanding
Issue Date
Amount
U.S.$2,000,000,000
June 20, 2014
7.95 % Notes due
2024
XS1080331181;
XS1080330704 /
108033118; 108033070
The No Less Favorable Treatment Provisions of the Eligible Bonds
30.
The Eligible Bonds that are the subject of the tender offer each contain express
clauses that forbid the discriminatory tender offer that Ecuador is soliciting.
31.
In or around 2014, the Republic sought to stabilize its debt market. In response to
concerns about the creditworthiness of Ecuador and to prevent Ecuador from imposing less
favorable economic terms on existing bondholders during a restructuring, the Republic included a
“No Less Favorable Treatment Provision” in each series of bonds that were issued between 2014
and 2019, and are the subject of the Proposal. Each of these bonds – representing $17.4 billion in
total offerings – contains identical No Less Favorable Treatment Provisions that apply in the event
that the Republic should seek to restructure its debt yet again by exchanging existing bonds for
new bonds of the Republic. The No Less Favorable Treatment Provision of the applicable
Indentures states:
If any Reserved Matter Modification is sought in the context of a
simultaneous offer to exchange the debt securities of one or more
series for new debt instruments of Ecuador or any other person,
Ecuador shall ensure that the relevant provisions of the applicable
Series of Notes, as amended by such Modification, are no less
favorable to the holders of such Series of Notes than the provisions
of the new instrument being offered in the exchange, or if more than
one debt instrument is offered, no less favorable than the new debt
instrument issued having the largest aggregate principal amount.
(emphasis added) (See, e.g., Trust Indenture for 7.950% Notes Due
202410 (the “Indenture for 2024 Notes”), § 7.3.)11
32.
The above provision applies to a tender situation whereby the Republic seeks to
modify existing debt of non-participating holders – as permitted under the indenture’s modification
provisions (the “Collective Action Clauses”) – and exists to protect non-participating investors
from coercion. In such a situation, a tendering bondholder would receive a new bond via the
10 A true and correct copy of the Trust Indenture for 7.950% Notes Due 2024, dated June 20, 2014, is
attached as Exhibit 4.
11 Reserved Matter Modifications include, among other things, modifications that would change the due
date for the payment of principal or interest under the Notes; reduce the amount of principal amount of
the Notes; and reduce the requisite consent threshold necessary to modify the terms and conditions of the
debt securities or the indentures. Non-Reserved Matter modifications are any modifications other than
those constituting a Reserved Matter. (See, e.g., Ex. 4, § 1.1.)
tender, and a non-tendering investor’s existing debt would be non-consensually modified. The No
Less Favorable Treatment Provision establishes limits on that modification. Specifically, even
though the non-tendering bondholder did not participate in the tender or vote in favor of the
modifications that amended its debt, those modifications cannot leave the non-tendering
bondholder with inferior treatment than what the tendering bondholder received. If the tendering
bondholder agreed, for example, to reduce cash interest by five percent and extend maturities by
ten years, the non-tendering bondholder cannot be forced to reduce cash interest or extend
maturities to a greater extent than that five percent and ten years. In short, the non-tendering
bondholder cannot be punished for exercising its right to vote against a restructuring proposal.
The Republic of Ecuador’s Tender Offer
33.
Under the terms of the tender offer, the Republic seeks to solicit the consent of
eligible holders to amend each series of Eligible Bonds and their respective indentures (the
“Consent Solicitation”). The Republic also proposes to exchange the modified Eligible Bonds (the
“Modified Bonds”) for a package of the New Securities, bonds maturing in 2030, 2035, and 2040,
to be issued by the Republic under a new master indenture. Plaintiffs are the holders of several
hundred million dollars of face value of the Eligible Bonds.
34.
Although the Eligible Bonds – as well as the new bonds the Republic intends to
issue under the tender – are listed on the Luxembourg Stock Exchange, the transactions with
Plaintiffs contemplated by the tender offer involve domestic securities transactions under the
United States federal securities laws because the transfer of title and irrevocable liability occur in
the United States.
35.
As set forth in the Invitation Memorandum, irrevocable liability is accomplished
through the sending of consents and tender orders which, for each of the Plaintiffs, are sent from
the United States. Further, the Invitation Memorandum makes clear that once a consent and tender
is sent, it is irrevocable and binding and cannot be revoked. (Ex. 2, at 43 (“Consents and Tender
Orders may not be revoked or withdrawn at any time, except under certain limited circumstances
where we make a change (adverse to the economic interests of Eligible Holders) to, or waive a
material condition of, the Invitation, or otherwise are required to do so by law, in each case as
determined by us [the Republic] in our sole discretion.”). Thus, the terms of the Invitation
Memorandum must be agreed to by any beneficial owners of Eligible Bonds, such as Plaintiffs, as
a condition of the tender. (Id. at 57.) Accordingly, irrevocable liability for the bondholder attaches
when the consent and tender order is sent.
36.
Holders of Eligible Bonds, such as Plaintiffs, who hold their bonds through a
“financial institution or intermediary” are instructed in the Invitation Memorandum to have their
financial institution or intermediary process the Consent and Tender Order. If the financial
institution or intermediary is based in the United States, as is the case for Plaintiff Contrarian, that
is an additional basis for irrevocable liability and consent to attach in the United States.
37.
Further, under the terms of the Invitation Memorandum, Global Bondholder
Services Corporation (“GBSC”) is the information, tabulation, and exchange agent for tender offer.
GBSC has its offices in New York, New York, (Ex. 2, at vi), and is “responsible for collecting
Consent and Tender Orders and certifying to the Trustee the aggregate principal amount of the
Eligible Bonds covered by Consent and Tender Orders received.” (Id. at 49.) Accordingly,
consent and tender orders are processed in New York.
38.
Further, the Republic’s irrevocable liability for the tender and consents also occurs
in New York when it accepts the consent and tender order. As explained in the Invitation
Memorandum, “[a]ll questions regarding the validity, form and eligibility of any Consent and
Tender Order will be determined by us [the Republic] in our sole discretion, which determination
will be final and binding. And Ecuador “reserves the absolute right to reject (i) any and all Consent
and Tender Orders that are not in proper form and (ii) any and all Consent and Tender Orders for
which any corresponding agreement by us to exchange would, in the opinion of our counsel, be
unlawful.” (Id. at 55.) Accordingly, likewise irrevocable liability for the consents and tenders for
the Republic occurs in the United States when – in its sole discretion – it accepts consents and
tenders and they are tabulated.
The Minimum Participation and Requisite Consent Thresholds
39.
The Invitation Memorandum establishes a “Minimum Participation Condition”
whereby the Proposal will only be effective if the Republic receives the consent of holders prior
to July 31, 2020 at 5:00 p.m. (Central European Time) that will result in at least 80% of the
aggregate principal amount outstanding of the Aggregated Eligible Bonds being modified pursuant
to the Proposed Modifications or otherwise exchanged for New Securities. This is a substantially
lower threshold than a minimum condition requiring consents and tenders of 80% of the aggregate
principal amount outstanding of the Aggregated Eligible Bonds, because the Minimum
Participation Condition allows for the inclusions of all series in which the bonds’ Collective Action
Clauses are triggered. The Minimum Participation Condition cannot be waived by the Republic.
40.
Under the Collective Action Clauses in the bonds, the Proposed Modifications will
become effective as to all holders of the Aggregated Eligible Bonds if the Republic receives the
consent of holders of (i) more than 50% of the aggregate principal amount outstanding of each
series of Aggregated Eligible Bonds, and (ii) not less than 66 ⅔% of the aggregate principal amount
outstanding of all series of Aggregated Eligible Bonds. With respect to the 2024 Bonds, the
Proposed Modifications relating to Reserved Matters will be effective as to all bondholders if the
Republic receives the consent of holders of 75% of the aggregate principal amount outstanding in
that series, whereas a Non-Reserved Matter modification requires the consent of holders of 66 ⅔%
of the aggregate principal amount outstanding in that series.
The Proposal Violates The No Less Favorable Treatment Provisions Of The Existing Bonds
41.
The Invitation Memorandum establishes a deadline of July 31, 2020 – less than two
weeks after the Proposal was commenced – for holders of Eligible Bonds to deliver consent and
tender orders (the “Consent Deadline”). Under the terms of the Proposal, Eligible Holders who
validly consent and tender prior to the Consent Deadline will receive a combination of the New
Securities, newly-issued bonds with maturity dates in 2030 (the “New 2030 Bond”), 2035 (the
“New 2035 Bond”), and 2040 (the “New 2040 Bond”). In addition, tendering bondholders will
receive the New Past Due Interest Bond (the “New PDI 2030 Bond”), which represents 86% of
the accrued and unpaid interest on the Eligible Bonds. Eligible Holders who do not consent and
tender their securities prior to the Consent Deadline will not receive the New PDI 2030 Bond.
42.
In consenting to the tender offer, Eligible Holders are required to irrevocably waive
any accrued and unpaid interest through and excluding August 20, 2020 (the “Settlement Date”).
According to the Invitation Memorandum, Eligible Holders are not entitled to receive any
payments in respect of accrued and unpaid interest on the Eligible Bonds, other than the New PDI
2030 Bonds. Therefore, the only way that Eligible Holders may receive any amount of payment
in respect of accrued and unpaid interest they are due under the Eligible Bonds is to receive the
New PDI 2030 Bonds by consenting and tendering per the terms of the Proposal prior to the July
31, 2020 Consent Deadline.
43.
Second, and ultimately more important from an economic perspective, if the tender
ultimately is approved, existing bondholders will not all receive the same kinds – or value – of
new bonds in return for their current holdings. On the contrary, existing bondholders who tender
will be able to exchange their current bonds for a mix of new bonds that are significantly more
valuable than the value that non-tendering bondholders will receive for their current bonds.12
44.
Bondholders who tender will receive, in exchange for their current bonds, a
combination of new bonds that mature in 2030, 2035, and 2040 (New 2030 Bonds, New 2035
Bonds, and New 2040 Bonds, respectively). The precise breakdown of the new bonds they will
receive varies depending on the year in which the existing bond they currently hold comes due,
but for every bond series, they will tender 100% of their bonds and receive 49.53% of New 2035
Bonds in return (and a combination of other bonds that, along with the New 2035 Bonds, total
91.13%). Chart A sets forth the breakdown of the new bonds tendering shareholders will receive.
New 2030 Bonds, New 2035 Bonds, and New 2040 Bonds also carry different interest rates, as
shown in Chart B. Currently, New 2035 Bonds have the largest aggregate principal amount.
CHART A: New Bond Mix
CURRENT
2030
2035
2040
ECUA 2022
30.00%
49.53%
11.60%
ECUA 2023
22.90%
49.53%
18.70%
ECUA 2024
30.00%
49.53%
11.60%
ECUA 2025
18.90%
49.53%
22.70%
ECUA 2026
18.90%
49.53%
22.70%
ECUA 2027
18.90%
49.53%
22.70%
ECUA 2027
18.90%
49.53%
22.70%
ECUA 2028
18.90%
49.53%
22.70%
ECUA 2029
18.90%
49.53%
22.70%
ECUA 2030
18.90%
49.53%
22.70%
12 Any argument that a difference in interest rate or maturity here would not constitute different treatment
conflicts with the basic terms and definitions of many of the indentures at issue. Specifically, the
definitions of “Uniformly Applicable” and “same terms” include the “same new instrument,” “the same
offer on past due interest” only exclude “differences as between different series of affected debt securities
which are necessary having regard to the currency of denomination.” (See, e.g., Offering Circular for
10.75% Notes due 2029 at 210.) A true and correct copy of the Offering Circular for 10.75% Notes due
2029, dated June 10, 2019, is attached as Exhibit 5.
CHART B: New Bond Interest Rates
New Bonds
Interest Rate Accrual
Maturity
Principal Repayment
New 2030
Bonds
July 31,
2030
Principal on the New 2030 Bonds will be
repaid in U.S. dollars in ten equal semi-
annual installments starting on January
31, 2026 through maturity.
1. From and including the
Settlement Date to but excluding
July 31, 2021: 0.500%;
2. From and including July 31,
2021 to but excluding July 31,
2022: 5.000%;
3. From and including July 31,
2022 to but excluding July 31,
2023: 5.500%;
4. From and including July 31,
2023 to but excluding July 31,
2024: 6.000%;
5. From and including July 31,
2024 to but excluding July 31,
2030: 6.900%.
New 2035
Bonds
July 31,
2035
Principal on the New 2035 Bonds will be
repaid in U.S. dollars in ten equal semi-
annual installments starting on January
31, 2031 through maturity.
1. From and including the
Settlement Date to but excluding
July 31, 2021: 0.500%;
2. From and including July 31,
2021 to but excluding July 31,
2022: 1.000%;
3. From and including July 31,
2022 to but excluding July 31,
2023: 2.500%;
4. From and including July 31,
2023 to but excluding July 31,
2024: 3.500%;
5. From and including July 31,
2024 to but excluding July 31,
2025: 5.500%;
6. From and including July 31,
2025 to but excluding July 31,
2035: 6.900%.
New 2040
Bonds
July 31,
2040
Principal on the New 2040 Bonds will be
repaid in U.S. dollars in ten equal semi-
annual installments starting on January
31, 2036 through maturity.
1. From and including the
Settlement Date to but excluding
July 31, 2021: 0.500%;
2. From and including July 31,
2021 to but excluding July 31,
2022: 0.500%;
3. From and including July 31,
2022 to but excluding July 31,
2023: 1.500%;
4. From and including July 31,
2023 to but excluding July 31,
2024: 2.500%;
5. From and including July 31,
2024 to but excluding July 31,
2026: 5.000%;
6. From and including July 31,
2026 to but excluding July 31,
2027: 5.500%.
New Bonds
Interest Rate Accrual
Maturity
Principal Repayment
7. From and including July 31,
2027 to but excluding July 31,
2028: 6.000%.
8. From and including July 31,
2028 to but excluding July 31,
2029: 6.500%.
9. From and including July 31,
2029 to but excluding July 31,
2040: 6.900%.
New PDI 2030
Bonds
0%
July 31,
2030
Principal on the New PDI 2030 Bonds
will be repaid in U.S. dollars in ten equal
semi-annual installments starting on
January 31, 2026 through maturity.
45.
By contrast, non-tendering bondholders will receive much less value. If the tender
is approved, the bonds currently held by non-tendering bondholders will be modified such that
their economic terms mirror those of the New 2040 Bonds. This is a critical difference. Bonds
that mature in earlier years have a greater net present value than bonds that mature in later years.
As a result, given the differences in the maturity dates of the bonds they receive, as well as the
interest rates associated with those bonds, bondholders who tender will receive significantly more
value than bondholders who do not. In present value terms, tendering bondholders will receive
58.3 cents on the dollar, whereas bondholders who do not tender will receive only 47.4 cents on
the dollar. Factoring out the value associated with the New PDI 2030 Bond that tendering
bondholders receive (which is equivalent to the present value of roughly 2.3 cents on the dollar),
tendering bondholders will receive a present value of 8.6 cents less on the dollar than bondholders
who do not tender. In total, this amounts to approximately a 20% penalty for bondholders who do
not tender. This differential treatment constitutes another flagrant violation of the No Less
Favorable Treatment Provision.13
13 This valuation reflects the present value associated with discounting future cash flows back to July 31,
2020 using a 10% discount rate, and assuming payments are made on the 1st of each month they are due.
46.
The modifications set forth in the Invitation Memorandum also seek to remove
certain creditor protections from the original Eligible Bonds, including reduction of the threshold
needed to give effect to a Non-Reserved Matter Modification under applicable indentures from at
least 66⅔% to more than 50% of the aggregate principal amount of the applicable Series of Eligible
Bonds; elimination of Section 7.4 of the Indenture for the 2024 Bonds and Section 7.6 of the
Indenture for the Aggregated Eligible Bonds, which provide for limitations on reopening and new
issuance of notes; exclusion from the events of default cross defaults arising from the entering or
issuance of judgments and arbitral awards relating to (1) any Eligible Bonds that are not modified
by the Proposed Modifications, (2) any Modified Eligible Bonds, (3) any New Securities, (4) the
7.25% Social Housing Notes due 2035 (the “Social Housing Notes”) issued by the Republic, and
(5) the 4.625% Notes due 2021 (“PAM Notes”) issued by La Empresa Pública de Exploración,
and; elimination of the requirement that events of default (other than the non-payment of principal
that became due solely as a result of such acceleration) have been cured or waived by the holders
of not less than a majority of the principal amount of the outstanding notes or remedied. Crucially,
the Proposal also seeks to eliminate the No Less Favorable Treatment Provision, which limits
Reserved Matter Modifications in the context of exchange offers and issuances of new notes
through consent solicitations.
Ecuador Has Stated Unequivocally That It Does Not Intend To Pay Non-Tendering Bondholders
47.
Ecuador has stated unequivocally in its Invitation Memorandum relating to the
Proposal that in the event a tender for one or more series of bonds is unsuccessful, it does not
intend to pay anything to non-tendering bondholders. The Invitation Memorandum lists as its first
risk factor the “Risks of Not Participating in the Invitation.” In plain, clear, and simple language,
The present value of future cash flows was then divided by the principal amount outstanding on existing
bonds to calculate the % of par or face value.
this risk factor lays bare the true intent of the Republic: “The Eligible Bonds may enter into default.
If the Eligible Bonds are not tendered in the Invitation and do in fact enter into default, they may
remain in default indefinitely and, if you elect to litigate, the Republic intends to oppose such
attempts to collect on its defaulted debt.” (Ex. 2, at 20.) In plain language, the coercive nature of
the tender was revealed.
The Committee Informs The Republic Of Its Objections To The Coercive Tender Offer
48.
On July 22, 2020, counsel for the Committee wrote to counsel for the Republic
explaining the Committee’s objections to the tender offer, its violation of the No Less Favorable
Treatment Provision, its coercive nature, and the misrepresentations about the transparency of the
process.14
49.
On July 24, 2020, counsel for the Republic responded to the Committee’s letter
explaining Ecuador’s position, and disputing the merits of the Committee’s position.15
Ecuador’s July 27, 2020 Press Release
50.
On July 27, 2020, Ecuador, in order to put further pressure on undecided and non-
tendering bondholders, issued a false and misleading Press Release intending to promote the tender
offer that flatly denied its patently obvious coercive nature. Ecuador’s misrepresentations about
the coercive nature of the tender offer were highly public and are material to investors. As
explained below, the Press Release made numerous false and misleading statements about the
tender offer that also contradicted statements made by the Republic in its Invitation Memorandum.
14 A true and correct copy of a letter from C. Clark to E. Koster, dated July 22, 2020 is attached as Exhibit
6.
15 A true and correct copy of a letter from D. Tracey to C. Clark dated July 24, 2020 is attached as Exhibit
7.
51.
The Press Release falsely stated that “The Republic’s focus is on . . . seeking a fair
outcome for the bondholders through a process that is open to all bondholders and which
fundamentally applies principles of inter-creditor equity. The Republic is committed to a . . .
transparent process.” (Ex. 1.)
52.
In truth and in fact, for the reasons set forth above, the Republic was not focused
on a “fair outcome for the bondholders” and “principles of inter-creditor equity.” Instead, as the
Republic well knew, the Republic was in reality treating non-tendering bondholders unfairly by
giving them substantially less consideration than their tendering counterparts in violation of the
No Less Favorable Treatment Provisions in the bonds. Indeed, the provisions of the Invitation
Memorandum provide ample evidence of that unfairness.
53.
The Press Release falsely stated that “Ecuador is acting within the four corners of
our indenture, including modification provisions available upon obtaining the requisite consent
from bondholders.” (Id.)
54.
Ecuador has wrongly claimed that the tender offer is proper and compliant with the
indentures governing its outstanding bonds. As explained above and as Ecuador well knew, even
a cursory review of the bondholders’ indentures clearly reveals the Proposal would be an
intentional breach of the No Less Favorable Treatment Provisions in those agreements.
55.
The Press Release made false claims about the complete lack of coercion of the
tender. Specifically, the Press Release stated that “The [Steering Committee] asserted that the
Republic negotiated with them in bad faith and characterized the process as ‘coercive.’ Nothing
could be further from the truth.” (Id.)
56.
As explained above, the consent and tender offer is, in fact, plainly coercive. As
the Republic well knew, by its actions, it was seeking to coerce non-tendering bondholders with
the threat of unequal and much less favorable consideration. Further, the Republic has threatened
to not make any further payments on the Eligible Bonds – should all or part of the tender be blocked
– which could not be anything but coercive. The fact that the Republic seeks to modify the No
Less Favorable Treatment Provision pursuant to this transaction – a provision that seeks to prohibit
coercion – stands as direct evidence of the coercive nature of the offer. Finally, the entire process
and time-line of the tender offer – a ten-day period for bondholders to take-it or leave-it or else –
is by its very nature highly coercive. To even suggest otherwise – let alone deny it emphatically
as the Republic did in the Press Release – is not only false, but outrageous.
57.
The Press Release falsely stated that “During the month of June, the Republic
formally approached the Minority Committee and attempted to engage in confidential
negotiations, but the advisor to the Minority Committee spent two weeks negotiating the wording
of Non-Disclosure Agreements . . . .” (Id.)
58.
In truth and in fact, the Committee attempted to engage with the Republic, but was
rebuffed. As the Republic well knew, the Committee did not spend two weeks negotiating non-
disclosure agreements. What in reality occurred, and is a material fact omitted by the Republic, is
that the Republic and its advisors explored and agreed to other terms with the Ad Hoc Group
whereby the Ad Hoc Group and its members would support the coercive tender offer. Whether
the Ad Hoc Group or its members received any additional consideration for their support is not
59.
The Press Release also falsely stated that the Republic was not seeking “to compel
the consent of the investor” and made misleading statements that “[t]he payment of a consent fee
in the form of the PDI 2030 Bonds provides a financial incentive for holder to provide their consent
to the amendments and accept the terms of the restructuring. There is nothing improper or unusual
in the payment of a consent fee.” (Id.)
60.
In truth and in fact, as the Republic well knew, the “consent fee” is not a consent
fee; but rather it is a disparate and discriminatory payment of past due interest to tendering
bondholders that the Republic refuses to provide on equal terms to non-tendering bondholders.
Further, the Press Release is misleading for the added reason that it omits any reference to the No
Less Favorable Treatment Provisions which are being violated by the Republic.
61.
The Press Release also falsely and misleadingly disparages the arguments advanced
by the Committee stating, irresponsibly and without any support, that the Committee has “no basis
to argue that they are being treated in an unequal manner.” (Id.)
62.
In truth and in fact, as explained above, the Republic well knew that the tender offer
violates the No Less Favorable Treatment Provision, as explained by counsel for the Committee
in its July 22 letter. Far from there being “no basis,” the Committee and Plaintiffs have ample
basis to assert they are being treated in an unequal manner.
63.
Further, the Press Release undermines the statements made by the Republic in its
Invitation Memorandum and is contrary to the express risk factors stated therein including the
following: “Certain creditors of the Republic may attempt to challenge the progress or
consummation of the Invitation or may attempt to attach assets in connection with the Invitation,
which may result in the delay or termination of the Invitation if litigation frustrates its purpose.”
64.
In fact, rather than disparage positions of the Committee as having “no basis,” the
Invitation Memorandum acknowledges the potential risk of litigation and the uncertainty of
outcomes, and states in more measured and balanced terms: “The Republic may be subject to efforts
by certain creditors to enjoin or otherwise prevent the consummation of the Invitation or to attach
assets in connection with the Invitation, and the Republic may delay or terminate the Invitation if
litigation frustrates its purpose. While the Republic intends to vigorously oppose any such
litigation efforts, the Republic cannot assure you of its success.” (Ex. 2, at 24.)
65.
Moreover, the Invitation Memorandum also acknowledged that recent federal court
decisions cast some uncertainty with regard to the tender offer: “Certain federal court decisions
in the United States create uncertainty regarding the meaning of ranking provisions and could
potentially reduce or hinder the ability of sovereign issuers to restructure their public sector debt.”
(Id. at 26.)
Additional Allegations Supporting Scienter
66.
As demonstrated above, at all relevant times, Defendant knew but failed to disclose
and/or recklessly disregarded that the statements referenced supra were materially false and/or
misleading and/or omitted material information that Defendant knew or recklessly disregarded was
necessary to make such statements not materially false and/or misleading, for the reasons stated
supra. Such statements were also known by Defendant to be materially false and/or misleading at
the time they were made, for the reasons outlined above, and for the following reasons, among
Economic Loss
67.
Here, there can be no doubt that the Defendant’s fraud already has caused loss, and
will cause loss, to the Plaintiffs and the class of bondholders they represent. As to the former,
bondholders who have tendered because of the Defendant’s fraud already have incurred damages,
in the form of reduced principal, reduced interest, and bonds otherwise devalued because of fraud.
As to the latter, bondholders who will tender, as Plaintiffs will absent judicial intervention, will
incur damages, in the form of reduced principal, reduced interest, and bonds otherwise devalued
because of fraud.
68.
Because Plaintiffs represent the class of bondholders who have been fraudulently
induced to tender, as well as those who will be coerced into tendering absent judicial intervention,
Plaintiffs will succeed in proving loss causation. See also In re Parmalat Sec. Litig., 376 F. Supp.
2d 472, 510 (S.D.N.Y. 2005) (stating that “the loss causation requirement will be satisfied if
[Defendants’ deceptive or manipulative] conduct had the effect of concealing the circumstances
that bore on the ultimate loss.”). Plaintiffs will therefore succeed on the merits of the loss causation
element.
Class Action Allegations
69.
Plaintiffs bring this action as a Class Action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(1), (2), and (3) on behalf of all members of the proposed class of similarly
situated bondholders. This action satisfies the numerosity, commonality, typicality, adequacy,
predominance, and superiority requirements of the provisions.
70.
The Class consists of all holders of Eligible Bonds and their predecessors, heirs,
successors, assigns, or representatives who tendered or refused to tender Eligible Bonds as a part
of the Proposal (the “Class”).
71.
Excluded from the Class is Defendant, any affiliates of Defendant, or any entity in
which any excluded person or entity has a controlling interest, and the legal representatives, heirs,
successors, and assigns of any excluded person or entity.
72.
The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to Plaintiffs at this time and
can only be ascertained through appropriate discovery, Plaintiffs believe that there are hundreds
of thousands of members in the proposed Class. Record owners and the other members of the
Class may be identified from records maintained by the Republic and/or its transfer agents and
may be notified of the pendency of this action by mail, using a form of notice similar to that
customarily used in securities class actions.
73.
Plaintiffs’ claims are typical of the claims of the other members of the Class as all
members of the Class are similarly affected by Defendant’s wrongful conduct in violation of
federal law that is complained of herein.
74.
Plaintiffs will fairly and adequately protect the interests of the other members of
the Class, and has retained counsel competent and experienced in class and securities litigation.
Common questions of law and fact exist as to all members of the Class and predominate over any
questions solely affecting individual members of the Class. Among the questions of law and fact
common to the Class are:
a.
Whether the federal securities laws were violated by the Republic’s acts and
omissions as alleged herein;
b.
Whether the Republic participated in and pursued the common course of
conduct complained of herein;
c.
Whether documents, press releases, and other statements disseminated to
the Republic’s bondholders misrepresented material facts about the Consent
Solicitation; and
d.
The extent to which the members of the Class will be damaged and the
proper measure of damages.
75.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden
of individual litigation makes it impossible for members of the Class to individually redress the
wrongs done to them. There will be no difficulty in the management of this action as a class action.
Applicability of the Presumption of Reliance
76.
Through its material false and misleading statements to bondholders at large,
Defendant has committed a fraud on the market. In precisely this context, the Supreme Court has
recognized that bondholders may satisfy the element of detrimental reliance through the fraud-on-
the-market presumption. See Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988). Plaintiffs and the
Class are entitled to a presumption of reliance and a fraud-on-the-market presumption because
during the Class Period, the market for Eligible Bonds was an efficient market for the following
reasons, among others:
a.
The Eligible Bonds met the requirements for listing, and were listed and
actively traded on the Luxembourg Stock Exchange, a highly efficient
market;
b.
The Eligible Bonds were followed by securities analysts employed by major
brokerage firms who wrote reports which were distributed to the sales force
and certain customers of their respective brokerage firms. Each of these
reports was publicly available and entered the public marketplace; and
c.
The Republic issued press releases which were carried by national and
international newswires. Each of these releases was publicly available and
entered the public marketplace.
77.
As a result of the foregoing, the market for Eligible Bonds promptly digested
current information regarding the Eligible Bonds from all publicly available sources and reflected
such information in the price of the Eligible Bonds. Accordingly, Plaintiffs and other members of
the Class relied, and are entitled to have relied, upon the integrity of the market for the Eligible
Bonds, and are entitled to a presumption of reliance on Defendant’s’ materially false and
misleading statements and omissions during the Class Period.
78.
Plaintiffs and the Class are also entitled to a presumption of reliance under Affiliated
Ute Citizens v. United States, 406 U.S. 128 (1972), because the claims asserted herein against
Defendant are predicated upon omissions of material fact for which there was a duty to disclose.
Defendant had no duty to make the statements contained in the July 27, 2020 Press Release. But
when it chose to speak, it undertook a duty to speak truthfully and absent material omission.
Because Defendant chose to speak about the terms and process related to its tender offer, and did
so in a false and misleading way, it also had a duty to correct its misstatements and disclose any
additional facts necessary to make its statements not misleading.
No Safe Harbor
79.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Many of the specific statements pleaded herein were not identified as “forward-looking
statements” when made. To the extent there were any forward-looking statements, there were no
meaningful cautionary statements identifying important factors that could cause actual results to
differ materially from those in the purportedly forward-looking statements. Alternatively, to the
extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,
Defendant is liable for those false forward-looking statements because at the time each of those
forward-looking statements was made, the particular speaker knew that the particular forward-
looking statement was false and/or the forward-looking statement was authorized and/or approved
by an officer of Ecuador who knew that those statements were false when made.
FIRST CLAIM FOR RELIEF
For Violation of Section 10(b) of the Exchange Act and Rule 10b-5(b)
80.
Plaintiffs repeat, reallege, and incorporate by reference the allegations in
paragraphs 1 through 79 as set forth herein.
81.
Defendant made false and/or misleading statements of material fact and/or omitted
material facts necessary to make the statements made not misleading with respect to the Proposal,
as set forth above.
82.
Plaintiffs will suffer irreparable injury from Defendant’s violations of the federal
securities laws described herein, and unless Defendant is enjoined from soliciting, promoting, or
implementing the tender offer, corrective disclosures ordered, and future violations of the federal
securities laws enjoined, Plaintiffs and other bondholders will suffer irreparable harm.
83.
By reason of the foregoing, Defendant has violated Section 10(b) of the Exchange
Act and Rule 10b-5(b).
84.
As a result of the false and/or misleading statements and/or omissions of material
facts in the Press Release (and the anticipated false and/or misleading statements and/or omissions
of material facts in future press releases and public filings in connection with the Proposal),
injunctive relief is appropriate.
85.
Further, based on the statements in the Press Release that Defendant intends to
consummate the tender offer, unless the Court specifically enjoins Defendant from doing so,
Plaintiffs will suffer irreparable harm, and will have no choice but to cave to the Republic’s
coercive demands and tender their Eligible Bonds under duress on July 31, 2020.
86.
As a result of Defendant’s violations of the federal securities laws described herein,
Plaintiffs will suffer money damages and other tangible harm unless Defendant is enjoined from
soliciting, promoting, or implementing the tender offer; enjoined from future violations of the
federal securities laws; and ordered to issue corrective disclosures.
87.
Sufficiently serious questions going to the merits of Plaintiffs’ claims make them
fair ground for litigation.
88.
The balance of the equities tips toward the issuance of an injunction, and is in the
interest of the public.
WHEREFORE, Plaintiffs respectfully request that the Court issue a judgment against the
Republic of Ecuador as follows:
a.
preliminarily enjoining The Republic of Ecuador, and any of its affiliates or
others acting in concert with it, from proceeding with the transactions announced on July 20, 2020,
or any parts thereof, and
b.
ordering the Republic of Ecuador to (a) toll the expiration date for the
transactions announced on July 20, 2020, which date is currently set for July 31, 2020 at 5:00 p.m.
CET, for a period of time equal to the period of time between the signing of the order to show
cause and the hearing for a temporary restraining order, and (b) enable bondholders who have
already tendered Eligible Bonds to promptly withdraw their consents and tender orders
unconditionally; and,
c.
granting such further relief that the Court deems just and proper.
Dated: July 29, 2020
Greenwich, Connecticut
Respectfully submitted,
LATHAM & WATKINS LLP
By: /s/ Christopher J. Clark
Christopher J. Clark
885 Third Avenue
New York, New York 10022
Tel: (212) 906-1200
Fax: (212) 751-4864
Email: chris.clark@lw.com
Attorney for Plaintiffs Contrarian Emerging
Markets, L.P., GMO Emerging Country Debt
Fund, GMO Emerging Country Debt Investment
Fund plc, and GMO Emerging Country Debt
(UCITS) Fund
CERTIFICATION
I, Jennifer Diagonale, as General Counsel and Chief Compliance Officer to Contrarian
Capital Management, LLC, which manages and advises Plaintiff Contrarian Emerging Markets,
L.P. (“Contrarian”) hereby certify as follows:
1.
I am fully authorized to enter into and execute this Certification on behalf of
Contrarian. I have reviewed the Complaint prepared against The Republic of Ecuador
(“Ecuador”) alleging violations of the federal securities laws;
2.
Contrarian did not purchase securities at the direction of counsel or in order to
participate in any private action under the federal securities laws;
3.
Contrarian is willing to serve as lead plaintiff and representative party in this
matter, including providing testimony at deposition and trial, if necessary;
4.
Contrarian has purchased hundreds of millions in Eligible Bonds during the Class
5.
Contrarian is not serving as lead plaintiff in another class action under the federal
securities laws filed during the last three years.
6.
Beyond its pro rata share of any recovery, Contrarian will not accept payment for
serving as lead plaintiff and representative party on behalf of the Class, except the
reimbursement of such reasonable costs and expenses (including lost wages) as ordered or
approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct on this 29th day of
July, 2020.
___________________________
Jennifer Diagonale as
General Counsel and Chief Compliance
Officer of Contrarian Capital Management,
L.L.C. on behalf of Plaintiff Contrarian
Emerging Markets, L.P.
CERTIFICATION
I, Kevin O'Brien of Grantham, Mayo, Van Otterloo & Co. LLC ("GMO"), which
manages and advises Plaintiffs GMO Emerging Country Debt Fund, GMO Emerging Country
Debt Investment Fund plc, and GMO Emerging Country Debt (UCITS) Fund, a sub-fund of
GMO Investments ICAV (collectively the "GMO Funds") hereby certify as follows:
1.
I am fully authorized to enter into and execute this Certification on behalf of the
GMO Funds. I have reviewed the Complaint prepared against The Republic of Ecuador
("Ecuador") alleging violations of the federal securities laws;
2.
The GMO Funds did not purchase securities at the direction of counsel or in order
to participate in any private action under the federal securities laws;
3.
The GMO Funds are willing to serve as lead plaintiff and representative party in
this matter, including providing testimony at deposition and trial, if necessary;
4.
The GMO Funds have purchased hundreds of millions in Eligible Bonds during
the Class Period.
5.
The GMO Funds are not serving as lead plaintiff in another class action under the
federal securities laws filed during the last three years.
6.
Beyond its pro rata share of any recovery, the GMO Funds will not accept
payment for serving as lead plaintiff and representative party on behalf of the Class, except the
reimbursement of such reasonable costs and expenses (including lost wages) as ordered or
approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct on this 29th day of
July, 2020.
Kevin O'Brien
General Counsel for Grantham, Mayo, Van
Otter loo & Co. LLC, on behalf of Plaintiffs
the GMO Funds
| securities |
_aa2CYcBD5gMZwczmdUP | Jon B. Fougner (State Bar No. 314097)
jon@fougnerlaw.com
600 California Street, 11th Floor
San Francisco, California 94108
Telephone: (415) 577-5829
Facsimile: (206) 338-0783
[Additional counsel appear on signature page]
Attorneys for Plaintiff Sidney Naiman and the
Proposed Class
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
Case No.
SIDNEY NAIMAN, individually and on
behalf of all others similarly situated,
Plaintiff,
COMPLAINT FOR INJUNCTION
AND DAMAGES
v.
Class Action
SELECTQUOTE INSURANCE
SERVICES,
Defendant.
JURY TRIAL DEMAND
Plaintiff Sidney Naiman, by his undersigned counsel, for this class action complaint
against Defendant SelectQuote Insurance Services (“SelectQuote”) and its present, former, and
future direct and indirect parents, subsidiaries, affiliates, agents, and related entities, alleges as
follows:
I.
INTRODUCTION
1. Nature of Action: This case arises from Defendant’s unsolicited telemarketing in
violation of the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227.
2. The telemarketing was conducted using an automated telephone dialing system
(“ATDS”), a tactic among those that inspired Congress to enact the TCPA and that most infuriate
people to this day.
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COMPL.
3. The telemarketing targeted, among other phone lines, cellular telephones and
numbers listed on the National Do Not Call Registry (“NDNCR”).
4. For every 7,000,000 robocalls, there’s only one TCPA lawsuit in federal court.
Compare Herb Weisbaum, It’s Not Just You—Americans Received 30 Billion Robocalls Last
Year, NBC News (Jan. 17, 2018), https://www.nbcnews.com/business/consumer/it-s-not-just-
you-americans-received-30-billion-robocalls-n838406 (30.5 billion robocalls); with WebRecon,
WebRecon Stats for Dec 2017 & Year in Review (last visited Oct. 29, 2018),
https://webrecon.com/webrecon-stats-for-dec-2017-year-in-review/ (4,392 TCPA complaints).
II.
PARTIES
5. Mr. Naiman is a natural person.
6. He resides in Maricopa County, Arizona.
7. SelectQuote is a corporation.
8. It’s a California corporation.
9. Its principal place of business is 595 Market Street, 10th Floor, San Francisco,
California 94105.
III.
JURISDICTION AND VENUE
10. Jurisdiction: This Court has federal-question subject matter jurisdiction pursuant to 28
U.S.C. § 1331 because the TCPA is a federal statute. 47 U.S.C. § 227; Mims v. Arrow Fin.
Servs., LLC, 565 U.S. 368, 372 (2012).
11. Personal Jurisdiction: This Court has personal jurisdiction over Defendant because:
a.
its principal place of business is in California; and
b.
its conduct at issue was organized from that California office.
12. Venue: Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(1)-(2)
because a substantial part of the events giving rise to Plaintiff’s claims—namely, the direction of
the illegal telemarketing from SelectQuote’s office—occurred in this District.
13. Intradistrict Assignment: Assignment to this Division is proper pursuant to Civil
Local Rule 3-2(c) because a substantial part of the events or omissions that give rise to Plaintiff’s
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COMPL.
claims—namely, the direction of the illegal telemarketing from SelectQuote’s office—occurred
in San Francisco.
IV.
FACTS
A.
The Enactment of the TCPA and the FCC’s Regulations Thereunder
14. Robocalls Outlawed: Enacted in 1991, the TCPA makes it unlawful “to make any call
(other than a call made for emergency purposes or made with the prior express consent of the
called party) using an automatic telephone dialing system or an artificial or prerecorded voice . . .
to any telephone number assigned to a . . . cellular telephone service.” 47 U.S.C. § 227(b)(1).
Calls made by an ATDS or with a prerecorded or artificial voice are referred to as “robocalls” by
the Federal Communications Commission (“FCC”) and herein. Encouraging people to hold
robocallers accountable on behalf on their fellow Americans, the TCPA provides a private cause
of action to persons who receive such calls. 47 U.S.C. § 227(b)(3).
15. Rationale: In enacting the TCPA, Congress found: “Evidence compiled by the
Congress indicates that residential telephone subscribers consider automated or prerecorded
telephone calls, regardless of the content or the initiator of the message, to be a nuisance and an
invasion of privacy.” Telephone Consumer Protection Act of 1991, Pub. L. No. 102-243, 105
Stat. 2394 § 2(10). Congress continued: “Banning such automated or prerecorded telephone calls
to the home, except when the receiving party consents to receiving the call or when such calls are
necessary in an emergency situation affecting the health and safety of the consumer, is the only
effective means of protecting telephone consumers from this nuisance and privacy invasion.” Id.
§ 2(12).
16. The TCPA’s sponsor described unwanted robocalls as “the scourge of modern
civilization. They wake us up in the morning; they interrupt our dinner at night; they force the
sick and elderly out of bed; they hound us until we want to rip the telephone out of the wall.” 137
Cong. Rec. 30,821 (1991) (statement of Sen. Hollings).
17. Prior Express Written Consent: The FCC has made clear that “prior express written
consent” is required before making telemarketing robocalls to wireless numbers. Specifically, it
ordered:
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COMPL.
[A] consumer’s written consent to receive telemarketing robocalls
must be signed and be sufficient to show that the consumer: (1)
received clear and conspicuous disclosure of the consequences of
providing the requested consent, i.e., that the consumer will
receive future calls that deliver prerecorded messages by or on
behalf of a specific seller; and (2) having received this information,
agrees unambiguously to receive such calls at a telephone number
the consumer designates. In addition, the written agreement must
be obtained without requiring, directly or indirectly, that the
agreement be executed as a condition of purchasing any good or
service.
In the Matter of Rules & Regulations Implementing the Telephone Consumer Protection Act of
1991, 27 FCC Rcd. 1830, 1844 ¶ 33 (2012) (footnote and internal quotation marks omitted).
18. Do Not Call Registry: Additionally, the TCPA outlaws unsolicited telemarketing
(robocalls or otherwise) to phone numbers on the NDNCR. 47 U.S.C. § 227(c); 47 C.F.R. §
64.1200(c)(2). Encouraging people to hold telemarketers accountable on behalf on their fellow
Americans, the TCPA provides a private cause of action to persons who receive such calls. 47
U.S.C. § 227(c)(5).
B.
The Worsening Problem of Robocalls and Spam Texts
19. Unfortunately, the problems Congress identified when it enacted the TCPA have only
grown worse in recent years.
20. “Month after month, unwanted [communications], both telemarketing and
informational, top the list of consumer complaints received by the [Federal Communications]
Commission.” In re Rules and Regulations Implementing the Telephone Consumer Protection
Act of 1991, 30 FCC Rcd. 7961, 7991 ¶ 1 (2015).
21. “Robocalls and telemarketing calls are currently the number one source of consumer
complaints at the FCC.” Tom Wheeler, Cutting off Robocalls (July 22, 2016),
https://www.fcc.gov/news-events/blog/2016/07/22/cutting-robocalls (statement of FCC
Chairman).
22. “The FTC receives more complaints about unwanted calls than all other complaints
combined.” Comment of the Staff of the Federal Trade Commission’s Bureau of Consumer
Protection, In re Rules and Regulations Implementing the Telephone Consumer Protection Act of
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COMPL.
1991, Notice of Proposed Rulemaking, CG Docket No. 02-278, at p. 2; FCC 16-57 (June 6,
2016), available at https://www.ftc.gov/system/files/documents/advocacy_documents/comment-
staff-ftc-bureau-consumer-protection-federal-communications-commission-rules-
regulations/160616robocallscomment.pdf.
23. In 2017, the FTC received 4,501,967 complaints about robocalls, up from 3,401,614
in 2016. Federal Trade Commission, FTC Releases FY 2017 National Do Not Call Registry Data
Book and DNC Mini Site (Dec. 18, 2017), https://www.ftc.gov/news-events/press-
releases/2017/12/ftc-releases-fy-2017-national-do-not-call-registry-data-book-dnc.
24. Like most other leading newspapers, The New York Times has been writing and
reporting on the exploding number of robocall complaints filed by consumers and widespread
consumer outrage about illegal telemarketing. Gail Collins, Let’s Destroy Robocalls, N.Y. Times
(Mar. 1, 2019), https://www.nytimes.com/2019/03/01/opinion/robocall-scams.html; Tara Siegel
Bernard, Yes, It’s Bad. Robocalls, and Their Scams, Are Surging, N.Y. Times (May 6, 2018),
https://www.nytimes.com/2018/05/06/your-money/robocalls-rise-illegal.html.
25. An Emmy-winning journalist recently observed: “Everybody is annoyed by robocalls.
Hatred of them might be the only thing that everyone in America agrees on now.” Robocalls,
Last Week Tonight with John Oliver (HBO Mar. 10, 2019), available at
https://www.youtube.com/watch?v=FO0iG_P0P6M.
26. The harm from of illegal robocalls is “is at least $3 billion per year from lost time
alone.” Babette Boliek & Eric Burger, Beating Back Unwanted Robocalls, FCC (June 5, 2019),
https://www.fcc.gov/news-events/blog/2019/06/05/beating-back-unwanted-robocalls (statement
of FCC Chief Economist and FCC Chief Technology Officer).
27. In fact, the wasted hours exceed such time lost outright, because “little surges of the
stress hormone cortisol” from interruptions from smartphones result in elevated heart rates,
sweaty hands, tightened muscles, anxiety, and distraction, a “switch cost” that weighs on a
person even after the interruption ends, reducing his or her efficiency by 40%. Stephanie Stahl,
Constant Interruptions From Smartphone Can Impact Brain Chemistry, Scientists Say, CBS
- 5 -
COMPL.
Philly (May 29, 2018), https://philadelphia.cbslocal.com/2018/05/29/scientists-constant-
interruptions-smartphone-impact-brain-chemistry/.
28. Robocalls are overwhelming hospitals and patients, threatening a new kind of health
crisis. Tony Romm, Robocalls Are Overwhelming Hospitals and Patients, Threatening a New
Kind of Health Crisis, Wash. Post (June 17, 2019),
https://www.washingtonpost.com/technology/2019/06/17/robocalls-are-overwhelming-hospitals-
patients-threatening-new-kind-health-crisis/.
C.
SelectQuote’s Automated, Nonconsensual Telemarketing
29. SelectQuote sells insurance, including term life insurance.
30. Some of its marketing strategies involve an ATDS.
31. SelectQuote uses equipment that has the capacity—(1) to store numbers to be called
or (2) to produce numbers to be called, using a random or sequential number generator—and to
dial such numbers automatically (even if the system must be turned on or triggered by a person).
32. SelectQuote calls numbers even though they are assigned to cellular telephone
services.
33. SelectQuote calls numbers even though they are listed on the NDNCR.
34. Recipients of these calls, including Plaintiff, had not consented to receive them.
35. Recipients of these calls, including Plaintiff, had not provided prior express written
consent to receive them.
36. SelectQuote’s calls were not necessitated by an emergency.
37. SelectQuote’s calls were made to numbers within the United States.
38. Violating the TCPA is profitable for SelectQuote.
D.
Defendant’s Unsolicited, Automated Telemarketing to Mr. Naiman
39. Mr. Naiman is, and at all times mentioned herein was, a “person” as defined by
47 U.S.C. § 153(39).
40. He is the user of a phone number that begins “(925) 735” (the “Naiman Phone
Number”). All calls to him referenced herein were to the Naiman Phone Number.
41. The Naiman Phone Number is assigned to a cellular telephone service.
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COMPL.
42. It has been listed on the NDNCR since April 11, 2004.
43. Mr. Naiman never consented to receive calls from SelectQuote.
44. He never gave the Naiman Phone Number to SelectQuote before the call at issue.
45. He never did business with SelectQuote.
46. SelectQuote called the Naiman Phone Number on May 29, 2019.
47. When Plaintiff answered that call, there was a long pause on the other end.
48. During that pause, Plaintiff said “Hello?” several times.
49. After the pause, Plaintiff heard a clicking sound.
50. The pause and click indicated that the call had been autodialed.
51. Eventually, a human came on the calling party’s end of the line.
52. During the call, Plaintiff alleged that the call had been autodialed. The human did not
dispute Plaintiff’s allegation.
53. Autodialing is a common practice in insurance sales.
54. The purpose of the call was to sell insurance in order to generate revenue for
SelectQuote.
55. During the call, SelectQuote promoted itself several times to try to get Plaintiff to buy
its services.
56. Confirming the call was from or on behalf of SelectQuote, Plaintiff received an e-
mail from SelectQuote on May 29, 2019.
57. The e-mail was sent from “James.Turner@selectquote.com.”
58. James Turner is an employee of Defendant.
59. The caller ID that appeared on the call was (304) 896-0957.
60. At least 30 other people have complained of receiving unsolicited calls,
telemarketing, or nuisance calls from (304) 896-0957:
Phone number 3048960957 has negative rating. 30 users rated it
as negative. Approximated caller location is LOGAN, LOGAN,
West Virginia. ZIP code is 25601. It’s registered in LEVEL 3
COMMUNICATIONS, LLC - WV. This phone number is mostly
categorized as Unsolicited call (23 times), Telemarketer (4
times) and Nuisance call (2 times).
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COMPL.
Who Called You from 3048960957?, Should I Answer?, https://www.shouldianswer.com/phone-
number/3048960957 (last visited July 18, 2019).
61. Whitepages has receive 58 reports of “spam” calls from (304) 896-0957. Scam or
Fraud, Whitepages, https://www.whitepages.com/phone/1-304-896-0957 (last visited July 18,
E.
The Invasion of Privacy Caused by Defendant’s Automated Telemarketing
62. Before directing its automated telemarketing to him, Defendant never did anything to
confirm that Plaintiff had provided prior express written consent to its telemarketing.
63. The conduct alleged herein:
a.
invaded Plaintiff’s privacy and solitude;
b.
interrupted Plaintiff’s train of thought;
c.
wasted Plaintiff’s time;
d.
annoyed Plaintiff;
e.
harassed Plaintiff; and
f.
consumed the battery life of Plaintiff’s cellular telephone.
V.
CLASS ACTION ALLEGATIONS
64. Class Definition: Pursuant to Federal Rule of Civil Procedure 23(b)(2) and (b)(3),
Plaintiff brings this case on behalf of a class defined as follows: All persons in the United States
to whom:
a.
Defendant and/or a third party acting on its behalf made a call or sent a
text message;
b.
to a cellular telephone number;
c.
using an ATDS or an artificial or prerecorded voice;
d.
between the date four years before the filing of the original complaint in
this case and the first day of trial.
65. Plaintiff is a member and proposed representative of the class.
66. Exclusions: Excluded from the class are Defendant, any entity in which Defendant
has a controlling interest or that has a controlling interest in Defendant, Defendant’s legal
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COMPL.
representatives, assignees, and successors, the judges to whom this case is assigned and the
employees and immediate family members of all of the foregoing.
67. Numerosity: The class is so numerous that joinder of all its members is impracticable.
68. SelectQuote claims to be the largest seller of term life insurance in the United States.
69. Sending a robotext or placing a robocall costs less than one cent.
70. Defendant could afford to, and did, send thousands of robocalls.
71. Commonality: There are many questions of law and fact common to Plaintiff and
class members. Indeed, the very feature that makes Defendant’s conduct so annoying—its
automated nature—makes this dispute amenable to classwide resolution. These common
questions of law and fact include, but are not limited to, the following:
a.
whether the calls were dialed en masse by an ATDS;
b.
whether Defendant’s desire to sell insurance constitutes an “emergency”
within the meaning of the TCPA;
c.
whether Defendant is in the United States;
d.
whether Defendant had a pattern and practice of failing to obtain prior
express written consent from people to whom it directed telemarketing;
e.
whether Defendant had a pattern and practice of failing to remove cellular
telephone numbers from their telemarketing lists;
f.
whether Defendant had a pattern and practice of failing to remove
numbers on the NDNCR from its telemarketing lists;
g.
whether Defendant’s violations of the TCPA were knowing or willful; and
h.
whether Defendant should be enjoined from continuing to robocall and
telemarket to people in violation of the TCPA.
72. Typicality: Plaintiff’s claims are typical of the claims of the class. Plaintiff’s claims
and those of the class arise out of the same automated telemarketing by Defendant and seek the
same legal and equitable remedies.
73. Adequacy: Plaintiff will fairly and adequately protect the interests of the class.
Plaintiff has retained competent and capable counsel experienced in TCPA class action litigation.
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COMPL.
Plaintiff and his counsel are committed to prosecuting this action vigorously on behalf of the
class and have the financial resources to do so. The interests of Plaintiff and his counsel are
aligned with those of the proposed class.
74. Superiority: The foregoing common issues predominate over any individual issues,
making a class action the superior means of resolution. Adjudication of these common issues in a
single action has important advantages, including judicial economy, efficiency for class members
and classwide res judicata for Defendant. Classwide relief is essential to compel Defendant to
comply with the TCPA.
a.
Control: The interest of individual members of the class in individually
controlling the prosecution of separate claims against Defendant is small because the damages in
an individual action (up to $1,500 per TCPA violation) are dwarfed by the cost of prosecution.
b.
Forum: The forum is a desirable, efficient location in which to resolve the
dispute because SelectQuote is headquartered in it.
c.
Difficulties: No significant difficulty is anticipated in the management of
this case as a class action. Management of the claims at issue is likely to present significantly
fewer difficulties than are presented in many class actions because the calls at issue are
automated (and thus uniform) and because the TCPA articulates bright-line standards for liability
and damages.
75. Appropriateness: Defendant has acted on grounds generally applicable to the class,
thereby making final injunctive relief and corresponding declaratory relief appropriate on a
classwide basis.
VI.
FIRST CLAIM FOR RELIEF
(Violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1))
On Behalf of Plaintiff and the Class
76. Plaintiff realleges and incorporates by reference each and every allegation set forth in
the preceding paragraphs.
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COMPL.
77. Defendant violated the TCPA, 47 U.S.C. § 227(b)(1), by placing non-emergency calls
to the cellular telephone numbers of Plaintiff and members of the class using an ATDS and/or
artificial or prerecorded voice without prior express written consent.
78. Plaintiff and class members are entitled to an award of $500 in damages for each such
violation. 47 U.S.C. § 227(b)(3)(B).
79. Plaintiff and class members are entitled to and seek an injunction prohibiting
Defendant and all other persons who are in active concert or participation with it from violating
the TCPA, 47 U.S.C. § 227(b)(1), by placing non-emergency calls to any cellular telephone
number using an ATDS and/or artificial or prerecorded voice.
VII.
SECOND CLAIM FOR RELIEF
(Knowing and/or Willful Violations of the Telephone Consumer Protection Act, 47 U.S.C. §
227(b)(1))
On Behalf of Plaintiff and the Class
80. Plaintiff realleges and incorporates by reference each and every allegation set forth in
the preceding paragraphs.
81. Defendant knowingly and/or willfully violated the TCPA, 47 U.S.C. § 227(b)(1), by
placing non-emergency calls to the cellular telephone numbers of Plaintiff and members of the
class using an ATDS and/or artificial or prerecorded voice without prior express written consent.
82. Plaintiff and class members are entitled to an award of up to $1,500 in damages for
each such knowing and/or willful violation. 47 U.S.C. § 227(b)(3).
VIII.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on his own behalf and on behalf of all class members, prays for
judgment against Defendant as follows:
A.
Certification of the proposed class;
B.
Appointment of Plaintiff as representative of the class;
C.
Appointment of the undersigned counsel as counsel for the class;
D.
A declaration that actions complained of herein violate the TCPA;
E.
An order enjoining Defendant and all other persons who are in active concert or
participation with it from engaging in the conduct set forth herein;
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COMPL.
F.
An award to Plaintiff and the class of damages, as allowed by law;
G.
An award to Plaintiff and the class of costs and attorneys’ fees, as allowed by law,
equity and/or California Code of Civil Procedure section 1021.5;
H.
Leave to amend this complaint to conform to the evidence presented at trial; and
I.
Orders granting such other and further relief as the Court deems necessary, just,
and proper.
IX.
DEMAND FOR JURY
Plaintiff demands a trial by jury for all issues so triable.
X.
SIGNATURE ATTESTATION
The CM/ECF user filing this paper attests that concurrence in its filing has been obtained
from its other signatories.
RESPECTFULLY SUBMITTED AND DATED on August 15, 2019.
By: /s/ Jon B. Fougner
Jon B. Fougner
Anthony I. Paronich, Pro Hac Vice Forthcoming
anthony@paronichlaw.com
PARONICH LAW, P.C.
350 Lincoln Street, Suite 2400
Hingham, Massachusetts 02043
Telephone: (617) 738-7080
Facsimile: (617) 830-0327
Edward A. Broderick, Pro Hac Vice
Forthcoming
ted@broderick-law.com
BRODERICK LAW, P.C.
99 High Street, Suite 304
Boston, Massachusetts 02110
Telephone: (617) 738-7080
Facsimile: (617) 830-0327
Matthew P. McCue, Pro Hac Vice Forthcoming
mmccue@massattorneys.net
THE LAW OFFICE OF MATTHEW P. McCUE
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COMPL.
1 South Avenue, Suite 3
Natick, Massachusetts 01760
Telephone: (508) 655-1415
Facsimile: (508) 319-3077
Andrew W. Heidarpour, Pro Hac Vice
Forthcoming
aheidarpour@hlfirm.com
HEIDARPOUR LAW FIRM, PPC
1300 Pennsylvania Avenue NW, 190-318
Washington, DC 20004
Telephone: (202) 234-2727
Attorneys for Plaintiff Sidney Naiman and the
Proposed Class
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COMPL.
| privacy |
80ZP_YgBF5pVm5zYuCyx | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
HEATHER HAUPTMAN, AND TIMOTHY
MOSS, individually and on behalf of others
similarly situated,
Civil No. 17-cv-9382
CORRECTED
Plaintiffs,
CLASS ACTION COMPLAINT
v.
INTERACTIVE BROKERS, LLC,
Defendant.
Jury Trial Demanded
Plaintiffs Timothy Moss and Heather Hauptman (“Plaintiffs”), individually and on behalf
of all others similarly situated, allege on personal knowledge, investigation of their counsel, and
on information and belief, as follows:
NATURE OF ACTION
1.
Plaintiffs bring this action for breach of contract, promissory estoppel, negligence,
breach of the covenant of good faith and fair dealing, unjust enrichment, and declaratory relief,
seeking legal and equitable remedies, resulting from the unlawful actions of Interactive Brokers,
LLC (hereinafter referred to as “IB” or “Defendant”), in connection with IB’s improper
administration of their Portfolio Margin Accounts and the Portfolio Margin Accounts of all other
similarly situated investors.
2.
“Portfolio margin” is a relatively new type of investment lending that employs a
complex methodology for calculating margin requirements and generally allows for the use of
higher leverage than standard “strategy-based” margin lending (commonly referred to as
“Regulation T” margin lending). The U.S. Securities and Exchange Commission (“SEC”) and the
regulatory predecessor to the Financial Industry Regulatory Authority (“FINRA”) 1 amended
FINRA Rule 4210 in 2007 to allow, for certain types of securities, portfolio margin trading in retail
customer accounts. Specifically, and as explained in detail herein, Rule 4210(g) provides that
broker-dealers may use portfolio margin to calculate margin requirements using a “risk-based”
model, only in relation to specifically enumerated security types. This risk-based approach results
in margin requirements that account for “offsetting” or “hedged” positions, and thus allows for
potentially greater leverage to be utilized in an account. With the potential for substantially greater
leverage and the use of complex mathematical calculations to determine the margin requirements,
however, the potential risk to the investor in a Portfolio Margin Account can also be substantially
greater.
3.
In light of the increased potential risks to the investor associated with portfolio
margin trading, the SEC and FINRA promulgated clear and explicit rules regarding which
securities may be properly considered under a “risk-based” model for purposes of determining
margin requirements in Portfolio Margin Accounts. FINRA rules limit portfolio margin eligibility
to specific investment product categories, such as equity-based securities, and derivatives on
eligible equity securities — like options or warrants on equities.
4.
IB, however, disregarded this rule in administering its customers’ Portfolio Margin
Accounts. Instead, IB provides portfolio margin treatment for Exchange Traded Notes (“ETNs”),
such as the Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures ETN, traded under the
symbol (and more commonly known as) the VXX. ETNs, and the VXX in particular, are not
equities or (derivatives of equities), but instead are unsecured debt instruments. In the case of the
1 FINRA is a self-regulatory organization (“SRO”) for brokerage firms and securities markets, empowered pursuant
to 15 U.S.C. § 78o-3(b). It is the successor in interest to, among other entities, the National Association of Securities
Dealers, Inc. (“NASD”). In its capacity as a regulator, FINRA writes and enforces the rules governing the activities
of the almost 4,000 broker-dealers in the United States, including Defendant IB. See http://www.finra.org/about (last
visited 10/11/2017). Pursuant to 15 U.S.C. § 78s, FINRA’s rules are reviewed and approved by the SEC.
VXX, for example, there is no equity position supporting the security. Instead, the value of the
VXX is designed to track the movement of futures on an index that measures overall market
volatility. As unsecured debt instruments that do not represent ownership of any underlying asset,
ETNs – like the VXX – are not among the approved list of investment products eligible for
portfolio margin.
5.
IB was informed directly and on several occasions, by both FINRA regulators and
the Options Clearing Corporation (the “OCC”), that unsecured debt instruments such as the VXX
are ineligible for portfolio margin and risk-based margining treatment. By continuing to provide
portfolio margin’s risk-based margining treatment for open positions in ETNs and options on
ETNs – such as the VXX – IB knowingly violated FINRA rules to its customers’ detriment, and
knowingly breached its contractual agreements with its customers which obligated IB to follow
FINRA rules and other industry regulations.
6.
Additionally, the disclosure form required by FINRA and provided by IB to its
customers specifically lists each category of investment product that may be included for purposes
of calculating portfolio margin requirements. ETNs are absent from that disclosure form.
7.
The FINRA rule restricting portfolio margining to only certain types of products is
important. As FINRA informed IB, regulators promulgated Rule 4210(g) to exclude ETNs, such
as the VXX, because the inherent risks associated with ETNs make them inappropriate for risk-
based margin treatment. By including these inappropriate financial products in risk-based margin
calculations, IB exposed its customers to the same excessive investment risk that FINRA rules,
which the SEC formally approved, were designed to avoid.
8.
Furthermore, through its disclosures and other communications, IB informed its
clients that ETNs would not be afforded portfolio margin treatment. Yet, IB violated FINRA rules,
ignored its own disclosures and exposed its customers to the very risks regulators sought to avoid
when they approved the FINRA rules that IB agreed to follow. Unfortunately, these risks
materialized. For example, Plaintiffs and other similarly-situated persons experienced a “blow
out” (margin trading losses due to forced liquidation of positions) when the Dow Jones Industrial
Average suddenly dropped by over 1,000 points on August 24, 2015, causing a spike in the VXX,
as is more specifically recounted herein.
9.
By way of this class action lawsuit, Plaintiffs seek to vindicate the rights of
themselves and all similarly-situated persons who had Portfolio Margin Accounts with IB at any
time from December 1, 2011, through the date of judgment herein, in which portfolio margin
treatment was applied to positions in or options on ETNs (“the putative Class”).
JURISDICTION AND VENUE
10.
This Court has subject matter jurisdiction pursuant to the Class Action Fairness Act
of 2005 (“CAFA”) codified as 28 U.S.C. § 1332(d)(2). The matter in controversy exceeds
$5,000,000, in the aggregate, exclusive of interest and costs.
11.
This Court has jurisdiction over IB because IB does substantial business in this
District. Furthermore, IB consented to this Court’s jurisdiction pursuant to the Interactive Brokers
LLC Customer Agreement (“Customer Agreement”) (attached hereto as Exhibit 1) between itself
and Plaintiffs. Under the Customer Agreement (in ¶ 32), all disputes between IB and its customers
are “governed by the laws of the State of New York” and the “Courts of New York have exclusive
jurisdiction over disputes relating to this Agreement, except when arbitration is provided.”
12.
Venue is proper in the United States District Court for the Southern District of New
York under 28 U.S.C. §§ 1391(b) and (c) because a substantial part of the events or omissions
giving rise to the claims asserted occurred in this District, and Defendant is deemed to reside in
any judicial district in which it is subject to personal jurisdiction at the time the action is
commenced. Also, as alleged above, the Customer Agreement provides that the Courts of New
York are the exclusive venue for any disputes arising under that Agreement.
PARTIES
13.
Plaintiff Timothy Moss is, and was at all times mentioned herein, an individual
citizen of the State of Colorado, and currently resides in that state.
14.
Plaintiff Heather Hauptman is, and was at all times mentioned herein, an individual
citizen of the State of Colorado, and currently resides in Argentina.
15.
Defendant Interactive Brokers, LLC is a Connecticut corporation with its
headquarters and principal place of business in Greenwich, Connecticut.
FACTUAL ALLEGATIONS
Margin Trading and Portfolio Margin Accounts
16.
Margin trading is a practice by which investors are able to leverage their existing
portfolio of securities and cash in order to purchase or sell additional securities. In non-margin
trading, the maximum risk of loss to the investor in any particular position is the amount of money
put into the account to purchase that position. In margin trading, the investor risks the principal,
in addition to any money loaned by the broker-dealer.
17.
In light of this risk, margin trading is subject to FINRA rules and requirements
designed to protect investors and the public interest.2 In particular, all margin accounts have a
“margin requirement,” which represents the minimum equity value that must be in the account at
2 The statutory basis for the promulgation of FINRA Rule 4210(g) explains that, “FINRA believes that the
proposed rule change is consistent with the provisions of Section 15(A)(b)(6), which requires, among other
things, that the FINRA rules must be designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, and in general to protect investors and the public
interests.” Securities and Exchange Commission, SR-2008-041 at 5 (emphasis added).
any time to serve as collateral. For example, a margin requirement of 50% means that a
hypothetical investor must maintain equity in the margin account equal to 50% of the total value
of the assets in the portfolio.
18.
If the account falls below the margin requirement, the broker-dealer or other
financial institution administering the account may issue a “margin call.” When a margin call is
issued, the investor must put additional capital into the account to bring it up to the margin
requirement, liquidate positions and turn the proceeds over to the broker-dealer to retire a portion
of the margin debt, or some combination of the two.
19.
Margin requirements are designed to control and manage the risk of margin trading.
The higher the ratio between account value and the amount of the portfolio financed by the
financial institution, the lower the risk that an investor will be forced to “pay out of pocket” to
make the financial institution whole in the event of a decline in the value of the financial
instruments that comprise the account. Correspondingly, the lower the margin requirement, the
greater the risk that the investor will suffer a large loss in the event of a decline in value of the
positions that make up the account. As such, the margin requirement represents an assessment of
the acceptable amount of risk allowed under regulations for positions in a margin account.
20.
Portfolio margining is a relatively new methodology for determining margin
requirements and was authorized by the SEC and FINRA (f/k/a the NASD) in 2007 for use by
retail investors. Portfolio margin differs from traditional margin by virtue of the manner in which
the margin requirement is calculated. Under traditional “strategy-based” or “Regulation T”
margining, the margin requirement is typically determined by a formula that is a function of the
size and market price of each position. Portfolio Margin requirements differ from Regulation T
margining in that they are calculated using a complex statistical model that assesses the potential
volatility of each security, and then measures the potential impact of various price movements on
a portfolio as a whole. The calculations that inform Portfolio Margin requirements are created
according to a methodology known as the Theoretical Intermarket Margining System (“TIMS
model”), and the data from the TIMS model is distributed to broker-dealers by the OCC after the
close of trading on each trading day. Broker-dealers then apply the data from the TIMS model to
their customers’ Portfolio Margin positions to determine each customer’s Portfolio Margin
requirement. The margin requirement determined according to the TIMS model reflects the
regulatory minimum for Portfolio Margin Accounts.
21.
One of the primary ways that the portfolio margin model differs from the traditional
model is by considering the risk of “hedged” positions. Hedged positions are two or more
securities that normally react in an offsetting manner according to market movements, and are
generally designed to reduce risk.
22.
Because Portfolio Margin requirements are calculated in a manner that assesses the
relative risk profile of a particular portfolio (at least in theory), Portfolio Margin Accounts that are
“hedged” allow for a level of leverage to the account holder that is potentially far greater than
would be available under a standard strategy-based margin model. For instance, on information
and belief, IB allows the gross position value of a Portfolio Margin Account to reach as high as 50
times the net liquidating value, or equity, of the account.
FINRA Regulations of Portfolio Margin Trading
23.
Margin trading is governed by FINRA Rule 4210. As discussed above, FINRA,
with the approval of the SEC, amended Rule 4210 in 2007 to authorize Portfolio Margin
trading.3 FINRA Rule 4210(g) specifically governs Portfolio Margin. The SEC and FINRA
3 Portfolio Margin began as a pilot program under the NASD on April 2, 2007, and the SEC allowed
FINRA to make portfolio margin permanent in 2008.
designated which securities may be afforded portfolio margin or “risk-based” margin treatment.
Rule 4210(g)(6)(B)(i) delineates precisely what types of financial products are eligible for
Portfolio Margin treatment. Specifically:
For eligible participants . . ., a transaction in, or transfer of, an eligible product may
be effected in the portfolio margin account. Eligible products under this paragraph
(g) consist of:
a. a margin equity security (including a foreign equity security and option
on a foreign equity security, provided the foreign equity security is
deemed to have a “ready market” under SEA Rule 15c3-1 or a “no-action”
position issued thereunder, and a control or restricted security, provided
the security has met the requirements in a manner consistent with
Securities Act Rule 144 or an SEC “no-action” position issued
thereunder, sufficient enough to permit the sale of the security, upon
exercise or assignment of any listed option or unlisted derivative written
or held against it, without restriction);
b. a listed option on an equity security or index of equity securities;
c. a security futures product;
d. an unlisted derivative on an equity security or index of equity securities;
e. a warrant on an equity security or index of equity securities;
f. a related instrument as defined in paragraph (g)(2)(D) [i.e., as “broad-
based index futures and options on broad-based index futures covering the
same underlying instrument.”]4
24.
FINRA has issued further guidance on the types of financial products to be
considered when calculating portfolio margin requirements, reinforcing that:
All margin equity securities (as defined in Section 220.2 of Regulation T of the
Board of Governors of the Federal Reserve System), warrants on margin equity
securities or on eligible indices of equity securities, equity-based or equity-index
based listed options, and security futures products (as defined in Section 3(a)(56)
of the Securities Exchange Act of 1934) are eligible to be margined in a portfolio
margin account. In addition, a customer that has an account with equity of at least
five million dollars may establish and maintain positions in unlisted derivatives
(e.g., OTC swaps, options) on a margin equity security or an eligible index of equity
4 FINRA Rule 4210 (g)(6)(B)(i) (emphases added).
Footnote continued on next page
securities that can be priced by a theoretical pricing model approved by the
Securities and Exchange Commission (“SEC”).5
25.
In sum, FINRA Rule 4210(g)(6)(B) and associated guidance stands for the
proposition that only equity securities, and options or derivative products derived from equity
securities or equity-based indices, are eligible for treatment under the portfolio margin
methodology. The margin requirement for products ineligible for portfolio margin, such as ETNs,
must be calculated according to the far more restrictive Regulation T requirements.
Exchange Traded Notes
26.
An ETN is not an equity security, but rather an unsecured debt instrument traded
on the major stock exchanges. ETNs function in some respects like a promissory note — the
investor pays money to the financial institution issuing the ETN, and upon maturity, the investor
receives a payment of money in return. But unlike a traditional promissory note, which regularly
pays a fixed amount upon maturity plus interest, the value of ETN upon maturity is pegged to a
particular market index and subject to the creditworthiness of the issuer of the note. Therefore, an
ETN is an investment on the future state of the market, or a particular aspect of the market, at the
time the ETN matures, as well as a stake on the ability of the issuing bank to avoid defaulting on
the note prior to maturity.
27.
An example of an ETN is the Barclays Bank PLC iPath S&P 500 VIX Short-Term
Futures ETN, traded under the stock symbol VXX. The VXX is tied to a spread of short-term
futures contracts related to the CBOE Volatility Index (ticker symbol VIX), a popular measure of
the implied volatility of the S&P 500 index. The CBOE Volatility Index represents one measure
of the market’s expectation of stock market volatility over the next 30-day period.
5 FINRA Regulatory Notice 08-09 (herein after referred to as “FINRA NTM 08-09”) (March 14, 2008)
(emphases added).
28.
In short, the VXX note is derived from futures contracts on the VIX index, which
in turn are derived from the VIX index, which in turn is derived from an indexed calculation of
the volatility of the market as a whole, which in turn is derived from the action of individual
equities in the market. The structure of the VXX means that fluctuations in the broader securities
market have a disproportionately large impact on the VXX. Because the VXX, like all ETNs, is
securitized and traded on an exchange, the price of VXX notes move on a continuous basis in
response to changes in market conditions.
29.
The VXX and other ETNs are not eligible products for portfolio margin treatment,
according to FINRA Rule 4210(g)(6)(B). In contrast ETNs are debt instruments, in which the
issuing financial institution owes a debt to the holder of the note. The FINRA rule limits Portfolio
Margin treatment to equity-based securities; debt instruments such as the VXX note and options
on VXX notes are ineligible for Portfolio Margin treatment.
30.
FINRA has made it clear to brokers (including, specifically, IB) that ETNs are not
eligible for consideration in calculating Portfolio Margin requirements. In an email to David
Battan, General Counsel and Executive Vice President of IB, Steve Yannolo from FINRA Credit
Regulation stated: “[i]t was recently brought to our attention that the OCC is providing P/L for
ETNs. Since these are debt instruments, they are ineligible for portfolio margin.” This was
reiterated in a follow-up email to Mr. Battan and other IB employees from Mr. Yannolo the
following day that states “because of the[ir] inherent risk,” ETN products (such as the VXX)
“should not get a risk-based treatment, as they are debt products and not eligible for portfolio
margin.” Instead, Yannolo explained FINRA “expect[ed] firms” such as IB “to apply higher
strategy-based margin requirements” to such products. Additionally, in a prior proceeding, IB’s
own expert witness, the FINRA Managing Director of Credit Regulation and co-author of FINRA
NTM 08-09, testified that ETNs do not fit the definition of “Eligible Investments” for Portfolio
Margin under SEC approved FINRA rules or IB’s own Portfolio Margin Disclosure.6
IB’S Administration of Portfolio Margin Accounts
31.
Interactive Brokers, LLC, is the largest subsidiary of the publicly traded company
Interactive Brokers Group, Inc. IB is an electronic-only broker-dealer and trading platform and is
one of the largest such entities in the United States. IB is regulated by FINRA and subject to
FINRA rules.
32.
When a customer opens an account with IB to engage in trades, he or she agrees to
the “Interactive Brokers LLC Customer Agreement,” which provides in part: “All transactions
are subject to rules and policies of relevant markets and clearinghouses, and applicable laws
and regulations.”7 This provision contractually obligates IB to conduct trades on the basis of
“applicable laws and regulations,” which includes relevant FINRA rules.
33.
In addition, under the section labeled “Margin,” the Customer Agreement states
that “[m]argin transactions are subject to initial and maintenance margin requirements of
exchanges, clearinghouses and regulators and also to any additional margin requirement of IB,
which may be greater.”8 Thus, once again, the Customer Agreement contractually obligates IB to
conduct margin transactions in accordance with the margin requirements of regulators such as
FINRA.
6 In sworn testimony in FINRA Case No. 15-03035, Rudolph Verra, the FINRA Managing Director of
Credit Regulation through December of 2013 previously testified to the following:
Q: And do you see there where it says positions eligible for a portfolio margin accounts”?
A. (Verra): Yes, I do.
Q. I just want to make sure we are clear.
A. (Verra): Uh-Huh.
Q. Do ETNs, Exchange Traded notes, fit any category there in paragraph 4 [of FINRA NTM 08-09]?
A. (Verra): No.
7 Ex. 1 at ¶ 6 (emphasis added).
8 Id. at ¶ 11(B) (emphasis added).
Footnote continued on next page
34.
Finally, that same section of the Customer Agreement states that the “[c]ustomer
represents that he or she has read the ‘Disclosure of Risks of Margin Trading’ provided separately
by IB.”9 The “Portfolio Margin Risk Disclosure Statement,”10 describes the limitations governing
which positions in an account may be subject to Portfolio Margin calculations. Specifically, under
“Positions Eligible for a Portfolio Margin Account,” the disclosure states:
All margin equity securities (as defined in Section 220.2 of Regulation T of the
Board of Governors of the Federal Reserve System), warrants on margin equity
securities or on eligible indices of equity securities, equity-based or equity-index
based listed options, and security futures products (as defined in Section 3(a)(56)
of the Securities Exchange Act of 1934) are eligible to be margined in a portfolio
margin account. In addition, a customer that has an account with equity of at least
five million dollars may establish and maintain positions in unlisted derivatives
(e.g., OTC swaps, options) on a margin equity security or an eligible index of
equity securities that can be priced by a theoretical pricing model approved by the
Securities and Exchange Commission (“SEC”).11
35.
The language in the disclosure is a word-for-word copy of the FINRA NTM 08-09,
the regulatory guidance interpreting FINRA Rule 4210. As such, IB’s Portfolio Margin Risk
Disclosure Statement warrants and represents that all transactions will be conducted in accordance
with FINRA’s Portfolio Margin requirement calculation guidelines, and explicitly lists the only
securities eligible to receive portfolio margin treatment. Unsecured debt securities, like ETNs, are
not included.
36.
Additionally, in or around April 2014, IB published on its website a notice stating
that ETNs were not eligible for Portfolio Margin treatment, and that IB would not provide Portfolio
Margin for ETNs, including, but not limited to, the VXX.12 Such notice remained on IB’s website
until January 2016.
9 Id. at ¶ 11(A).
10 See Ex. 2.
11 Id. at ¶ 4.
12 See Ex. 3.
37.
It turns out, however, that during the Class Period, IB calculated the margin
requirement for ETNs in its customers’ Portfolio Margin Accounts in a manner that applies risk-
based margin requirements, despite the fact that by IB’s own admission ETNs are not eligible for
Portfolio Margining. As such, IB is acting in a manner directly contrary to its Customer
Agreement, its own disclosures, and FINRA regulations that IB is contractually obligated to
38.
As stated above, FINRA specifically informed IB in early 2014 that ETNs were not
eligible for Portfolio Margin treatment. As a result, IB was unquestionably aware in early 2014
that it was administering its accounts in a manner inconsistent with the Customer Agreement, its
own disclosures, and FINRA regulations. Nevertheless, IB continued to include ETNs in its
calculations of Portfolio Margin requirements even after being informed that the practice violated
FINRA Rule 4210. On information and belief, IB continues to include ETNs in the calculation of
Portfolio Margin requirements as of the date of this filing.
Losses Suffered Because of IB’S Wrongful Conduct
39.
Margin trading functions similarly to a line of credit extended by the broker-dealer
to the customer. Just as a reduction in the value of a mortgaged home reduces the equity in the
home, but not the amount owed on the mortgage, a loss in the value of the financial products in a
margin account reduces the value of the customer’s collateral in the account. This can result in a
negative equity situation (i.e., the loan against the account is more than the value of the positions
in the account). Further, because of the use of leverage through margin, losses accumulate more
rapidly. In the case of investments that are made pursuant to Portfolio Margin, because of the
substantially higher leverage provided, a small move in market prices can result in massive losses
(or gains) in an account.
40.
Both the traditional strategy-based margin requirements, but especially the newer
risk-based margin requirements, are based on complex formulas and models which can vary from
security to security. IB customers rely on IB’s trading interface and the calculations IB’s systems
perform in order to determine the margin requirements and margin compliance of the customer’s
portfolio. In fact, because of the complexity associated with margin calculations, especially
portfolio margin calculations, IB’s customers are wholly reliant on IB to report the margin
requirements to them. Likewise, IB prides itself on its sophisticated trading interface and publicly
touts that its trading software offers traders a superior platform for monitoring risk and executing
trades.
41.
Because IB customers are reliant upon IB to calculate the margin requirements for
their portfolios, and because IB applies the incorrect margin calculations for ETNs in a Portfolio
Margin Account, IB allows and executes margin trades that are not permitted by FINRA
regulations and the Customer Agreement. Furthermore, these improper trades greatly increase the
risk to IB’s clients. In addition to the increase in risks, the additional leverage afforded by IB
increases the commissions, interest and fees assessed to its portfolio margin customers. Because
IB knowingly violated industry rules in allowing trades, any losses from those trades are directly
attributable to IB’s violation.
Facts Relating to Named Plaintiffs
42.
Heather Hauptman is a long-time resident of Colorado who currently lives in
Argentina. Ms. Hauptman engaged the services of a financial advisory firm, Meridian Capital
Advisors, LLC (“Meridian”), and provided them with discretionary authority over her
investments.13
13 A discretionary account allows a financial advisor to make trades in an investor’s account without prior
approval or authorization from the investor for any trading.
43.
On or about June 19, 2015, Ms. Hauptman, at the recommendation of her financial
advisor, opened an account with IB and signed the Customer Agreement. That same day, she
signed the Portfolio Margin Risk Disclosure Statement. See Exhibits 1 and 2.
44.
Ms. Hauptman’s account included VXX positions. Unbeknownst to Ms. Hauptman,
IB immediately began to improperly apply Portfolio Margin treatment to her VXX positions.
Meridian maintained and traded positions in the VXX in Ms. Hauptman’s Portfolio Margin
Account for approximately three months. For example, on August 21, 2015, Meridian sold 125
call options on the VXX and purchased 125 put options on the VXX in Ms. Hauptman’s account.14
By selling calls and buying puts on the VXX, Meridian was taking a “short” position in the VXX.
If the price of the VXX dropped or stayed the same prior to expiration of the contracts, Ms.
Hauptman would benefit in two ways: (1) the call options would expire worthless, allowing Ms.
Hauptman to keep the premium collected from the sale of those options; and (2) the put options
would benefit from an increase in value. If the price of the VXX rose, however, then Ms.
Hauptman would be required to deliver notes of the VXX to the buyer of the call options and
would lose 100% of the funds used to purchase the put options. Moreover, Ms. Hauptman would
be required to purchase VXX notes on the open market and deliver them to the buyer of the call
options. In such a case, Ms. Hauptman’s loss would be the difference between the market price at
which she was forced to purchase the VXX notes, and the “strike” price of the option. Meridian’s
VXX option trades on August 21, 2015 hinged on the expectation that the VXX price would fall.
45.
Ms. Hauptman’s trades in the VXX options occurred in her Portfolio Margin
Account, and IB applied the risk-based margin model (rather than the strategy-based margin
model) to calculate the margin requirements for the ETN positions.
14 Each option contract represents 100 notes of the VXX. Thus, Meridian sold call options on 12,500
VXX notes and bought put options on 12,500 notes of the VXX.
46.
As of the end of day on August 21, 2015, the total value in Ms. Hauptman’s
Portfolio Margin Account was in excess of $200,000.
47.
Timothy Moss is a similarly affected investor. Like Ms. Hauptman, Tim Moss also
engaged Meridian and gave it discretionary authority over his investments. His savings had been
with Meridian since 2011. Outside of his investments managed by Meridian, he had limited
investment experience. As Meridian managed both the Plaintiffs’ accounts, the trading in each of
the accounts was very similar. Like Ms. Hauptman, Meridian was trading the VXX and options,
as well as other securities, on the VXX in Mr. Moss’s account. As in Ms. Hauptman’s account,
IB applied Portfolio Margin requirements to Mr. Moss’s VXX positions.
48.
At the beginning of August of 2015, Mr. Moss’ account held numerous positions
including VXX and options on the VXX. As in Ms. Hauptman’s account, Meridian shorted 128
VXX calls on August 21, 2015. IB calculated the margin requirement for this trade using Portfolio
Margin. At the end of the day on August 21, 2015, the Mr. Moss’ account was valued at
approximately $186,000.
49.
Over the weekend after August 21, 2015, events unfolding in the Asian markets
began to impact the American markets, and U.S. stock futures began to drop. At around 12:00
AM on the morning of August 24, 2015, IB changed the margin requirements, increasing the
margin requirement for the VXX and VXX option positions for all of its clients, including
Plaintiffs.15 When the market opened on August 24, 2015, the Dow index dropped 1,000 points
and the price of the VXX spiked. As a result, the value of Plaintiffs’ Portfolio Margin Accounts
(and those of all similarly situated IB customers) dropped. Further, because IB had so dramatically
15 The exact increase of Plaintiffs’ margin requirement is unknown, but on information and belief, similarly-
situated customers had the margin requirement on VXX short call positions instantaneously increased by
as much as 600%.
increased the Portfolio Margin requirements, many customers were put into a margin deficiency
situation.
50.
In response to the massive increase in the margin requirement, coupled with the
decrease in the account value, from August 25 to August 31, IB force liquidated most of the
positions in Plaintiffs’ accounts, resulting in large losses. In the month of August, Ms. Hauptman’s
account lost over $175,000, primarily as a result of the VXX and VXX option trades that occurred
using Portfolio Margin leverage. Likewise, in the month of August, the Mosses lost around
$150,000, with most of the losses due to VXX and VXX option trades that occurred using portfolio
margin leverage.
51.
This scenario was not unique to Plaintiffs, and, in fact, occurred in many other IB
accounts that week. In a number of cases, the VXX trades and subsequent liquidations resulted in
margin deficiencies. In a twist of irony, IB invoked FINRA Rule 4210 and its portfolio margin
disclosures and customer agreements—the very rule and agreements it breached when it applied
portfolio margin requirements to the VXX—in order to collect on the margin deficiencies from
some of its customers.
52.
Fortunately, in the instant case, IB’s actions did not result in these Plaintiffs owing
a margin debt to IB. Unfortunately, like many IB customers, Plaintiffs saw their accounts lose
most of their value in August 2015 as a direct result of IB’s improper portfolio margining.
53.
In short, having only been customers of IB for less than four months, Plaintiffs
suffered losses equal to approximately 85% of their accounts’ values.
CLASS ACTION ALLEGATIONS
54.
Plaintiffs incorporate by reference all other paragraphs of this Complaint as if fully
stated herein.
55.
Plaintiffs bring this action individually and on behalf of all other persons similarly
situated (hereinafter referred to as “the Class”) pursuant to Federal Rule of Civil Procedure 23.
56.
Plaintiffs propose the following Class definition, subject to amendment as
appropriate:
All persons who held a Portfolio Margin Account with Interactive Brokers, LLC,
containing a position or option in an ETN at any point from December 1, 2011
through the date of judgment, and whose ETN positions received Portfolio Margin
treatment.
Collectively, all these persons will be referred to as “Class members.” Plaintiffs represent, and are
members of, the Class. Excluded from the Class are Defendant, and any entities in which
Defendant has a controlling interest, and Defendant’s agents and employees, and any Judge to
whom this action is assigned and any member of such Judge’s staff and immediate family.
57.
Plaintiffs do not know the exact number of members in the Class, but reasonably
believe that Class members number, at a minimum, to be more than 1,000.
58.
Plaintiffs and members of the Class have been harmed and/or continue to be harmed
by the acts of Defendant.
59.
Plaintiffs seek injunctive and declaratory relief on behalf of themselves and all
Class members, as well as damages in their individual capacity.
60.
The joinder of all Class members is impracticable due to the number of Class
members.
61.
Additionally, the disposition of the claims in a class action will provide substantial
benefit to the parties and the Court by avoiding a multiplicity of identical suits, as well as
inconsistent or varying adjudications with respect to individual Class members that would
establish incompatible standards of conduct for the party opposing the Class.
62.
Further, the Class can be identified easily through records maintained by the
Defendant.
63.
There are well-defined, nearly identical, common questions of law and fact
affecting all parties.
64.
The questions of law and fact, referred to above, involving the class claims
predominate over questions that may affect individual Class members.
65.
Such common questions of law and fact include, but are not limited to, the
following:
a.
Whether positions or options in ETNs qualify for portfolio margin treatment
under FINRA rules;
b.
Whether IB includes positions or options in ETNs in its portfolio margin
calculations;
c.
Whether IB was aware that it was including positions or options in ETNs in
its portfolio margin calculations, in violation of Portfolio Margin rules;
d.
Whether IB breached its Customer Agreement with its customers by
including positions or options in ETNs in its portfolio margin calculations;
e.
Whether Plaintiffs and the Class are entitled to a declaratory judgment that
IB breached its Customer Agreement with its customers by including positions or options in ETNs
in its portfolio margin calculations;
f.
Whether IB promised its customers that it would calculate portfolio margin
requirements in a manner consistent with FINRA rules;
g.
Whether IB’s statement in its Portfolio Margin Risk Disclosure Statement
with regard to how it would calculate portfolio margin requirements constituted a promise made
to its customers;
h.
Whether IB broke its promises to customers by including positions or
options in ETNs in its portfolio margin requirement calculations;
i.
Whether the duty that IB owed to its customers included that IB would
exclude positions or options in ETNs from its portfolio margin calculations;
j.
Whether IB breached that duty by including positions or options in ETNs
in its portfolio margin calculations;
k.
Whether IB breached the covenant of good faith and fair dealing by
including positions or options in ETNs in its portfolio margin calculations;
l.
Whether IB should be enjoined from giving positions or options in ETNs
portfolio margin treatment in the future.
66.
The claims of Plaintiffs are typical of the claims of the Class they seek to represent.
Plaintiffs and other Class members held Portfolio Margin Accounts including positions or options
in ETNs during the Class Period.
67.
Plaintiffs will fairly and adequately represent and protect the interests of the Class.
68.
Plaintiffs have no interests which are antagonistic to any member of the Class.
69.
Plaintiffs have retained counsel experienced in handling class action claims
involving breaches of contract and violations of SEC and/or FINRA rules. Plaintiffs’ counsel are
also experienced in prosecuting the claims of investors against their broker-dealers.
70.
Common issues predominate over any individual issues. The focus of these claims
is on IB’s conduct, which did not vary as between class members. Resolution of these common
questions will drive the claims of all Class members toward judgment or resolution: they involve
a “fatal similarity” for purposes of the claims of all class members.
71.
A class action is the superior method for the fair and efficient adjudication of this
controversy.
72.
Class-wide relief is essential to compel IB to comply with the relevant FINRA rules
regarding Portfolio Margin Accounts, and abide by its contracts and agreements.
73.
Plaintiffs therefore seek certification of the Class pursuant to Rules 23(b)(1)(A),
(b)(2), and (b)(3). Plaintiffs seek certification of a Rule 23(b)(1)(A) class. Adjudicating IB’s
liability for the facts and claims alleged here poses a substantial risk of inconsistent or varying
adjudications with respect to individual class members that would establish incompatible standards
of conduct for IB if a class is not certified.
74.
Plaintiffs seek certification of an injunctive and declaratory relief class pursuant to
Rule 23(b)(2). IB has acted on grounds generally applicable to the Class, and the violations
complained of herein are substantially likely to continue in the future if an injunction is not entered.
Therefore, final injunctive relief and corresponding declaratory relief with respect to the Class as
a whole is appropriate.
75.
Plaintiffs seek certification of a Rule 23(b)(3) class. As detailed above, common
questions regarding IB’s conduct predominate over any individual issues, and a class action is
superior to the alternative of hundreds or thousands of individual cases involving the same core
facts and claims.
76.
In the alternative, Plaintiffs seek certification of an “issues” class pursuant to Rule
23(c)(4). This class would incorporate, and allow for the adjudication of, all issues the Court
adjudges to be common to members of the class and subclass, such as one or more of the common
issues identified by Plaintiffs in ¶ 65, supra.
CAUSES OF ACTION
FIRST COUNT
Breach of Contract
A.
Breach of the Customer Agreement to Abide by applicable Rules and
Regulations
77.
Plaintiffs incorporate by reference the preceding paragraphs of this Complaint as if
fully stated herein.
78.
In order to use the IB trading platform, a potential customer must enter into the
Customer Agreement with IB, which “governs the relationship between Customer and [IB].” Ex.
1, at ¶ 1. Therefore, Plaintiffs and each member of the Class entered into the Customer Agreement
with IB.
79.
The Customer Agreement states that “[a]ll transactions are subject to . . . applicable
laws and regulations.” Id. at ¶ 6.
80.
The “applicable laws and regulations” referenced in paragraph 6 of the Customer
Agreement includes FINRA Rule 4210 regarding the proper calculation of margin requirements
for Portfolio Margin Accounts.
81.
In addition, the Customer Agreement specifically states that “Margin transactions
are subject to initial and maintenance margin requirements of . . . regulators. . . .” Id. at ¶ 11(B).
The “initial and maintenance margin requirements of . . . regulators” incorporates and includes
FINRA Rule 4210 regarding the proper calculation of margin requirements for Portfolio Margin
Accounts.
82.
IB did not calculate margin requirements for the accounts of Plaintiffs and Class
members in a manner consistent with FINRA Rule 4210. Specifically, IB’s risk-based margin
calculations included ETNs in contravention to that rule. Such products are, by the explicit terms
of FINRA Rule 4210, not eligible to be considered for purposes of portfolio margin calculations.
83.
By including ETNs in its calculation of portfolio margin levels for the accounts of
Plaintiffs and Class members, and thus failing to abide by “applicable laws and regulations” and
“margin requirements of . . . regulators,” IB breached its Customer Agreement with Plaintiffs and
members of the Class.
84.
As such, IB breached its Customer Agreement with Plaintiffs and Class members.
85.
IB’s breach of the Customer Agreement resulted in losses to Plaintiffs and Class
members, and continues to expose them to harm in the form of investment losses that would not
have been realized if IB had fulfilled its obligations under the Customer Agreement.
86.
These losses reflect damages to Plaintiffs and Class members in an amount to be
proven at trial or in a separate proceeding or proceedings if necessary.
B.
Breach of the Portfolio Margin Disclosure
87.
Plaintiffs incorporate by reference the preceding paragraphs of this Complaint as if
fully stated herein.
88.
In order to open a portfolio margin account, a potential customer must acknowledge
the FINRA mandated Portfolio Margin Disclosure modeled after FINRA NTM 08-09. Ex. 1. Such
disclosure is incorporated by reference into the agreements governing the language between clients
and IB. Therefore, Plaintiffs and each member of the Class entered are a party to the Portfolio
Margin Disclosure with IB.
89.
Paragraph 4 of the Portfolio Margin Disclosure details the only products eligible to
receive portfolio margin treatment. Ex. 2, ¶ 4. ETNs are not included in that definition. Such
disclosure constitutes an agreement between Plaintiffs and each member of the Class that IB would
not apply portfolio margin to products other than those listed in Paragraph 4 of the Portfolio Margin
Disclosure.
90.
By including ETNs in its calculation of portfolio margin levels for the accounts of
Plaintiffs and Class members, and thus failing to abide by the terms of the Portfolio Margin
Disclosure, IB breached its agreement with Plaintiffs and each member of the Class.
91.
IB’s breach of the terms of the Portfolio Margin Disclosure resulted in losses to
Plaintiffs and Class members, and continues to expose them to harm in the form of investment
losses that would not have been realized if IB had fulfilled its obligations under the Portfolio
Margin Disclosure.
92.
These losses reflect damages to Plaintiffs and Class members in an amount to be
proven at trial or in a separate proceeding or proceedings if necessary.
SECOND COUNT
Promissory Estoppel
93.
Plaintiffs incorporate by reference the preceding paragraphs of this Complaint as if
fully stated herein, except for the paragraphs in the other Counts, infra and supra.
94.
IB represented and promised to its customers in its Customer Agreement that it
would conduct its calculation of portfolio margin requirements in a manner consistent with
“applicable laws and regulations,” Ex. 1, at ¶ 6, and “subject to initial and maintenance margin
requirements of … regulators. . . .” Id. at ¶ 11(B).
95.
In addition, IB’s Portfolio Margin Disclosure Statement, which all customers must
review and sign pursuant to the terms of the Customer Agreement (see id. at ¶ 11(A)), warrants
that “[a]ll margin equity securities (as defined in Section 220.2 of Regulation T of the Board of
Governors of the Federal Reserve System), warrants on margin equity securities or on eligible
indices of equity securities, equity-based or equity-index based listed options, and security futures
products (as defined in Section 3(a)(56) of the Securities Exchange Act of 1934) are eligible to be
margined in a portfolio margin account.” Ex. 2, at ¶ 4.
96.
Also, IB made public representations through website postings that it would not
apply portfolio margin to ETNs. Ex. 3.
97.
Plaintiffs and Class members justifiably relied on IB’s representations that it would
calculate portfolio margin requirements in a manner consistent with applicable rules, such as
FINRA Rule 4210, and its own Portfolio Margin Disclosure Statement.
98.
IB failed to abide by “applicable laws and regulations” and the “margin
requirements of . . . regulators,” in the form of including ETNs in its portfolio margin calculations
for Plaintiffs and Class Members.
99.
ETNs are not an equity security, nor a warrant or index of such securities, nor an
option or a security future product. Instead, ETNs are debt instruments.
100.
IB violated its own disclosures with regard to its customers with Portfolio Margin
Accounts by including ETNs in IB’s portfolio margin calculations.
101.
IB therefore violated its promise, set forth in the Customer Agreement, to abide by
FINRA Rules with regard to the administration of Portfolio Management Accounts.
102.
IB therefore acted in contradiction to its public and private pronouncements that it
would not apply portfolio margin to ETNs.
103.
As a direct and proximate result of IB’s breach of its explicit promises, Plaintiffs
and Class members suffered losses, in the form of investment losses that would not have occurred
if IB had fulfilled its promises. These losses reflect damages to Plaintiffs and Class members at
an amount to be proven at trial.
THIRD COUNT
Unjust Enrichment
104.
Plaintiffs incorporate by reference all other paragraphs of this Complaint as if fully
stated herein, except for the paragraphs in the other Counts, infra and supra.
105.
By improperly calculating portfolio margin requirements to include ETN positions,
IB overstated the amount of funds available to Plaintiffs and Class members to make margin-
financed trades. As a result of IB’s improper calculation methodology, margin-financed trades
were made by Plaintiffs and Class members that would not have occurred but for the improper
calculations.
106.
IB received fees and/or commissions from every trade made by Plaintiffs and Class
members on Portfolio Margin Accounts, including those trades that would not have been made but
for the improper portfolio margin requirement calculations.
107.
Additionally, IB charged interest on the margin loans that would not have been
allowed but for the improper portfolio margin requirement calculations.
108.
Also, IB received fees for lending securities for transactions that would not have
been allowed but for the improper portfolio margin requirement calculations.
109.
IB has therefore been unjustly enriched by these trades and margin loans that would
not and should not have happened if IB had utilized appropriate and FINRA mandated portfolio
margin requirement rules.
110.
Plaintiffs and Class members conferred a benefit on IB of which IB had knowledge,
as IB was aware that ETNs were not appropriate financial products for consideration in portfolio
margin requirement calculation, as stated in FINRA rules.
111.
The circumstances are such that it would be inequitable, unconscionable, and unjust
to permit IB to retain the benefit of moneys that it unfairly obtained from Plaintiffs and other
members of the Class.
112.
Plaintiffs and Class members, having been harmed by IB’s conduct, are entitled to
recover funds as a result of the unjust enrichment of IB to their detriment.
FOURTH COUNT
Breach of the Implied Covenant of Good Faith and Fair Dealing
113.
Plaintiffs incorporate by reference all other paragraphs of this Complaint as if fully
stated herein, except for the paragraphs in the other Counts, infra and supra.
114.
The implied covenant of good faith and fair dealing, which inheres in every
contract, obligates IB to honor its representations that it would calculate portfolio margin
requirements in a manner consistent with FINRA Rule 4210 and IB’s own Portfolio Margin Risk
Disclosure Statement.
115.
IB breached this covenant by including ETNs in the calculation of the portfolio
margin requirements for Plaintiffs and Class members.
116.
As a direct and proximate result of IB’s breach, Plaintiffs and Class members
suffered losses that would not have occurred if IB had fulfilled its promises.
117.
These losses reflect damages to Plaintiffs and Class members in an amount to be
proven at trial or in a separate proceeding or proceedings.
FIFTH COUNT
Negligence
118.
Plaintiffs incorporates by reference all other paragraphs of this Complaint as if fully
stated herein, except for the paragraphs in the other Counts, infra and supra.
119.
IB had a duty to exercise reasonable care in conducting and facilitating transactions
for its customers.
120.
IB’s standard of care for its customers is codified in the form of regulations
promulgated by FINRA, which has supervisory authority over broker-dealers and other entities in
the financial industry.
121.
IB unlawfully breached this duty by knowingly incorporating ETNs into the
calculation of portfolio margin requirements for its customers, in violation of FINRA Rule 4210.
122.
Defendant’s negligent and wrongful breaches of its duties owed to Plaintiffs and
Class members proximately caused losses, in the form of investment losses that would not have
occurred if IB had shown due care toward its customers by following the FINRA rules for Portfolio
Margin accounts
123.
These losses reflect damages to Plaintiffs and Class members in an amount to be
proven at trial or in a separate proceeding or proceedings.
SIXTH COUNT
Declaratory and Injunctive Relief
124.
Plaintiffs incorporate by reference all other paragraphs of this Complaint as if fully
stated herein, except for the paragraphs in the other Counts, infra and supra.
125.
There exists an actual controversy under the terms of the Customer Agreement, and
applicable law governing the same, as to whether IB may consider ETNs in the calculation of
portfolio margin requirements for Portfolio Margin Accounts.
126.
This question is common to Plaintiffs and Class members who seek a declaration
of their rights and legal obligations in addition to such other relief which might be granted by this
127.
Pursuant to 28 U.S.C. § 2201, this Court may “declare the rights and legal relations
of any interested party seeking such declaration, whether or not further relief is or could be sought.”
128.
Plaintiffs and Class members are interested parties who seek a declaration of their
rights and legal obligations vis-à-vis IB under the Customer Agreement, including declarations:
(1) that IB is obligated under the Customer Agreement to calculate portfolio margin requirements
by considering only those financial instruments that are approved by FINRA Rule 4210; (2) that
IB has calculated portfolio margin requirements in a manner that considers ETNs, which are not
authorized under FINRA Rule 4210; (3) that IB must, going forward, calculate portfolio margin
requirements in strict conformity to FINRA Rule 4210, and therefore IB must not consider ETN
positions for calculating portfolio margin requirements.
129.
In addition to the declaration described above, Plaintiffs and the Class are now
suffering, and will continue to suffer, irreparable injury from IB’s acts, in the form of exposure to
excessive risk in portfolio margin trading.
130.
Plaintiffs and the Class have no plain, adequate, or complete remedy at law to
redress the wrongs alleged herein. As such, Plaintiffs seek injunctive relief on behalf of themselves
and members of the Class to bar IB from continuing to calculate portfolio margin requirements in
a manner inconsistent with FINRA Rule 4210.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully requests that the Court grant Plaintiffs and all Class
members the following relief against the Defendant:
A.
For all recoverable compensatory and other damages sustained by Plaintiffs and the
Class, to the extent not adjudicated in separate proceedings;
B.
For the disgorgement of all profits stemming from fees and commissions collected
by IB associated with margin loans and trades in Portfolio Margin Accounts where ETN positions
were subjected to portfolio margin treatment;
C.
A declaratory judgment that IB violated the terms of the Customer Agreement;
D.
An injunction preventing IB from calculating portfolio margin requirements using
ETN positions, going forward;
E.
An award of attorneys’ fees and costs to counsel for Plaintiffs and the Class;
F.
An order certifying this action to be a proper class action pursuant to Federal Rule
of Civil Procedure 23, establishing an appropriate Class or Classes and any Subclasses the Court
deems appropriate, finding that Plaintiffs are proper representatives of the Class, and appointing
the lawyers and law firms representing Plaintiffs as counsel for the Class;
G.
Such other relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs demand a trial by jury on all counts so triable.
Dated: December 1, 2017
KAPLAN FOX & KILSHEIMER LLP
By: /s/ Frederic S. Fox
Frederic S. Fox
Frederic S. Fox
Email: ffox@kaplanfox.com
Donald R. Hall, Jr.
Email: dhall@kaplanfox.com
850 Third Avenue, 14th Floor
New York, NY 10022
Telephone: (212) 687-1980
Facsimile: (212) 687-7714
MEYER WILSON CO., LPA
David Meyer
Email: dmeyer@meyerwilson.com
Matthew R. Wilson
Email: mwilson@meyerwilson.com
Michael J. Boyle, Jr.
Email: mboyle@meyerwilson.com
1320 Dublin Road, Ste. 100
Columbus, Ohio 43215
Telephone: (614) 224-6000
Facsimile: (614) 224-6066
(pro hac vices to be filed)
SHEPHERD, SMITH, EDWARDS & KANTAS, LLP
Samuel B. Edwards
Email: sedwards@sseklaw.com
David W. Miller
Email: dmiller@sseklaw.com
1010 Lamar, Suite 900
Houston, TX 77002
Telephone: (713) 227-2400
Facsimile: (713) 227-7215
(pro hac vices to be filed)
KAPLAN FOX & KILSHEIMER LLP
Laurence D. King
Email: lking@kaplanfox.com
Matthew B. George
Email: mgeorge@kaplanfox.com
350 Sansome St., Suite 400
San Francisco, CA 94104
Telephone: (415) 772-4700
Facsimile: (415) 772-4707
(pro hac vice to be filed)
Attorneys for Plaintiffs and the Proposed Class
| securities |
-7tUDIcBD5gMZwczP-cw | Seth M. Lehrman (178303)
seth@epllc.com
EDWARDS POTTINGER LLC
425 North Andrews Avenue, Suite 2
Fort Lauderdale, FL 33301
Telephone: 954-524-2820
Facsimile: 954-524-2822
Attorney for Plaintiff
Retina Associates Medical Group, Inc.
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION
CLASS ACTION
JUNK-FAX COMPLAINT
JURY TRIAL DEMANDED
RETINA ASSOCIATES MEDICAL
GROUP, INC., individually and on
behalf of all others similarly situated,
Plaintiff,
v.
KEELER INSTRUMENTS, INC.,
Defendant.
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Plaintiff Retina Associates Medical Group, Inc., brings this class action
under Rule 23 of the Federal Rules of Civil Procedure against Defendant Keeler
Instruments, Inc., for its violations of the Telephone Consumer Protection Act, 47
U.S.C. § 227 (TCPA), and the regulations promulgated thereunder.
JURISDICTION AND VENUE
1.
This Court has federal question subject matter jurisdiction pursuant
to 28 U.S.C. § 1331 and 47 U.S.C. § 227.
2.
Venue in this judicial district is proper under 28 U.S.C. § 1391(b)(2),
because a substantial part of the events or omissions giving rise to the claims in
this case occurred in this District.
3.
The Court has personal jurisdiction over Defendant because it
conducts substantial business in this state, sent unlawful fax advertisements into
this state, and engaged in tortious conduct with consequences directed into this
state.
4.
Many years ago, Defendant was registered with the California
Secretary of State to transact business in California.
5.
Defendant filed with the California Secretary of State a Certificate of
Surrender of Right to Transact Intrastate Business on November 21, 2001, but has
continued transacting business within this state.
6.
Some of Defendant’s recent prior contacts within this state are,
according to prior pages on Defendant’s website, that Defendant had booths at the
American Society Cataract & Refractive Surgery trade show in Los Angeles on
May 6-8, 2018, the American Academy of Orthopedic Surgery trade show in San
Diego on March 15-17, 2017, the American Urological Association trade show in
San Diego on May 7-10, 2016, and the American Society of Retina Specialists
trade show in San Francisco on August 9-14, 2016, and the American Academy
of Optometry trade show in Anaheim on November 9-11, 2016, and according to
Defendant’s website Defendant will be attending a trade show at Ketchum
University on October 25-27, 2018.
7.
Defendant also markets to optometry students: Defendant’s website
states that “Keeler is proud to offer high quality equipment and service to the
following optometry schools,” and the website then lists “Southern California
College of Optometry” and “University of California – Berkeley,” among others.
www.keelerusa.com/students-and-residents.html (last visited Aug. 1, 2018).
8.
Defendant’s website identifies Defendant’s Irvine, California
distributor,
www.keelerusa.com/ophthalmic/index.php/distributors/united-
states/mz/ophthalmic-instruments-inc.html (last visited Aug. 1, 2018).
PARTIES
9.
Plaintiff Retina Associates Medical Group, Inc., is a citizen of the
state of California, with its principal place of business in Orange County,
California.
10.
Defendant Keeler Instruments, Inc., is a Delaware corporation with
its principal place of business in Malvern, Pennsylvania.
11.
Defendant, directly or else through other persons acting on its behalf,
conspired to, agreed to, contributed to, assisted with, or otherwise caused the
wrongful acts and omissions, including the dissemination of the junk faxes
addressed in this Complaint.
THE FAX
12.
On or about July 18, 2018, Defendant, or someone acting on its
behalf, used a telephone facsimile machine, computer, or other device to send to
Plaintiff’s telephone facsimile machine at (714) 633-7470 an unsolicited
advertisement, a true and accurate copy of which is attached as Exhibit A (Fax).
13.
Plaintiff received the Fax through Plaintiff’s facsimile machine.
14.
The Fax, which includes pricing for 3mL eye drops, constitutes
material advertising the quality or commercial availability of goods.
15.
On information and belief, Defendant has sent other facsimile
transmissions of material advertising the quality or commercial availability of
goods to Plaintiff and to at least 40 other persons as part of a plan to broadcast fax
advertisements, of which the Fax is an example, or, alternatively, the Fax was sent
on Defendant’s behalf.
16.
The Fax is not a customized document specific to Plaintiff.
17.
On information and belief, Defendant approved, authorized and
participated in the scheme to broadcast fax advertisements by (a) directing a list
to be purchased or assembled, (b) directing and supervising employees or third
parties to send the faxes, (c) creating and approving the fax form to be sent, and
(d) determining the number and frequency of the facsimile transmissions.
18.
Defendant had a high degree of involvement in, actual notice of, or
ratified the unlawful fax broadcasting activity and failed to take steps to prevent
such facsimile transmissions.
19.
Defendant created, made, or ratified the sending of the Fax and other
similar or identical facsimile advertisements to Plaintiff and other members of the
“Class” as defined below.
20.
The Fax to Plaintiff and, on information and belief, the similar
facsimile advertisements sent by Defendant, lacked a proper notice informing the
recipient of the ability and means to avoid future unsolicited advertisements.
21.
Under the TCPA and 47 C.F.R. § 64.1200(a)(4)(iii), the opt-out
notice for unsolicited faxed advertisements must meet the following criteria:
(A)
The notice is clear and conspicuous and on the first page of the
advertisement;
(B)
The notice states that the recipient may make a request to the
sender of the advertisement not to send any future advertisements
to a telephone facsimile machine or machines and that failure to
comply, within 30 days, with such a request meeting the
requirements under paragraph (a)(4)(v) of this section is
unlawful;
(C) The notice sets forth the requirements for an opt-out request
under paragraph (a)(4)(v) of this section
(D)
The notice includes—
(1)
A domestic contact telephone number and facsimile
machine number for the recipient to transmit such a
request to the sender; and
(2)
If neither the required telephone number nor facsimile
machine number is a toll-free number, a separate cost-free
mechanism including a Web site address or e-mail
address, for a recipient to transmit a request pursuant to
such notice to the sender of the advertisement. A local
telephone number also shall constitute a cost-free
mechanism so long as recipients are local and will not
incur any long distance or other separate charges for calls
made to such number; and
(E) The telephone and facsimile numbers and cost-free mechanism
identified in the notice must permit an individual or business to
make an opt-out request 24 hours a day, 7 days a week.
22.
The Fax and, on information and belief, Defendant’s similar
facsimile advertisements lacked an opt-out notice containing a facsimile machine
number, thereby violating 47 U.S.C. § 227(b)(2)(D)(iv)(I) and 47 C.F.R. §
64.1200(a)(4)(iii)(D)(1).
23.
The Fax and, on information and belief, Defendant’s similar
facsimile advertisements lacked a stating that the recipient may make a request to
the sender of the advertisement not to send any future advertisements to a
telephone facsimile machine or machines and that failure to comply, within 30
days, with such a request meeting the requirements for a proper opt-out request is
unlawful, thereby violating 47 U.S.C. § 227(b)(2)(D)(ii) and 47 C.F.R. §
64.1200(a)(4)(iii)(B)..
24.
On information and belief, Defendant faxed the same or other
substantially similar facsimile advertisements to the members of the Class in
California and throughout the United States without first obtaining the recipients’
prior express invitation or permission.
25.
Defendant violated the TCPA by transmitting the Fax to Plaintiff and
to the Class members without obtaining their prior express invitation or
permission and by not displaying the proper opt-out notice required by 47 C.F.R.
§ 64.1200(a)(4).
26.
Defendant knew or should have known that (a) facsimile
advertisements, including the Fax, were advertisements, (b) Plaintiff and the other
Class members had not given their express invitation or permission to receive
facsimile advertisements, (c) no established business relationship existed with
Plaintiff and the other Class members, and (d) Defendant’s facsimile
advertisements did not display a proper opt-out notice.
27.
Pleading in the alternative to the allegations that Defendant
knowingly violated the TCPA, Plaintiff alleges that Defendant did not intend to
send transmissions of facsimile advertisements, including the Fax, to any person
where such transmission was not authorized by law or by the recipient, and to the
extent that any transmissions of facsimile advertisement was sent to any person
and such transmission was not authorized by law or by the recipient, such
transmission was made based on Defendant’s own understanding of the law or on
the representations of others on which Defendant reasonably relied.
28.
The transmissions of facsimile advertisements, including the Fax, to
Plaintiff and the Class caused concrete and personalized injury, including
unwanted use and destruction of their property, e.g., toner or ink and paper, caused
undesired wear on hardware, interfered with the recipients’ exclusive use of their
property, cost them time, occupied their fax machines for the period of time
required for the electronic transmission of the data, and interfered with their
business or personal communications and privacy interests.
CLASS ACTION ALLEGATIONS
29.
Plaintiff brings this class action on behalf of the following class of
persons, hereafter, the “Class”:
All persons in the United States who on or after four years prior to the
filing of this action, (1) were sent by or on behalf of Defendant a
telephone facsimile message of material advertising the commercial
availability or quality of any goods, (2) with respect to whom
Defendant cannot provide evidence of prior express invitation or
permission for the sending of such fax or (3) with whom Defendant did
not have an established business relationship, and (4) the fax identified
in subpart (1) of this definition (a) did not display a clear and
conspicuous opt-out notice on the first page stating that the recipient
may make a request to the sender of the advertisement not to send any
future advertisements to a telephone facsimile machine or machines
and that failure to comply, within 30 days, with such a request meeting
the requirements under 47 C.F.R. § 64.1200(a)(4)(v) is unlawful or (b)
lacked a facsimile number for sending the opt-out request.
30.
Excluded from the Class are Defendant, its employees, agents, and
members of the judiciary.
31.
This case is appropriate as a class action because:
a.
Numerosity. On information and belief, based in part on review of
the sophisticated Fax and online research, the Class includes at least 40
persons and is so numerous that joinder of all members is impracticable.
b.
Commonality. Questions of fact or law common to the Class
predominate over questions affecting only individual Class members, e.g.:
i.
Whether Defendant engaged in a pattern of sending unsolicited
fax advertisements;
ii.
Whether the Fax, and other faxes transmitted by or on behalf of
Defendant, contains material advertising the commercial
availability of any goods;
iii.
Whether the Fax, and other faxes transmitted by or on behalf of
Defendant, contains material advertising the quality of goods;
iv.
The manner and method Defendant used to compile or obtain
the list of fax numbers to which Defendant sent the Fax and
other unsolicited faxed advertisements;
v.
Whether Defendant faxed advertisements without first
obtaining the recipients’ prior express invitation or permission;
vi.
Whether Defendant violated 47 U.S.C. § 227;
vii.
Whether Defendant willfully or knowingly violated 47 U.S.C. §
227;
viii.
Whether Defendant violated 47 C.F.R. § 64.1200;
ix.
Whether the Fax, and the other fax advertisements sent by or on
behalf of Defendant, displayed the proper opt-out notice
required by 47 C.F.R. § 64.1200(a)(4);
x.
Whether the Court should award statutory damages per TCPA
violation per fax;
xi.
Whether the Court should award treble damages per TCPA
violation per fax; and
xii.
Whether the Court should enjoin Defendant from sending
TCPA-violating facsimile advertisements in the future.
c.
Typicality. Plaintiff’s claim is typical of the other Class members’
claims, because, on information and belief, the Fax was substantially the
same as the faxes sent by or on behalf of Defendant to the Class, and
Plaintiff is making the same claim and seeking the same relief for itself and
all Class members based on the same statute and regulation.
d.
Adequacy. Plaintiff will fairly and adequately protect the interests
of the other Class members. Plaintiff’s counsel is experienced in TCPA
class actions, having litigated many such cases, and having been appointed
class counsel in multiple cases. Neither Plaintiff nor its counsel has
interests adverse or in conflict with the Class members.
e.
Superiority. A class action is the superior method for adjudicating
this controversy fairly and efficiently. The interest of each individual Class
member in controlling the prosecution of separate claims is small and
individual actions are not economically feasible.
32.
The TCPA prohibits the “use of any telephone facsimile machine,
computer or other device to send an unsolicited advertisement to a telephone
facsimile machine.” 47 U.S.C. § 227(b)(1).
33.
The TCPA defines “unsolicited advertisement,” as “any material
advertising the commercial availability or quality of any property, goods, or
services which is transmitted to any person without that person’s express
invitation or permission.” 47 U.S.C. § 227(a)(4).
34.
The TCPA provides:
Private right of action. A person may, if otherwise permitted by the
laws or rules of court of a state, bring in an appropriate court of that
state:
(A) An action based on a violation of this subsection or the
regulations prescribed under this subsection to enjoin such
violation,
(B) An action to recover for actual monetary loss from such a
violation, or to receive $500 in damages for each such violation,
whichever is greater, or
(C) Both such actions.
47 U.S.C. § 227(b)(3)(A)-(C).
35.
The TCPA also provides that the Court, in its discretion, may treble
the statutory damages if a defendant “willfully or knowingly” violated Section
227(b) or the regulations prescribed thereunder.
36.
Defendant’s actions caused concrete and particularized harm to
Plaintiff and the Class, as
a.
receiving Defendant’s faxed advertisements caused the recipients to
lose paper and toner consumed in printing Defendant’s faxes;
b.
Defendant’s actions interfered with the recipients’ use of the
recipients’ fax machines and telephone lines;
c.
Defendant’s faxes cost the recipients time, which was wasted time
receiving, reviewing, and routing the unlawful faxes, and such time
otherwise would have been spent on business activities; and
d.
Defendant’s faxes unlawfully interrupted the recipients’ privacy
interests in being left alone and intruded upon their seclusion.
37.
Defendant intended to cause damage to Plaintiff and the Class, to
violate their privacy, to interfere with the recipients’ fax machines, or to consume
the recipients’ valuable time with Defendant’s advertisements; therefore, treble
damages are warranted under 47 U.S.C. § 227(b)(3).
38.
Defendant knew or should have known that (a) Plaintiff and the other
Class members had not given express invitation or permission for Defendant or
anyone else to fax advertisements about Defendant’s goods, (b) the Fax and the
other facsimile advertisements were advertisements, (c) Defendant did not have
an established business relationship with Plaintiff and the other Class members,
and (d) the Fax and the other facsimile advertisements did not display the proper
opt-out notice.
39.
Defendant violated the TCPA by transmitting the Fax to Plaintiff and
substantially similar facsimile advertisements to the other Class members without
obtaining their prior express invitation or permission and by not displaying the
proper opt-out notice required by 47 C.F.R. § 64.1200(a)(4)(iii).
WHEREFORE, Plaintiff, for itself and all others similarly situated,
demands judgment against Defendant as follows:
a.
certify this action as a class action and appoint Plaintiff as Class
representative;
b.
appoint the undersigned counsel as Class counsel;
c.
award damages of $500 per TCPA violation per facsimile pursuant
to 47 U.S.C. § 227(a)(3)(B);
d.
award treble damages up to $1,500 per TCPA violation per facsimile
pursuant to 47 U.S.C. § 227(a)(3);
e.
enjoin Defendant and its contractors, agents, and employees from
continuing to send TCPA-violating facsimiles pursuant to 47 U.S.C.
§ 227(a)(3)(A);
f.
award class counsel reasonable attorneys’ fees and all expenses of
this action and require Defendant to pay the costs and expenses of
class notice and claim administration;
g.
award Plaintiff an incentive award based upon its time expended on
behalf of the Class and other relevant factors;
h.
award Plaintiff prejudgment interest and costs; and
i.
grant Plaintiff all other relief deemed just and proper.
DOCUMENT PRESERVATION DEMAND
Plaintiff demands that Defendant take affirmative steps to preserve all
records, lists, electronic databases, or other itemization of telephone or fax
numbers associated with the Defendant and the communication or transmittal of
advertisements as alleged herein.
DATED: August 3, 2018
EDWARDS POTTINGER LLC
/s/ Seth M. Lehrman
Seth M. Lehrman
Attorney for Plaintiff RETINA ASSOCIATES
MEDICAL GROUP, INC.
| privacy |
luoNEocBD5gMZwcz5Qhs | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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OKLAHOMA FIREFIGHTERS PENSION
AND RETIREMENT SYSTEM, Individually
and on Behalf of All Others Similarly Situated,
Plaintiff,
vs.
LEXMARK INTERNATIONAL, INC., PAUL
A. ROOKE, DAVID REEDER, GARY
STROMQUIST, and MARTIN S. CANNING,
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS OF
THE FEDERAL SECURITIES LAWS
DEMAND FOR JURY TRIAL
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Defendants.
Plaintiff Oklahoma Firefighters Pension and Retirement System (“Oklahoma
Firefighters” or “Plaintiff”), individually and on behalf of all others similarly situated, alleges
the following based on personal knowledge as to Plaintiff and Plaintiff’s own acts, and upon
information and belief as to all other matters based upon the investigation conducted by and
through Plaintiff’s attorneys, which included, among other things, a review of Securities and
Exchange Commission (“SEC”) filings by Lexmark International, Inc. (“Lexmark” or the
“Company”), as well as conference call transcripts and media and analyst reports about the
Company. Plaintiff believes that substantial evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for discovery.
INTRODUCTION
1.
This is a class action brought on behalf of all persons or entities who purchased
or otherwise acquired the publicly traded securities of Lexmark between August 1, 2014 and
July 20, 2015, both dates inclusive (the “Class Period”). The action is brought against Lexmark
and certain of the Company’s senior executives (collectively, “Defendants”) for violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and
Rule l0b-5 promulgated thereunder.
2.
Defendant Lexmark is a manufacturer of printers and related supplies, primarily
ink cartridges. Lexmark sells its products to wholesale distributors and large retail chains in
more than 90 countries around the world. Based on its 2014 financial results, 37 percent of
Lexmark’s total revenues were generated within its Europe, Middle East and Africa (“EMEA”)
segment. Supplies sales in Europe are especially critical to the EMEA segment.
3.
Throughout the Class Period, Lexmark made false and misleading statements
regarding its end-user demand, channel inventory, and growth prospects for its high-margin
supplies business. The Company also failed to disclose deterioration in end-user demand and
excessive inventory levels at its European wholesale distributors. Lexmark ultimately
acknowledged that its supplies growth was not attributable to end-user demand but rather the
result of its European customers buying ahead of customary price increases which produced
excessive inventory.
4.
The truth was finally revealed on July 21, 2015, when the Company reported
poor results for its second quarter ending June 30, 2015 and lowered its 2015 sales guidance.
Lexmark blamed these disappointing results on lower-than-expected supplies revenue from its
European wholesale distributors. Lexmark explained that the Company had increased supplies
prices for its European distributors three times between October 2014 and June 2015. In
reaction to these price increases, European distributors immediately stocked up on supplies
prior to the expiration of their fixed-price contracts while slowing down their purchases from
Lexmark.
5.
On this news, Lexmark stock dropped $9.57 per share, or 20.2 percent, wiping
out approximately $550 million in market capitalization.
6.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
7.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC, 17
C.F.R. § 240.10b-5.
8.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
9.
Venue is proper in this District pursuant to Section 27 of the Exchange Act and
28 U.S.C. §1391(b) as Defendants conduct business in this District, and a significant portion of
the Defendant’s actions, and the subsequent damages, took place within this District. In
addition, Lexmark’s stock traded on the New York Stock Exchange (“NYSE”), located within
this District.
10.
In connection with the acts alleged in this complaint, Defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications, and the facilities of the national
securities markets.
PARTIES
11.
Plaintiff Oklahoma Firefighters, as set forth in the accompanying Certification,
which is incorporated by reference herein, purchased the common stock of Lexmark during the
Class Period and was damaged as the result of Defendants’ wrongdoing as alleged in this
complaint.
12.
Defendant Lexmark is a global manufacturer of printers and related supplies.
The Company’s stock was listed on the NYSE under the ticker symbol “LXK” during the Class
Period. In November 2016, the Company was acquired for $2.5 billion by a consortium of
private investors led by Apex Technology Co., Ltd. and PAG Asia Capital (the “Private Equity
Purchasers”) and is no longer listed for trading.
13.
Defendant Paul A. Rooke (“Rooke”) was throughout the Class Period, Chairman
and Chief Executive Officer (“CEO”) of Lexmark.
14.
Defendant David Reeder (“Reeder”) was throughout the Class Period, Vice
President and Chief Financial Officer (“CFO”) of Lexmark. Reeder was named President and
CEO of Lexmark in November 2016.
15.
Defendant Gary Stromquist (“Stromquist”) was Lexmark’s interim CFO from
May 20, 2014 through January 9, 2015.
16.
Martin S. Canning (“Canning”) was throughout the Class Period, Executive Vice
President and President of Lexmark’s Imaging Solutions and Services (“ISS”) division.
17.
Defendants Rooke, Reeder, Stromquist, and Canning are collectively referred to
hereinafter as the “Individual Defendants.” The Individual Defendants, because of their
positions with the Company, possessed the power and authority to control the contents of
Lexmark’s reports to the SEC, press releases, and presentations to securities analysts, money
portfolio managers and institutional investors, i.e., the market. The Individual Defendants were
provided with copies of the Company’s reports and press releases alleged herein to be
misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent
their issuance or cause them to be corrected. Because of their positions and access to material
non-public information available to them, the Individual Defendants knew that the adverse facts
specified herein had not been disclosed to, and were being concealed from, the public, and that
the positive representations which were being made were then materially false and/or
misleading. The Individual Defendants are liable for the false statements pleaded herein, as
those statements were each “group-published” information, the result of the collective actions of
the Individual Defendants.
18.
Lexmark and the Individual Defendants are referred to herein, collectively, as
“Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
19.
Lexmark is a manufacturer of printers and related supplies. The Company also
provides customers with related software and services. Lexmark sells its products and services
to wholesale distributors and large retail chains in more than 90 countries around the world.
20.
The Company is managed along two operating segments: (1) Imaging Solutions
and Services (“ISS”); and (2) Enterprise Software. The ISS segment accounted for 92 percent
of Lexmark’s total 2014 revenues. Within the ISS segment, sales of printing supplies, which
includes laser, inkjet, and dot matrix cartridges, accounted for 66 percent of the Company’s
2014 total revenues.
21.
Based on its 2014 results, 43 percent of total 2014 revenues were generated in
the United States, and 37 percent of total 2014 revenues were generated within Europe, Africa,
and the Middle East (“EMEA”). Supplies sales in Europe are especially critical to the EMEA
geographic area.
22.
Lexmark relies on fixed-price supplies contracts to lock in prices charged to its
customers for a set period, typically between one and five years. These contracts allow
Lexmark’s customers to place unlimited orders for supplies during the contract term.
Accordingly, Lexmark often protects its margins by “harmonizing” or “aligning” its product
prices across all markets via price increases.
23.
As early as 2009, Lexmark explained that whenever the Company announces
price increases pursuant to harmonization strategies, Lexmark’s customers in the affected
markets immediately “buy ahead” of price increases to secure more favorable pricing before
their fixed-price contracts expire. This “buy-ahead” allows Lexmark’s customers to take
advantage of their lower, fixed price rate before they will be forced into the higher prices upon
expiration of their contracts.
Materially False and Misleading Statements Issued During the Class Period
24.
The Class Period begins August 1, 2014, when Lexmark filed a quarterly report
on Form 10-Q with the SEC, announcing the Company’s financial and operating results for the
quarterly period ended June 30, 2014 and fiscal year (“2014 2Q 10-Q”), and reaffirming the
financial results announced in the press release issued on July 22, 2014. The 2014 2Q 10-Q
contained signed certifications pursuant to the Sarbanes-Oxley Act of 2002 by Defendants
Rooke and Stromquist, stating that the financial information contained in the 2014 2Q 10-Q was
accurate and disclosed any material changes to the Company’s internal control over financial
reporting.
25.
On October 21, 2014, Lexmark reported better-than-expected profit for its Third
Quarter 2014 Financial Results and stated that the Company’s “Laser supplies revenue of $533
million grew 2 percent year to year.”
26.
On October 31, 2014, Lexmark filed a quarterly report on Form 10-Q with the
SEC, announcing the Company’s financial and operating results for the quarterly period ended
September 30, 2014 and fiscal year (“2014 3Q 10-Q”), and reaffirming the financial results
announced in the press release issued on October 21, 2014. The 2014 3Q 10-Q contained
signed certifications pursuant to the Sarbanes-Oxley Act of 2002 by Defendants Rooke and
Stromquist, stating that the financial information contained in the 2014 3Q 10-Q was accurate
and disclosed any material changes to the Company’s internal control over financial reporting.
27.
On January 27, 2015, Lexmark issued a press release in which it announced its
Fourth Quarter 2014 and Full Year 2014 Financial Results. Lexmark’s 2015 outlook forecasted
earnings per share (“EPS”) of $1.81 to $2.01, or 45 to 60 percent growth over 2014 EPS first-
quarter 2015 financial results. The Company also forecasted 2015 sales “to decline in the range
of 3 to 5 percent year to year” due to Lexmark’s exit from its Inkjet business and additional
currency headwinds.
28.
During the related earnings call, CEO Rooke stated that to “offset these
headwinds, we expect continued strong operational performance, as well as improvement in
laser profitability as we drive [Managed Print Services or MPS], supplies price harmonization
as needed, and ongoing cost and expense reductions.” In addition, in anticipation of investors’
concerns that the supplies channel was growing beyond optimal levels, CEO Rooke stated,
“we’re going to try to hold the channel flat whereas . . . we had some growth last year.”
29.
On the same earnings call, CFO Reeder’s prepared remarks focused on
Lexmark’s high-margin supplies business and included the following: “Reflecting robust end-
user demand, laser supplies revenue was quite strong . . . . Laser supplies revenue grew 5%
year-to-year, and we continued to see good end-user demand for laser supplies, highlighting the
continued growth in the quality of our MPS and large workgroup installed base.”
30.
On February 10, 2015, the Company participated in the Goldman Sachs
Technology & Internet Conference. Responding to questions concerning the growth of the
Company’s supplies channel, Canning asserted that supplies growth was spurred by end-user
demand, stating the following in pertinent part:
[Our] strategy has been extremely successful . . . . Our sellout pages that we’re
seeing now have been moving at a consistent mid to high single-digit level . . . .
So we’re displacing competitors, we’re consolidating pages and putting more
pages per device . . . . So we feel very good about this shift that we’ve been
driving with our high-end versus low-end workgroup and the pages that are
resulting from it.”
We see competition sometimes waiting to see which way the customer is going to
do it. We’re full-out driving it. We’ve had 29 consecutive quarters of growth in
Managed Print Services, 15 consecutive years and 8 consecutive quarters of
double-digit growth in Managed Print Services . . . . So we think we’re on the
right path.”
31.
In addition, Canning further stated the following when asked about supplies
performance, its connection with increased channel inventory, and that conversely, competitors’
channel inventory has decreased:
When I see channel movement on this side -- and I have to admit, I don’t see it all
. . . . [T]he channel dynamics that we’re seeing make sense to me . . . .
Ultimately, these channel partners are going to do what’s best for their business,
and they just continue to move forward in a way that’s consistent . . . with the
fundamentals that I see.”
32.
On March 2, 2015, the Company filed its annual report on Form 10-K with the
SEC, announcing the Company’s financial and operating results for the fiscal year ended
December 31, 2014 (“2014 10-K”). The 2014 10-K contained signed certifications pursuant to
the Sarbanes-Oxley Act of 2002 by Defendants Rooke and Reeder, stating that the financial
information contained in the 2014 10-K was accurate and disclosed any material changes to the
Company’s internal control over financial reporting.
33.
On March 5, 2015, the Company participated in the Morgan Stanley Technology,
Media & Telecom Conference. During the Company’s presentation, Reeder confirmed that
Lexmark was in fact “doing price harmonization so there’s no cross border arbitrage . . . .”
CFO Reeder further confirmed that Lexmark “took one [price harmonization] action in Europe
in the fourth quarter[,]” but with respect to the prospect for subsequent price actions, CFO
Reeder only stated, “stay tuned, we’ll see what happens here this year.”
34.
Then, on April 28, 2015, Lexmark announced its Q1 2015 Financial Results and
maintained its 2015 sales growth forecast of a 3.0 to 5.0 percent decline from 2014. During the
relating earnings call, Reeder attributed the growth of Lexmark’s supplies business to end-user
demand, and not to channel buy-ahead in response to the price harmonization strategy.
Specifically, Reeder stated “[s]trong end-user demand was the primary driver of year-to-year
growth, but we estimate that the Laser supplies channel inventory increased slightly. As
experienced in the first quarter, channel inventory often increases ahead of price harmonization.
We expect inventory to decline in the second quarter as the harmonization activity works its
way through the channel. Geographically, we saw . . . a 2% decline in EMEA . . . .”
35.
On the same call, in response to a question regarding the decline in supplies
revenue growth and build-up in channel inventory, Rooke responded by touting the growth of
Lexmark’s supplies business, stating “we remain encouraged about the activity we see,
particularly in our core geographies in the US or North America and Europe . . . . [W]hen you
factor in the currency and the slight channel movement there, we feel very good about the
trajectory of our supplies business.”
36.
On April 30, 2015, Lexmark filed a quarterly report on Form 10-Q with the SEC,
announcing the Company’s financial and operating results for the quarterly period ended March
31, 2015 and fiscal year (“2015 1Q 10-Q”), and reaffirming the financial results announced in
the press release issued on April 28, 2015. The 2015 1Q 10-Q contained signed certifications
pursuant to the Sarbanes-Oxley Act of 2002 by Defendants Rooke and Reeder, stating that the
financial information contained in the 2015 1Q 10-Q was accurate and disclosed any material
changes to the Company’s internal control over financial reporting.
37.
The statements contained in ¶¶ 24-36 were materially false and/or misleading
when made because Defendants failed to disclose that: (1) end-user demand and growth for the
Company’s supplies business was deteriorating; (2) pricing increases were the primary driver of
supplies revenue growth, not end-user demand; (3) customers in the supplies channel reacted by
buying ahead of anticipated pricing increases; and as a result, (4) there was excessive inventory
levels at it European wholesale distributors.
The Truth Emerges
38.
The truth about Defendants’ misrepresentations was finally revealed on July 21,
2015, when Lexmark reported poor results for its second quarter ending June 30, 2015 and
lowered its 2015 sales guidance. Lexmark blamed these disappointing results on lower-than-
expected supplies revenue from its European wholesale distributors explaining that the
Company was enduring “ongoing headwinds from the strong U.S. dollar and near-term laser
supplies channel optimization particularly in EMEA . . . .”
39.
On a related earnings call, analysts had trouble making sense of the supplies
channel inventory. In response, Defendant Rooke acknowledged the inventory build-up and
explained that the Company had increased supplies prices, stating in pertinent part:
Now with the 2015 guidance, we’re factoring in a number of assumptions for the
second half, including . . . a reduction in laser supply sell in to draw down channel
inventory for laser supplies. We are focused on reducing laser supplies channel
inventory, particularly in EMEA where our models and channel reporting show
a buildup in channel inventory from the multiple cost actions we’ve taken
worldwide as the US dollar strengthens.
* * *
This has come from a lot of the price actions we’ve taken in Europe over the
last several quarters . . . . We saw a little bit of a sell out softness in the second
quarter more than expected. As so as we drew down our supply sell in [sic] we
didn’t see the reduction of channel inventory . . . .
40.
On this news, shares of Lexmark dropped $9.57 per share, or 20.2 percent, to
close at $37.75 per share on July 21, 2015.
41.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
CLASS ACTION ALLEGATIONS
42.
Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal
Rules of Civil Procedure on behalf of all persons or entities who purchased or otherwise
acquired the securities of Lexmark between August 1, 2014 and July 20, 2015, both dates
inclusive (the “Class”). Excluded from the Class are Defendants, members of the immediate
family of each of the Individual Defendants, any subsidiary or affiliate of Lexmark, and the
directors and officers of Lexmark and their families and affiliates at all relevant times.
43.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Lexmark common stock was actively traded on the
NYSE. While the exact number of Class members is unknown to Plaintiff at this time and can
only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds of
thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by Lexmark and/or its transfer agent and may be
notified of the pendency of this action by mail, using the form of notice similar to that
customarily used in securities class actions.
44.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
45.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class action and securities
litigation.
46.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the Exchange Act was violated by Defendants as alleged herein;
(b)
whether statements made by Defendants misrepresented material facts
about the business, operations and management of Lexmark; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
47.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action
as a class action.
UNDISCLOSED ADVERSE FACTS
48.
The market for Lexmark’s securities was open, well-developed and efficient at
all relevant times. As a result of these materially false and/or misleading statements, and/or
failures to disclose, Lexmark’s securities traded at artificially inflated prices during the Class
Period. Plaintiff and other members of the Class purchased or otherwise acquired Lexmark’s
securities relying upon the integrity of the market price of the Company’s securities and market
information relating to Lexmark, and have been damaged thereby.
49.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Lexmark’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. These statements and omissions were materially
false and/or misleading in that they failed to disclose material adverse information and/or
misrepresented the truth about Lexmark’s business, operations, and prospects as alleged herein.
50.
At all relevant times, the material misrepresentations and omissions
particularized in this Complaint directly or proximately caused or were a substantial
contributing cause of the damages sustained by Plaintiff and other members of the Class. As
described herein, during the Class Period, Defendants made or caused to be made a series of
materially false and/or misleading statements about Lexmark’s financial well-being and
prospects. These material misstatements and/or omissions had the cause and effect of creating
in the market an unrealistically positive assessment of the Company and its financial well-being
and prospects, thus causing the Company’s securities to be overvalued and artificially inflated at
all relevant times. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at artificially inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
51.
During the Class Period, as detailed herein, Defendants made false and
misleading statements and engaged in a scheme to deceive the market and a course of conduct
that artificially inflated the prices of Lexmark securities, and operated as a fraud or deceit on
Class Period purchasers of Lexmark securities by misrepresenting the value and prospects for
the Company’s business, growth prospects, and accounting compliance. Later, when
Defendants’ prior misrepresentations and fraudulent conduct were disclosed to the market, the
price of Lexmark securities fell precipitously, as the prior artificial inflation came out of the
price. As a result of their purchases of Lexmark securities during the Class Period, Plaintiff and
other members of the Class suffered economic loss, i.e., damages, under the federal securities
ADDITIONAL SCIENTER ALLEGATIONS
52.
During the Class Period, as alleged herein, the Individual Defendants acted with
scienter in that the Individual Defendants knew or were reckless as to whether the public
documents and statements issued or disseminated in the name of the Company during the Class
Period were materially false and misleading; knew or were reckless as to whether such
statements or documents would be issued or disseminated to the investing public; and
knowingly and substantially participated or acquiesced in the issuance or dissemination of such
statements or documents as primary violations of the federal securities laws.
53.
The Individual Defendants permitted Lexmark to release these false and
misleading statements and failed to file the necessary corrective disclosures, which artificially
inflated the value of the Company’s stock.
54.
As set forth herein, the Individual Defendants, by virtue of their receipt of
information reflecting the true facts regarding Lexmark, their control over, receipt, and/or
modification of Lexmark’s allegedly materially misleading statements and omissions, and/or
their positions with the Company that made them privy to confidential information concerning
Lexmark, participated in the fraudulent scheme alleged herein.
55.
The Individual Defendants are liable as participants in a fraudulent scheme and
course of conduct that operated as a fraud or deceit on purchasers of Lexmark securities by
disseminating materially false and misleading statements and/or concealing material adverse
facts. The scheme deceived the investing public regarding Lexmark’s business, operations, and
management and the intrinsic value of Lexmark securities and caused Plaintiff and members of
the Class to purchase Lexmark securities at artificially inflated prices.
INAPPLICABILITY OF STATUTORY SAFE HARBOR
56.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements”
when made and there were no meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply
to any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements were made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of Lexmark who knew that the statement was false when made.
PRESUMPTION OF RELIANCE
57.
Plaintiff will rely upon the presumption of reliance established by the fraud-on-
the-market doctrine in that, among other things:
(a)
Defendants made public misrepresentations or failed to disclose material
facts during the Class Period;
(b)
the omissions and misrepresentations were material;
(c)
the Company’s stock traded in an efficient market;
(d)
the misrepresentations alleged would tend to induce a reasonable investor
to misjudge the value of the Company’s securities; and
(e)
Plaintiff and other members of the Class purchased Lexmark securities
between the time Defendants misrepresented or failed to disclose material facts and the time the
true facts were disclosed, without knowledge of the misrepresented or omitted facts.
58.
At all relevant times, the markets for Lexmark securities were efficient for the
following reasons, among others:
(a)
as a regulated issuer, Lexmark filed periodic public reports with the SEC;
(b)
Lexmark regularly communicated with public investors via established
market communication mechanisms, including through regular disseminations of press releases
on the major news wire services and through other wide-ranging public disclosures, such as
communications with the financial press, securities analysts, and other similar reporting
services;
(c)
Lexmark was followed by several securities analysts employed by major
brokerage firm(s) who wrote reports that were distributed to the sales force and certain
customers of their respective brokerage firm(s) and that were publicly available and entered the
public marketplace; and
(d)
Lexmark common stock was actively traded in an efficient market,
namely the NYSE, under the ticker symbol “LXK.”
59.
As a result of the foregoing, the market for Lexmark securities promptly digested
current information regarding Lexmark from all publicly available sources and reflected such
information in Lexmark’s stock price. Under these circumstances, all purchasers of Lexmark
securities during the Class Period suffered similar injury through their purchase of Lexmark’s
securities at artificially inflated prices and the presumption of reliance applies.
60.
Further, to the extent that the Exchange Act Defendants concealed or improperly
failed to disclose material facts with regard to the Company, Plaintiff is entitled to a
presumption of reliance in accordance with Affiliated Ute Citizens v. United States, 406 U.S.
128, 153 (1972).
COUNT I
For Violation of Section 10(b) of the Exchange Act
and Rule 10b-5 Against All Defendants
61.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
62.
During the Class Period, Defendants disseminated or approved the false
statements specified above, which they knew or recklessly disregarded were misleading in that
they contained misrepresentations and failed to disclose material facts necessary in order to
make the statements made, in light of the circumstances under which they were made, not
misleading.
63.
Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 in that
(a)
Employed devices, schemes, and artifices to defraud;
(b)
Made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading; or
(c)
Engaged in acts, practices, and a course of business that operated as a
fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of
Lexmark securities during the Class Period.
64.
Plaintiff and the Class have suffered damages in that, in reliance on the integrity
of the market, they paid artificially inflated prices for Lexmark securities. Plaintiff and the
Class would not have purchased Lexmark securities at the prices they paid, or at all, if they had
been aware that the market prices had been artificially and falsely inflated by Defendants’
misleading statements.
65.
As a direct and proximate result of these Defendants’ wrongful conduct, Plaintiff
and the other members of the Class suffered damages in connection with their purchases of
Lexmark securities during the Class Period.
COUNT II
For Violation of Section 20(a) of the Exchange Act
Against the Individual Defendants
66.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
67.
The Individual Defendants acted as controlling persons of Lexmark within the
meaning of Section 20(a) of the Exchange Act. By virtue of their positions and their power to
control public statements about Lexmark, the Individual Defendants had the power and ability
to control the actions of Lexmark and its employees. By reason of such conduct, Defendants
are liable pursuant to Section 20(a) of the Exchange Act.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
A.
Determining that this action is a proper class action, designating Plaintiff as Lead
Plaintiff and certifying Plaintiff as a Class representative under Rule 23 of the Federal Rules of
Civil Procedure and Plaintiff’s counsel as Lead Counsel;
B.
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
C.
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees;
D.
Awarding rescission or a rescissory measure of damages; and
E.
Awarding such equitable/injunctive or other relief as deemed appropriate by the
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: July 20, 2017
Respectfully submitted,
/s/ Christopher J. Keller
Christopher J. Keller
Eric J. Belfi
Francis P. McConville
LABATON SUCHAROW LLP
140 Broadway
New York, New York 10005
Telephone: (212) 907-0700
Facsimile: (212) 818-0477
ckeller@labaton.com
ebelfi@labaton.com
fmcconville@labaton.com
Counsel for Oklahoma Firefighters Pension
and Retirement System
| securities |
HvEFE4cBD5gMZwczaNAT | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JOSE R. CABRERA JR., Individually and
On Behalf of All Others Similarly Situated,
Plaintiff,
v.
Case No.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
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TAHOE RESOURCES INC., RONALD W.
CLAYTON, C. KEVIN McARTHUR,
ELIZABETH DIANNE McGREGOR, and
MARK T. SADLER,
Defendants.
CLASS ACTION COMPLAINT
Plaintiff Jose R. Cabrera Jr. (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by his undersigned attorneys, for his complaint against Defendants, alleges the
following based upon personal knowledge as to itself and his own acts, and information and
belief as to all other matters, based upon, inter alia, the investigation conducted by and through
its attorneys, which included, among other things, a review of the Defendants’ public documents,
conference calls and announcements made by Defendants, United States Securities and
Exchange Commission (“SEC”) filings, wire and press releases published by and regarding
Tahoe Resources Inc. (“Tahoe” or the “Company”), analysts’ reports and advisories about the
Company, and information readily obtainable on the Internet. Plaintiff believes that substantial
evidentiary support will exist for the allegations set forth herein after a reasonable opportunity
for discovery.
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf of a class consisting of all
persons other than defendants who purchased or otherwise acquired Tahoe securities between
April 3, 2013 and July 5, 2017, both dates inclusive (the “Class Period”), seeking to recover
damages caused by defendants’ violations of the federal securities laws and to pursue remedies
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and
Rule 10b-5 promulgated thereunder, against the Company and certain of its top officials.
2.
Tahoe, together with its subsidiaries, explores, develops, and operates mines in
the Americas. The Company primarily produces copper, gold, silver, lead/zinc, and natural gas
and petroleum, as well as precious metals assets.
3.
Formerly known as CKM Resources Inc., the Company changed its name to
Tahoe Resources Inc. in January 2010. Tahoe is headquartered in Reno, Nevada, and its stock
trades on the New York Stock Exchange (“NYSE”) under the ticker symbol “TAHO.”
4.
On April 3, 2013, Tahoe announced that Guatemala’s Ministry of Energy and
Mines (“MEM”) had granted the Company an exploitation license for the Escobal mine, a large
silver mine located in the department of Santa Rosa in Southern Guatemala.
5.
Throughout the Class Period, Defendants made materially false and misleading
statements regarding the Company’s business, operational and compliance policies. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (i)
Guatemala’s MEM had granted the Escobal mining license to Tahoe’s Minera San Rafael
subsidiary without prior consultation with Guatemala’s Xinca indigenous people; (ii) the
foregoing constituted a violation of Guatemalan law and provided a basis for suspension of the
Escobal license; (iii) consequently, the Company’s revenues associated with the Escobal mining
license were unlikely to be sustainable; and (iv) as a result of the foregoing, Tahoe’s public
statements were materially false and misleading at all relevant times.
6.
On July 6, 2017, Tahoe disclosed that the Supreme Court of Guatemala had
issued a provisional decision suspending the Escobal mining license of Minera San Rafael, a
Tahoe subsidiary, in connection with a legal action brought by the human rights organization
Centro de Acción Legal Ambiental y Social de Guatemala (“CALAS”) against Guatemala’s
MEM. CALAS alleges that MEM violated the Xinca indigenous people’s right of consultation
prior to granting the Escobal mining license.
7.
On this news, Tahoe’s common share price fell $2.74, or 33.01%, to close at
$5.56 on July 6, 2017.
8.
As a result of Defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
9.
The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the
Exchange Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the
SEC (17 C.F.R. §240.10b-5).
10.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §§ 1331 and Section 27 of the Exchange Act.
11.
Venue is proper in this Judicial District pursuant to §27 of the Exchange Act (15
U.S.C. §78aa) and 28 U.S.C. §1391(b). Tahoe’s securities trade on the NYSE, located within this
Judicial District.
12.
In connection with the acts, conduct and other wrongs alleged in this Complaint,
defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
PARTIES
13.
Plaintiff, as set forth in the attached Certification, acquired Tahoe securities at
artificially inflated prices during the Class Period and was damaged upon the revelation of the
alleged corrective disclosures.
14.
Defendant Tahoe is headquartered in Reno, Nevada, with principal executive
offices located at 5310 Kietzke Lane, Reno, Nevada 89511. The Company is incorporated in
British Columbia, Canada. Tahoe’s shares trade on the NYSE under the ticker symbol “TAHO.”
15.
Defendant Ronald W. Clayton (“Clayton”) has served as Tahoe’s Chief Executive
Officer (“CEO”) since August 2016 and as Tahoe’s President since March 2014. From March
2010 until August 2016, Clayton served as Tahoe’s Chief Operating Officer.
16.
Defendant C. Kevin McArthur (“McArthur”) served as Tahoe’s Chief Executive
Officer from November 2009 until April 2015 and from August 2015 until August 2016.
17.
Defendant Elizabeth Dianne McGregor (“McGregor”) has served as Tahoe’s
Chief Financial Officer (“CFO”) and Vice President since August 2016.
18.
Defendant Mark T. Sadler (“Sadler”) served as Tahoe’s CFO and Vice President
from March 2013 until August 2016.
19.
The defendants referenced above in ¶¶ 15-19 are sometimes referred to herein as
the “Individual Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
20.
Tahoe, together with its subsidiaries, explores, develops, and operates mines in
the Americas. The Company primarily produces copper, gold, silver, lead/zinc, and natural gas
and petroleum, as well as precious metals assets.
Materially False and Misleading Statements Issued During the Class Period
21.
The Class Period begins on April 3, 2013, when Tahoe issued a press release
entitled “Tahoe’s Escobal Project Receives Final Permit.” The press release stated, in relevant
Tahoe Resources Inc. (TSX: THO, NYSE: TAHO) is pleased to announce that it
has received the Escobal exploitation license from Guatemala’s Ministry of
Energy and Mines. Construction activities remain on-budget and on-schedule for
mill commissioning in the second half of 2013 and commercial production in
early 2014.
22.
On May 20, 2013, Tahoe issued a press release, concurrently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending March 31, 2013 (the “Q1 2013 6-K”). For the quarter, Tahoe reported a net loss of $24.9
million, or $0.17 per share.
23.
In the Q1 2013 6-K, Tahoe stated, in relevant part:
Escobal Project Update
The construction and underground development of the Escobal project is
continuing on-schedule and on budget. Engineering, procurement and
construction management was at 79 percent completion and underground
development necessary for commencement of production was at 90 percent
completion as of March 31, 2013. The Company completed 1,937 metres of
underground development during the first quarter and 7,144 metres to date.
24.
On August 8, 2013, Tahoe issued a press release, concurrently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending June 30, 2013 (the “Q2 2013 6-K”). For the quarter, Tahoe reported a net loss of $24.9
million, or $0.11 per share.
25.
In the Q2 2013 6-K, Tahoe stated, in relevant part:
Escobal Project Update
Construction and underground development of the Escobal project continues with
early mill commissioning commencing in late June 2013. Initial production of
metals concentrates is expected to begin in the late third quarter of 2013.
Second quarter underground advance was 2,080 metres with total advance project
to date at 9,221 metres. Access to 18 primary transverse and 18 secondary
transverse stopes from the 1290 and 1265 footwall laterals was achieved at the
end of the second quarter. Final development has been completed in the first five
stopes and production drilling is advancing in the first three stopes as expected.
Approximately 60,000 tonnes of mill feed stockpile is anticipated by mill start-up.
Each of the stopes contains 30,000 to 50,000 tonnes.
The project continues on schedule and on budget with full production anticipated
to commence in the first quarter of 2014. The Company believes it has sufficient
funds to complete construction and commence production.
26.
On November 12, 2013, Tahoe issued a press release, subsequently filed as a
Current Report on Form 6-K with the SEC, announcing the Company’s financial results for the
quarter ending September 30, 2013 (the “Q3 2013 6-K”). For the quarter, Tahoe reported a net
loss of $15.5 million, or $0.11 per share.
27.
In the Q3 2013 6-K, Tahoe stated, in part:
Escobal Project Update
Mill commissioning continued through the quarter with first metals concentrate
being produced on September 30, 2013 and the first concentrate being shipped on
October 15, 2013. The Company plans to ramp-up to full production at the 3500
tpd level by the first quarter of 2014.
The team at Escobal completed 2,102 metres of underground development during
the quarter and 10,934 metres total to date. At the end of the quarter, ten stopes
(underground mining areas) were available for production and an additional ten
stopes were in final development. Stockpiled mill feed totaled 97,250 tonnes at an
estimated grade of 487 grams per tonne (g/t) silver, 0.4 g/t gold, 0.7% lead and
1.3% zinc.
All major components except the paste backfill plant have been fully
commissioned to-date, and no impediments or bottlenecks to the 3500 tpd
designed capacity have been identified. The paste plant is scheduled to be
commissioned during the fourth quarter when the first mined-out stope is
available for cemented backfill placement.
Mill optimization operations are underway to produce commercially viable metals
concentrates to the specifications outlined in the May 2012 Preliminary Economic
Assessment (PEA). This work is moving forward satisfactorily and regular
concentrate shipments to smelters have been underway for the past several weeks.
The present priorities are to bring the metals concentrate qualities up to
commercial specifications and to increase mill throughput to 3500 tpd.
28.
On January 14, 2014, Tahoe issued a press release entitled “Tahoe Announces
Commercial Production At Escobal.” The press release stated, in part:
VANCOUVER, B.C. (January 14, 2014) – Tahoe Resources Inc. (TSX: THO,
NYSE: TAHO) is pleased to announce that its Escobal mine in Guatemala has
reached commercial production. Operations commenced in late September 2013
and production has been ramping towards the 3500 tonne per day (tpd) target
level since that time.
Tahoe President and CEO Kevin McArthur said, “Our Guatemalan team has done
a terrific job in delivering this world-scale silver mine within four years of the
company’s initial public offering. While we continue to optimize the mill, tailings
filtration and paste backfill operations, this has been a remarkable start-up for a
precious metals flotation plant over a very short time period.”
“I am also pleased to report that we have commenced paying Guatemalan income
taxes and look forward to making our first agreed upon royalty payments in the
near future,” added Mr. McArthur. “Escobal mine has been designed and
constructed to the highest environmental and social responsibility standards.
We are very gratified to be working with our Guatemalan partners to bring
sustainable benefits to a broad region of southeastern Guatemala through the
development of Escobal.”
(Emphasis added.)
29.
On March 13, 2014, Tahoe filed an Annual Report on Form 40-F with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2013 the (“2013 40-F”). For the quarter, Tahoe reported a net loss of $9.57
million, or $0.07 per diluted share, on zero revenue, compared to a net loss of $24.92 million, or
$0.17 per diluted share, on zero revenue for the same period in the prior year. For 2013, Tahoe
reported a net loss of $65.6 million, or $0.45 per diluted share, on zero revenue, compared to a
net loss of $93.45 million, or $0.65 per diluted share, on zero revenue for 2012.
30.
In the 2013 40-F, with respect to its licenses regarding the Escobal mine, Tahoe
stated, in relevant part:
PERMITS
Operational activities at the Escobal mine are conducted under permits and
licenses issued by MEM and MARN. All required permits for surface and
underground activities are in place. The environmental approvals and
requirements for the Escobal mine from MARN are specified in Resolution 3061-
2011/DIGARN/ECM/beor, dated October 19, 2011. Exploitation activities are
authorized by MEM through exploitation license LEXT 015-11, dated April 3,
2013 and through the export credential EXPORT –TI -13-2013, dated July 17,
2013 and amended on November 18, 2013.
LEGAL
On July 23, a Court of Appeals in Guatemala held that MEM should have
conducted a hearing of a written opposition to the Escobal exploitation license
during the permitting application process. The court did not rule on the substance
or validity of the opposition; it merely stated that MEM was obligated to hold an
administrative hearing addressing the substance of the opposition under the 1997
Mining Law. The Court did not invalidate or comment on the Escobal
exploitation license in its decision. MEM issued a press release on July 24 stating
that the ruling had no impact on the status of Escobal’s exploitation license. MEM
and the company have appealed the lower court’s decision to the Constitutional
Court. If the Constitutional Court upholds the Court of Appeals’ decision, MEM
will have to hear the opposition which it already stated it believes to be without
merit. A public hearing was held on the issue in November 2013. The
Constitutional Court is expected to issue a ruling in the case sometime in the next
several months.
The Escobal exploitation license is required for the Company to operate the mill
and to produce concentrate from the mine. All other permits required for
continued exploration, construction and operations are in place. However, as the
Escobal mine is the Company’s sole project, if the exploitation permit for Escobal
is unexpectedly suspended, the Company will be unable to generate revenue. As a
result and under such circumstances, the Company expects this would adversely
impact its business, results of operations, financial performance and may result in
default on the debt facility or reduction of workforce at the project.
31.
The 2013 40-F contained signed certifications pursuant to the Sarbanes-Oxley Act
of 2002 (“SOX”) by Defendants McArthur and Sadler, certifying that the 2013 40-F “fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended” and that “the information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operation of the Company.”
32.
On May 8, 2014, Tahoe issued a press release, concurrently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending March 31, 2014 (the “Q1 2014 6-K”). For the quarter, Tahoe reported net earnings of
$24.8 million, or $0.17 per share.
33.
In the Q1 2014 6-K, Tahoe stated, in part:
Tahoe Resources Inc. (TSX: THO, NYSE: TAHO) today reported financial
results for the quarter ending March 31, 2014 and provided a production update
for its Escobal silver mine in Guatemala.
“We are extremely pleased with the Company’s first quarter of commercial
production,” said Tahoe Chief Executive Officer Kevin McArthur. “The ramp-up
to 3,500 tonnes per day (tpd) proceeded according to plan, and despite a handful
of normal startup issues, the operations team maintained operating costs within
expectations,” he added.
“Furthermore, we have consistently delivered on promises to stakeholders.
Escobal has been built to world standards, is a clean operation and is providing
substantial economic benefits to the communities in Guatemala,” added Mr.
McArthur.
34.
On August 12, 2014, Tahoe issued a press release, concurrently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending June 30, 2014 (the “Q2 2014 6-K”). For the quarter, Tahoe reported net earnings of
$36.1 million, or $0.25 per share.
35.
In the Q2 2014 6-K, Tahoe stated, in part:
Tahoe Chief Executive Officer Kevin McArthur said, “The ramp-up and
optimization at Escobal were completed as planned during the second quarter. We
are very happy with the outstanding team performance at the Escobal mine, and
we continue to make great strides towards accomplishing our 2014 goals. In
addition to posting strong operating and financial results for the quarter, we have
positioned the Company’s balance sheet to reflect a strong cash balance by year-
end.”
36.
On November 12, 2014, Tahoe issued a press release, concurrently filed as a
Current Report on Form 6-K with the SEC, announcing the Company’s financial results for the
quarter ending September 30, 2014 (the “Q3 2014 6-K”). For the quarter, Tahoe reported net
earnings of $20.0 million, or $0.13 per share.
37.
In the Q3 2014 6-K, Tahoe stated, in part:
Tahoe Vice Chair and CEO Kevin McArthur said, “We have produced strong free
cash flow in each of our first three quarters of production and paid down $25
million of our term debt this quarter. As the Escobal mine approaches our goal of
18 to 21 million ounces of silver production in its first year, the time is right to
initiate a dividend that we believe is sustainable and can grow over time.”
38.
On March 11, 2015, Tahoe filed an Annual Report on Form 40-F with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2014 the (“2014 40-F”). For the quarter, Tahoe reported net income of $9.84
million, or $0.07 per diluted share, on revenue of $65.4 million, compared to a net loss of $9.57
million, or $0.07 per diluted share, on zero revenue for the same period in the prior year. For
2014, Tahoe reported net income of $90.79 million, or $0.61 per diluted share, on revenue of
$350.27 million, compared to a net loss of $65.6 million, or $0.45 per diluted share, on zero
revenue for 2013.
39.
In the 2014 40-F, with respect to its licenses regarding the Escobal mine, Tahoe
stated, in relevant part:
LEGAL
APPEAL BEFORE THE CONSTITUTIONAL COURT
On July 23, 2013, the Court of Appeals in Guatemala (“the Court”) held that
MEM should have conducted a hearing of a written opposition to the Escobal
mine exploitation license during the permitting application process. The Court did
not rule on the substance or validity of the license; it merely stated that MEM was
obligated to hold an administrative hearing addressing the substance of the
opposition under the 1997 Mining Law. The Court did not invalidate or comment
on the Escobal mine exploitation license in its decision. MEM issued a press
release on July 24, 2013 stating that the ruling had no impact on the status of the
Escobal mine exploitation license. MEM and the Company have appealed the
Court’s decision to the Constitutional Court. If the Constitutional Court upholds
the Court’s decision, MEM will likely be compelled to hear the opposition which
it already stated it believes to be without merit. A public hearing of the appeal was
held in November 2013. The Constitutional Court is expected to issue a ruling in
the case sometime in the near future.
. . .
PERMITS
Operations at the Escobal mine are conducted under permits and licenses issued
by MEM and MARN. All required permits for surface and underground activities
are in place. The environmental approvals and requirements for the Escobal mine
from MARN are specified in Resolution 3061-2011/DIGARN/ECM/beor, dated
October 19, 2011. Exploitation activities are authorized by MEM through
exploitation license LEXT 015-11, dated April 3, 2013. The export of
concentrates from the Escobal mine is licensed through MEM, with annual
renewal requirements. The Company’s export license (EXPORT-TI-17-2014) is
current and valid.
40.
The 2014 20-F contained signed certifications pursuant to SOX by Defendants
McArthur and Sadler, certifying that the 2014 40-F “fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended” and that “the
information contained in the Annual Report fairly presents, in all material respects, the financial
condition and results of operation of the Company.”
41.
On April 28, 2015, Tahoe issued a press release, subsequently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending March 31, 2015 (the “Q1 2015 6-K”). For the quarter, Tahoe reported net earnings of
$31.9 million, or $0.22 per share.
42.
In the Q1 2015 6-K, Tahoe stated, in part:
Escobal Update
Mill throughput for the quarter was 335,174 tonnes at a silver grade of 500 grams
per tonne (gpt). Development of the second mining front on the 1190 level is on
track to meet the mid-year target. Commissioning of the fourth tailings filter is on
schedule for the second quarter and the new paste plant is expected to be
commissioned early in the third quarter, in advance of the 4500 tpd ramp-up.
43.
On August 11, 2015, Tahoe issued a press release, concurrently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending June 30, 2015 (the “Q2 2015 6-K”). For the quarter, Tahoe reported a net loss of $9.3
million, or $0.04 per share.
44.
In the Q2 2015 6-K, Tahoe stated, in part:
Escobal Operations Update
Average mill throughput for the quarter was 4,288 tonnes per day (tpd), with an
average silver head grade of 422 grams per tonne (g/t).
Construction of the paste backfill plant is 85 percent complete, with final
commissioning and start-up scheduled for September 2015. The Company
anticipates annual cost reductions of $1 to $2 million per year when the new plant
is operational.
Installation and commissioning of the fourth tailing filter press has been
completed. The filter press is operating at design specifications allowing the mill
to reach the planned expansion to the 4500 tpd throughput rate.
Installation of the second primary ventilation fan was near completion at the end
of the second quarter with commissioning of the fan scheduled for the third
quarter.
“We are very pleased with the progress at Escobal during the quarter,” said Tahoe
President and Chief Operating Officer Ron Clayton. “The expansion towards
4500 tpd is on schedule and on budget. As planned, our 2015 optimization
program has been successful as demonstrated by the trend of unit cost
reductions.”
45.
On November 12, 2015, Tahoe issued a press release, subsequently filed as a
Current Report on Form 6-K with the SEC, announcing the Company’s financial results for the
quarter ending September 30, 2015 (the “Q3 2015 6-K”). For the quarter, Tahoe reported net
earnings of $13.3 million, or $0.06 per share.
46.
In the Q3 2015 6-K, Tahoe stated, in part:
"Both Escobal and La Arena continue to produce at very low operating costs,"
said Tahoe Executive Chair Kevin McArthur. "In addition, we set a new quarterly
production record of 5.8 million ounces of silver at Escobal, while achieving
record revenues of $145.7 million, and we nearly broke the prior cash flow
record, despite lower metals prices. Our balance sheet remains very strong and the
construction at Shahuindo is on track for the first gold pour in early 2016," he
added.
. . .
Escobal Operations Update
Expansion construction activities are complete and Escobal is operating at the
4500 tpd throughput level. Cost optimization continues as illustrated in the table
below, with approximately 20 percent reduction in operating cost from third
quarter of 2015 compared to the same period in 2014.
47.
On March 24, 2016, Tahoe filed an Annual Report on Form 40-F with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2015 the (“2015 40-F”). For the quarter, Tahoe reported a net loss of $107.72
million, or $0.55 per diluted share, on revenue of $154.89 million, compared to net income of
$9.84 million, or $0.07 per diluted share, on revenue of $65.4 million for the same period in the
prior year. For 2015, Tahoe reported a net loss of $71.91 million, or $0.35 per diluted share, on
revenue of $519.72 million, compared to net income of $90.79 million, or $0.61 per diluted
share, on revenue of $350.27 million for 2014.
48.
In the 2015 40-F, with respect to its licenses regarding the Escobal mine, Tahoe
stated, in relevant part:
LEGAL
APPEAL BEFORE THE CONSTITUTIONAL COURT
On July 23, 2013, the Court of Appeals in Guatemala (“the Court”) held that
MEM should have conducted a hearing of a written opposition to the Escobal
Mine exploitation license during the permitting application process. The Court did
not rule on the substance or validity of the license; it merely stated that MEM was
obligated to hold an administrative hearing addressing the substance of the
opposition under the 1997 Mining Law. The Court did not invalidate or comment
on the Escobal exploitation license in its decision. MEM issued a press release on
July 24, 2013 stating that the ruling had no impact on the status of the Company’s
exploitation license. On July 25, 2013, MEM and the Company appealed the
Court’s decision to the Constitutional Court and the Constitutional Court upheld
the Court’s decision, compelling MEM to conduct a hearing on the opposition
that MEM already found to be without merit. The claimants subsequently
requested a clarification from the Constitutional Court, which is currently
pending.
. . .
PERMITS
Operations at the Escobal Mine are conducted under permits and licenses issued
by MEM and MARN. All required permits for surface and underground activities
are in place. The environmental approvals and requirements for the Escobal Mine
from MARN are specified in Resolution 3061-2011/DIGARN/ECM/beor, dated
October 19, 2011. Exploitation activities are authorized by MEM through
exploitation license LEXT 015-11, dated April 3, 2013. The export of
concentrates from the Escobal Mine is licensed through MEM, with annual
renewal requirements. The Company’s export license (EXPORT 41-15) is current
and valid.
49.
The 2015 40-F contained signed certifications pursuant to SOX by Defendants
McArthur and Sadler, certifying that the 2015 40-F “fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended” and that “the
information contained in the Annual Report fairly presents, in all material respects, the financial
condition and results of operation of the Company.”
50.
On May 3, 2016, Tahoe issued a press release, subsequently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending March 31, 2016 (the “Q1 2016 6-K”). For the quarter, Tahoe reported net earnings of
$35.5 million, or $0.16 per share.
51.
In the Q1 2016 6-K, Tahoe stated, in part:
Escobal Operations Update
Average mill throughput at the Escobal mine was 4,264 tonnes per day with an
average silver head grade of 524 grams per tonne (“gpt”) compared to average
mill throughput of 3,724 tpd with an average silver head grade of 500 gpt in the
first quarter of 2015. The mine produced metal concentrates containing 5.7
million ounces of silver, 3,298 ounces of gold, 2,738 tonnes of lead and 4,224
tonnes of zinc during the first quarter of 2016 compared to 4.6 million ounces of
silver, 2,542 ounces of gold, 2,258 tonnes of lead and 3,410 tonnes of zinc for the
same period in 2015. The average silver recovery to concentrates was 87.1%
versus 85.0% in the first quarter of 2015.
During the first quarter of 2016, 5,474 dry metric tonnes of lead concentrate and
7,018 dry metric tonnes of zinc concentrate containing approximately 4.6 million
payable ounces of silver were shipped and sold to third party smelters.
Concentrate sales during the quarter generated $78.2 million in revenues at mine
operating costs of $46.5 million resulting in mine operating earnings of $31.7
million.
Total cash costs per ounce of silver produced in concentrate, net of byproduct
credits, for the first quarter of 2016 averaged $4.51, compared to $7.10 per ounce
in the first quarter of 2015. AISC per ounce of silver, net of byproduct credits,
averaged $5.97 per ounce versus $9.78 per ounce for the same period a year ago.
Cost and productivity improvements in the mine and mill, coupled with favorable
diesel fuel prices, continue to drive production costs lower.
52.
On August 10, 2016, Tahoe issued a press release, subsequently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending June 30, 2016 (the “Q2 2016 6-K”). For the quarter, Tahoe reported net earnings of
$57.9 million, or $0.19 per share.
53.
In the Q2 2016 6-K, Tahoe stated, in part:
Silver Operations
Escobal
Average mill throughput at the Escobal mine during Q2 2016 was 4,388 tonnes
per day (“tpd”) with an average silver head grade of 509 grams per tonne (“gpt”)
compared to average mill throughput of 4,288 tpd with an average silver head
grade of 422 gpt in Q2 2015. The mine produced metal concentrates containing
5.7 million ounces of silver, 2,711 ounces of gold, 2,699 tonnes of lead and 4,037
tonnes of zinc during Q2 2016 compared to 4.5 million ounces of silver, 2,069
ounces of gold, 1,958 tonnes of lead and 2,954 tonnes of zinc for the same period
in 2015. The average silver recovery to concentrates was 87.6% versus 84.8% in
Q2 2015.
During Q2 2016, 6,024 dry metric tonnes of lead concentrate and 7,523 dry metric
tonnes of zinc concentrate containing approximately 5.2 million payable ounces
of silver were shipped and sold to third party smelters. Concentrate sales during
the quarter generated $103.7 million in revenues at mine operating costs of $53.8
million resulting in mine operating earnings of $49.9 million. Cost and
productivity improvements in the mine and mill, coupled with favorable diesel
fuel prices, continue to drive production costs lower. Every 10% change in the
price of diesel fuel impacts Escobal’s total cash costs and AISC by approximately
$0.10 per ounce. The average price of diesel fuel used in power generation in the
first half of 2016 was $1.60 per gallon compared to an assumed price of $2.60 per
gallon used for the Company’s original 2016 cost guidance.
54.
On November 3, 2016, Tahoe issued a press release, subsequently filed as a
Current Report on Form 6-K with the SEC, announcing the Company’s financial results for the
quarter ending September 30, 2016 (the “Q3 2016 6-K”). For the quarter, Tahoe reported net
earnings of $63.0 million, or $0.20 per share.
55.
In the Q3 2016 6-K, Tahoe stated, in part:
Ron Clayton, Tahoe’s President and CEO, commented, “We are well on the way
to a record year in 2016, including achieving our key production and cost
guidance. Escobal is having an outstanding year with both production and unit
costs running at or better than expected levels. Driven by our strong results at
Escobal, we are on track to pay over $35 million in royalties and taxes in
Guatemala in 2016, in addition to paying approximately $20 million in wages
and benefits and making significant direct investments in support of nutritional
programs, education, skills training, agriculture and infrastructure development
in the communities surrounding the mine. We have over 1,000 employees at
Escobal, 97% of whom are Guatemalan. We very much appreciate the efforts of
our employees and the strong support we receive from the surrounding
community.
. . .
Silver Operations
Escobal
Average mill throughput at the Escobal mine during Q3 2016 was 4,472 tonnes
per day (“tpd”) at an average silver head grade of 444 grams per tonne (“gpt”)
compared to average mill throughput of 4,446 tpd at an average silver head grade
of 508 gpt in the third quarter of 2015 (“Q3 2015”). The mine produced metal
concentrates containing 5.0 million ounces of silver, 2,314 ounces of gold, 2,017
tonnes of lead and 2,974 tonnes of zinc during Q3 2016 compared to 5.8 million
ounces of silver, 3,744 ounces of gold, 2,862 tonnes of lead and 4,033 tonnes of
zinc for the same period in 2015. The average silver recovery to concentrates
was 84.8% versus 87.1% in Q3 2015, with the reduction reflecting lower grades
and the introduction of ore from the East Zone to the process plant.
During Q3 2016, 5,072 dry metric tonnes (“dmt”) of lead concentrate and 5,845
dry metric tonnes of zinc concentrate containing approximately 4.8 million
payable ounces of silver were shipped and sold to third party smelters compared
to 6,687 dmt of lead concentrate and 6,113 dmt of zinc concentrate containing
approximately 5.5 million payable ounces of silver shipped and sold during Q3
2015. Concentrate sales during the quarter generated $103.5 million in revenues
at mine operating costs of $47.7 million resulting in mine operating earnings of
$55.8 million. Concentrate sales for Q3 2015 generated $82.6 million in
revenues at operating costs of $60.0 million resulting in a mine operating
earnings of $22.6 million. Cost and productivity improvements in the mine and
mill, coupled with favorable diesel fuel prices, continue to drive low production
costs. Every 10% change in the price of diesel fuel impacts Escobal’s total cash
costs and AISC by approximately $0.10 per ounce. The average price of diesel
fuel used in power generation in Q3 YTD 2016 was approximately $2.00 per
gallon compared to an assumed price of $2.60 per gallon used for the Company’s
original 2016 cost guidance.
56.
On March 10, 2017, Tahoe filed an Annual Report on Form 40-F with the SEC,
announcing the Company’s financial and operating results for the quarter and year ended
December 31, 2016 the (“2016 40-F”). For the quarter, Tahoe reported net income of $0.32
million, or zero per diluted share, on revenue of $189.4 million, compared to a net loss of
$107.72 million, or $0.55 per diluted share, on revenue of $154.89 million for the same period in
the prior year. For 2016, Tahoe reported net income of $117.88 million, or $0.41 per diluted
share, on revenue of $784.5 million, compared to a net loss of $71.91 million, or $0.35 per
diluted share, on revenue of $519.72 million for 2015.
57.
In the 2016 40-F, with respect to its licenses regarding the Escobal mine, Tahoe
stated, in relevant part:
LEGAL
APPEAL BEFORE THE CONSTITUTIONAL COURT
On July 23, 2013, the Court of Appeals in Guatemala (the “Court”) held that
MEM should have conducted a hearing of a written opposition to the Escobal
Mine Exploitation License (“Opposition”) during the permitting application
process. The Court did not rule on the substance or validity of the license; it
merely stated that MEM was obligated to hold an administrative hearing
addressing the substance of the Opposition under the 1997 Mining Law. MEM
issued a press release on July 24, 2013 stating that the ruling had no impact on the
status of the Company’s exploitation license. On July 25, 2013, MEM and the
Company appealed the Court’s decision to the Constitutional Court and the
Constitutional Court upheld the Court’s decision, compelling MEM to conduct a
hearing on the Opposition that MEM already found to be without merit. The
claimants subsequently requested a clarification from the Constitutional Court,
which the Court denied in early May 2016.
In June 2016, MEM commenced the hearing process and then suspended it
indefinitely. The Opposition involves dated claims of prospective environmental
harm (no such harm has materialized since production at Escobal began three
years ago) and new claims of inadequate consultation. Based on the legal posture
of the case, the lack of environmental harm after three years of operations and the
extensive consultation process that MSR followed prior to issuance of the license,
the Company expects a favorable ruling.
. . .
PERMITS
Operations at the Escobal Mine are conducted under permits and licenses issued
by MEM and MARN. All required permits for surface and underground activities
are in place. The environmental approvals and requirements for the Escobal Mine
from MARN are specified in Resolution 3061-2011/DIGARN/ECM/beor, dated
October 19, 2011. Exploitation activities are authorized by MEM through
exploitation license LEXT 015-11, dated April 3, 2013. The export of
concentrates from the Escobal Mine is licensed through MEM, with annual
renewal requirements. The Company’s export license (EXPORT-TI-10-2016) is
current and valid.
58.
The 2016 40-F contained signed certifications pursuant to SOX by Defendants
Clayton and McGregor, certifying that the 2016 40-F “fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended” and that “the
information contained in the Annual Report fairly presents, in all material respects, the financial
condition and results of operation of the Company.”
59.
On May 2, 2017, Tahoe issued a press release, concurrently filed as a Current
Report on Form 6-K with the SEC, announcing the Company’s financial results for the quarter
ending March 31, 2017 (the “Q1 2017 6-K”). For the quarter, Tahoe reported net earnings of
$74.7 million, or $0.24 per share.
60.
In the Q1 2017 6-K, Tahoe stated, in part:
Another excellent quarter at Escobal – Tahoe reported total silver production in
Q1 2017 of 5.7 million ounces driven by strong results at Escobal. Q1 2017 silver
production was 17% higher than the previous quarter and the highest quarterly
production since Q1 2016 (5.7 million ounces). Total cash costs and all-in
sustaining costs (“AISC”) were $5.72 and $8.11 per ounce of silver produced, net
of byproduct credits, respectively, better than the $6.48 and $9.76 per ounce
recorded in Q4 2016 and well below the full-year target ranges included in the
Company’s 2017 guidance.
. . .
Silver Operations
Escobal
Mill throughput averaged 4,332 tonnes per day (“tpd”) during Q1 2017. The mill
processed a total of 0.4 million tonnes at an average silver head grade of 520
grams per tonne (“g/t”) with an average silver recovery of 86% during the quarter.
The mine produced metal concentrates containing 5.6 million payable ounces of
silver, 2,500 ounces of gold, 2,200 tonnes of lead and 3,200 tonnes of zinc in Q1
2017. Silver production for the quarter compared favourably to full-year 2017
guidance and was 17% higher than the previous quarter and largely in line with
Q1 2016 levels.
A total of 5.5 million ounces of silver in concentrate were sold in Q1 2017, which
was approximately one million ounces more than was sold in Q4 2016 and Q1
2016. Concentrate sales during the quarter generated $113.1 million in revenues
at mine operating costs of $53.5 million resulting in mine operating earnings of
$59.6 million.
Total cash costs net of by-product credits for Q1 2017 were $5.72 per ounce,
while AISC were $8.11 per ounce. Per ounce silver costs averaged below the
target ranges included in the Company’s full-year 2017 guidance and improved
from Q4/16. Total cash costs in Q1 2017 were $1.21 per ounce or 27% higher
than in Q1 2016, while AISC increased by $2.14 per ounce or 36% from the same
quarter a year earlier. The increase in total cash costs and AISC was primarily the
result of an additional $5.3 million in royalty expense during Q1 2017 as a result
of the finalization of sales above the $16.00 per ounce threshold when compared
to Q1 2016. AISC were also impacted by a $5.8 million increase in sustaining
capital.
61.
The statements referenced in ¶¶ 21-60 were materially false and misleading
because defendants made false and/or misleading statements, as well as failed to disclose
material adverse facts about the Company’s business, operational and compliance policies.
Specifically, defendants made false and/or misleading statements and/or failed to disclose that:
(i) Guatemala’s MEM had granted the Escobal mining license to Tahoe’s Minera San Rafael
subsidiary without prior consultation with Guatemala’s Xinca indigenous people; (ii) the
foregoing constituted a violation of Guatemalan law and provided a basis for suspension of the
Escobal license; (iii) consequently, the Company’s revenues associated with the Escobal mining
license were unlikely to be sustainable; and (iv) as a result of the foregoing, Tahoe’s public
statements were materially false and misleading at all relevant times.
The Truth Emerges
62.
On July 6, 2017, Tahoe issued a press release, entitled “Guatemalan Lower Court
Issues Ruling on Tahoe’s Mining License.” The press release stated, in part:
VANCOUVER, British Columbia – July 5, 2017 – Tahoe Resources Inc. (TSX:
THO, NYSE: TAHO) (“Tahoe” or the “Company”) today reported that the
Company has learned that the Supreme Court of Guatemala has issued a
provisional decision in respect of an action brought by the anti-mining
organization, CALAS, against Guatemala’s Ministry of Energy and Mines
(“MEM”). The action alleges that MEM violated the Xinca Indigenous people’s
right of consultation in advance of granting the Escobal mining license to Tahoe’s
Guatemalan subsidiary, Minera San Rafael. The provisional decision is in respect
of a request by CALAS for an order to temporarily suspend the license to operate
the Escobal mine until the action is fully heard. The Company understands that no
Xinca representative or community is currently participating in the CALAS
lawsuit against MEM.
The provisional decision suspends the Escobal mining license of Minera San
Rafael while the action is being reviewed by the court. The Company was not a
party to the action commenced by CALAS and did not previously have standing
to make submissions to the court in respect of the provisional application. This
decision confers legal standing on the Company which will now take all legal
steps possible to have the ruling reversed and the license reinstated as soon as
possible, including immediately appealing the decision to the Constitutional
Court.
. . .
While the Company cannot determine at this time when or if the suspension will
be rescinded and the license will be reinstated, including for purposes of
conducting a consultation process, we believe ILO 169 does not apply here, and if
it did apply, was already met. We understand that the effect of ruling in favour of
CALAS could mean that consultation must occur before the suspension is
revoked. It could also mean, as happened in similar cases in Guatemala, that the
court could allow operations to resume while a consultation process is conducted.
We believe that the timeframe to undertake the consultation processes, and for a
reconsideration of our application for the issue of the license, could be in the
range of six to 12 months.
Upon formal receipt of the order temporarily suspending the license for Escobal,
the mine will be placed on stand-by and is planned to be maintained in a manner
such that full production can be expeditiously resumed on a reversal of the
suspension. During this time, the Company will continue to maintain its high
standard of security and environmental protection.
63.
On this news, Tahoe’s common share price fell $2.74, or 33.01%, to close at
$5.56 on July 6, 2017.
64.
As a result of Defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
65.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired Tahoe securities during the Class Period (the “Class”); and were damaged
upon the revelation of the alleged corrective disclosures. Excluded from the Class are defendants
herein, the officers and directors of the Company, at all relevant times, members of their
immediate families and their legal representatives, heirs, successors or assigns and any entity in
which defendants have or had a controlling interest.
66.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Tahoe securities were actively traded on the NYSE.
While the exact number of Class members is unknown to Plaintiff at this time and can be
ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or
thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by Tahoe or its transfer agent and may be notified of
the pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
67.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by defendants’ wrongful conduct in violation of
federal law that is complained of herein.
68.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
69.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
•
whether the federal securities laws were violated by defendants’ acts as alleged
herein;
•
whether statements made by defendants to the investing public during the Class
Period misrepresented material facts about the business, operations and
management of Tahoe;
•
whether the Individual Defendants caused Tahoe to issue false and misleading
financial statements during the Class Period;
•
whether defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
•
whether the prices of Tahoe securities during the Class Period were artificially
inflated because of the defendants’ conduct complained of herein; and
•
whether the members of the Class have sustained damages and, if so, what is the
proper measure of damages.
70.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
71.
Plaintiff will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
•
defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
•
the omissions and misrepresentations were material;
•
Tahoe securities are traded in an efficient market;
•
the Company’s shares were liquid and traded with moderate to heavy volume
during the Class Period;
•
the Company traded on the NYSE and was covered by multiple analysts;
•
the misrepresentations and omissions alleged would tend to induce a reasonable
investor to misjudge the value of the Company’s securities; and
•
Plaintiff and members of the Class purchased, acquired and/or sold Tahoe
securities between the time the defendants failed to disclose or misrepresented
material facts and the time the true facts were disclosed, without knowledge of
the omitted or misrepresented facts.
72.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
73.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State
of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material
information in their Class Period statements in violation of a duty to disclose such information,
as detailed above.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
Against All Defendants)
74.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
75.
This Count is asserted against defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.
76.
During the Class Period, defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and employed devices, schemes and artifices to
defraud in connection with the purchase and sale of securities. Such scheme was intended to,
and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and
other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of
Tahoe securities; and (iii) cause Plaintiff and other members of the Class to purchase or
otherwise acquire Tahoe securities and options at artificially inflated prices. In furtherance of
this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions
set forth herein.
77.
Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
above, including statements made to securities analysts and the media that were designed to
influence the market for Tahoe securities. Such reports, filings, releases and statements were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about Tahoe’s finances and business prospects.
78.
By virtue of their positions at Tahoe, defendants had actual knowledge of the
materially false and misleading statements and material omissions alleged herein and intended
thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants
acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose
such facts as would reveal the materially false and misleading nature of the statements made,
although such facts were readily available to defendants. Said acts and omissions of defendants
were committed willfully or with reckless disregard for the truth. In addition, each defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above.
79.
Information showing that defendants acted knowingly or with reckless disregard
for the truth is peculiarly within defendants’ knowledge and control. As the senior managers
and/or directors of Tahoe, the Individual Defendants had knowledge of the details of Tahoe’s
internal affairs.
80.
The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein. Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
Tahoe. As officers and/or directors of a publicly-held company, the Individual Defendants had a
duty to disseminate timely, accurate, and truthful information with respect to Tahoe’s businesses,
operations, future financial condition and future prospects. As a result of the dissemination of
the aforementioned false and misleading reports, releases and public statements, the market price
of Tahoe securities was artificially inflated throughout the Class Period. In ignorance of the
adverse facts concerning Tahoe’s business and financial condition which were concealed by
defendants, Plaintiff and the other members of the Class purchased or otherwise acquired Tahoe
securities at artificially inflated prices and relied upon the price of the securities, the integrity of
the market for the securities and/or upon statements disseminated by defendants, and were
damaged thereby.
81.
During the Class Period, Tahoe securities were traded on an active and efficient
market. Plaintiff and the other members of the Class, relying on the materially false and
misleading statements described herein, which the defendants made, issued or caused to be
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares
of Tahoe securities at prices artificially inflated by defendants’ wrongful conduct. Had Plaintiff
and the other members of the Class known the truth, they would not have purchased or otherwise
acquired said securities, or would not have purchased or otherwise acquired them at the inflated
prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class,
the true value of Tahoe securities was substantially lower than the prices paid by Plaintiff and the
other members of the Class. The market price of Tahoe securities declined sharply upon public
disclosure of the facts alleged herein to the injury of Plaintiff and Class members.
82.
By reason of the conduct alleged herein, defendants knowingly or recklessly,
directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder.
83.
As a direct and proximate result of defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases,
acquisitions and sales of the Company’s securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
COUNT II
(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)
84.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
85.
During the Class Period, the Individual Defendants participated in the operation
and management of Tahoe, and conducted and participated, directly and indirectly, in the
conduct of Tahoe’s business affairs. Because of their senior positions, they knew the adverse
non-public information about Tahoe’s misstatement of income and expenses and false financial
statements.
86.
As officers and/or directors of a publicly owned company, the Individual
Defendants had a duty to disseminate accurate and truthful information with respect to Tahoe’s
financial condition and results of operations, and to correct promptly any public statements
issued by Tahoe which had become materially false or misleading.
87.
Because of their positions of control and authority as senior officers, the
Individual Defendants were able to, and did, control the contents of the various reports, press
releases and public filings which Tahoe disseminated in the marketplace during the Class Period
concerning Tahoe’s results of operations. Throughout the Class Period, the Individual
Defendants exercised their power and authority to cause Tahoe to engage in the wrongful acts
complained of herein. The Individual Defendants therefore, were “controlling persons” of Tahoe
within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in
the unlawful conduct alleged which artificially inflated the market price of Tahoe securities.
88.
Each of the Individual Defendants, therefore, acted as a controlling person of
Tahoe. By reason of their senior management positions and/or being directors of Tahoe, each of
the Individual Defendants had the power to direct the actions of, and exercised the same to cause,
Tahoe to engage in the unlawful acts and conduct complained of herein. Each of the Individual
Defendants exercised control over the general operations of Tahoe and possessed the power to
control the specific activities which comprise the primary violations about which Plaintiff and
the other members of the Class complain.
89.
By reason of the above conduct, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act for the violations committed by Tahoe.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.
Determining that the instant action may be maintained as a class action under
Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B.
Requiring Defendants to pay damages sustained by Plaintiff and the Class by
reason of the acts and transactions alleged herein;
C.
Awarding Plaintiff and the other members of the Class prejudgment and post-
judgment interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and
D.
Awarding such other and further relief as this Court may deem just and proper.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: July 7, 2017
Respectfully submitted,
POMERANTZ LLP
/s/ Jeremy A. Lieberman
Jeremy A. Lieberman
J. Alexander Hood II
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
Email: jalieberman@pomlaw.com
ahood@pomlaw.com
POMERANTZ LLP
Patrick V. Dahlstrom
10 South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
Email: pdahlstrom@pomlaw.com
Attorneys for Plaintiff
| securities |
LVWTBIkBRpLueGJZ-iO8 | POMERANTZ LLP
Jennifer Pafiti (SBN 282790)
1100 Glendon Avenue, 15th Floor
Los Angeles, California 90024
Telephone: (310) 405-7190
jpafiti@pomlaw.com
Attorney for Plaintiff
[Additional Counsel on Signature Page]
'20CV1066
WVG
JAH
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
JEANNETTE CALVO, Individually
and On Behalf of All Others
Similarly Situated,
Plaintiff,
v.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF THE FEDERAL SECURITIES
LAWS
DEMAND FOR JURY TRIAL
SORRENTO THERAPEUTICS, INC.,
HENRY JI, and MARK R.
BRUNSWICK,
Defendants.
Plaintiff Jeannette Calvo (“Plaintiff”), individually and on behalf of all other
persons similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s
complaint against Defendants, alleges the following based upon personal knowledge
as to Plaintiff and Plaintiff’s own acts, and information and belief as to all other
matters, based upon, inter alia, the investigation conducted by and through
Plaintiff’s attorneys, which included, among other things, a review of the
Defendants’ public documents, conference calls and announcements made by
Defendants, United States (“U.S.”) Securities and Exchange Commission (“SEC”)
filings, wire and press releases published by and regarding Sorrento Therapeutics,
Inc. (“Sorrento” or the “Company”), analysts’ reports and advisories about the
Company, and information readily obtainable on the Internet. Plaintiff believes that
substantial evidentiary support will exist for the allegations set forth herein after a
reasonable opportunity for discovery.
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf of a class consisting
of all persons other than Defendants who purchased or otherwise acquired Sorrento
securities between May 15, 2020, and May 22, 2020, both dates inclusive (the “Class
Period”), seeking to recover damages caused by Defendants’ violations of the federal
securities laws and to pursue remedies under Sections 10(b) and 20(a) of the
1
Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated
thereunder, against the Company and certain of its top officials.
2.
Sorrento was founded in 2006 and is based in San Diego, California.
Sorrento is a clinical stage biopharmaceutical company that engages in the
development of therapies for the treatment of cancer, autoimmune, inflammatory,
and neurodegenerative diseases.
3.
On May 8, 2020, Sorrento announced a collaboration with Mount Sinai
Health System (“Mount Sinai”) for the purpose of “generat[ing] antibody products
that would act as a ‘protective shield’ against SARS-CoV-2 coronavirus infection,
potentially blocking and neutralizing the activity of the virus in naïve at-risk
populations as well as recently infected individuals.”
4.
On May 15, 2020, during pre-market hours, news sources reported that
Sorrento had announced discovery of the STI-1499 antibody, which the Company
described as providing “100% inhibition” of COVID-19. That same day, Defendant
Henry Ji, Ph.D. (“Ji”), founder and Chief Executive Officer (“CEO”) of Sorrento
referred to Sorrento’s breakthrough as a “cure.”
5.
On this news, Sorrento’s stock price rose $4.14 per share, or 158.02%,
to close at $6.76 per share on May 15, 2020, on unusually heavy trading volume.
The stock continued to increase after hours and opened at $9.98 per share on May
2
18, 2020, trading at a high of $10.00 per share that same day, which represented an
increase of 281.68% from the May 14, 2020 closing price.
6.
Throughout the Class Period, Defendants made materially false and
misleading statements regarding the Company’s business, operational and
compliance policies. Specifically, Defendants made false and/or misleading
statements and/or failed to disclose that: (i) Sorrento had overstated the prospects of
the STI-1499 antibody for completely inhibiting COVID-19; (ii) the foregoing, once
revealed, was foreseeably likely to have a material negative impact on the
Company’s financial results; and (iii) as a result, the Company’s public statements
were materially false and misleading at all relevant times.
7.
On May 18, 2020, during pre-market hours, Vital Knowledge Media,
an online investor information resource, expressed skepticism over Sorrento’s
announcement regarding the discovery of the STI-1499 antibody, describing the
Company’s statements as “very disingenuous” and stating that “some of the
narratives around drugs and vaccines” needed to be tempered.
8.
On this news, Sorrento’s stock price fell $0.26 per share, or 3.85%, to
close at $6.50 per share on May 18, 2020.
9.
On May 19, 2020, during pre-market hours, BayStreet.ca Media Corp
(“BayStreet”), a leading Canadian online investor news resource, published an
article entitled “Sell Sorento,” which alleged that statements made by Defendant Ji
3
about the STI-1499 antibody were misleading. Specifically, the article called into
question Ji’s representations to Fox News, wherein Ji stated “[w]e want to emphasize
there is a cure” and “[t]here is a solution that works 100 percent,” noting that
“[a]stute investors should recognize that no true biotechnology firm would make
such a claim” and “Sorrento may just want to get attention and push up the value of
its stock” given that “[i]ts balance sheet is poor with a debt/equity of 2 times.” The
article ultimately concluded by calling the Company’s stock “speculative” and
cautioned investors to “[a]void.”
10.
On this news, Sorrento’s stock price fell $1.08 per share, or 16.62%, to
close at $5.42 per share on May 19, 2020.
11.
On May 20, 2020, Hindenburg Research (“Hindenburg”) published a
report (the “Hindenburg Report”) doubting the validity of Sorrento’s claims and
calling them “sensational,” “nonsense” and “too good to be true.” Hindenburg spoke
with researchers at Mount Sinai who stated that Sorrento’s announcement was “very
hyped” and that “nothing in medicine is 100%.” The Hindenburg Report also
asserted that Sorrento faced significant solvency concerns ahead of its
announcement regarding a supposed COVID-19 cure, citing statements by former
employees, and asserted that “Sorrento’s actions are manipulative at the worst
possible time and simply amount to an attempt to shamelessly profiteer off the
pandemic.”
4
12.
However, that same day, Defendant Ji appeared on Yahoo! Finance to
rebut the Hindenburg Report, stating that “investor[s] suspecting . . . another pump
and dump” were wrong and that “when you see a virus is not infecting the healthy
cell, you know you have the real deal” and “eventually the market [will] catch[] up.”
13.
On the Hindenburg Report and rebuttal news, Sorrento’s stock price
closed at $5.70 per share on May 20, 2020, representing a decline of $4.30 per share,
or 43.00%, from the Class Period high, on unusually high volume.
14.
Finally, on May 22, 2020, Hindenburg published a post on Twitter,
alleging that, moments ago, Defendant Ji had “walked back his comments about
having a cure,” that Hindenburg “believe[s] this amounts to flagrant securities fraud
when compared to his statements to Fox [News] last week,” and “encourag[ed]
regulators to investigate any stock sales in the interim.” Specifically, Hindenburg
cited comments Ji made in an interview with BioSpace, an online life science
industry news outlet. The BioSpace article stated that in a May 21, 2020 interview
with Defendants Ji and Mark R. Brunswick, Ph.D. (“Brunswick”), Ji “insist[ed] that
they did not say it was a cure.” Ji is quoted as saying:
[I]f it gets through safety studies, if it demonstrates efficacy, it
potentially is a cure—if you have the antibody in the blood and it
prevents infection. After virus infection, if it blocks the virus from
replicating in healthy cells continuously, you might have a cure. We
cannot cure the late-stage patients, on ventilators, because of all the
other comorbidities and complications. Those are not the job of the
antibodies.
5
(Emphases in original.)
15.
On this news, Sorrento’s stock price closed at $5.07 per share on May
22, 2020, representing a decline of $4.93 per share, or 49.3%, from the Class Period
high, on unusually high volume.
16.
As a result of Defendants’ wrongful acts and omissions, and the
precipitous decline in the market value of the Company’s securities, Plaintiff and
other Class members have suffered significant losses and damages.
JURISDICTION AND VENUE
17.
The claims asserted herein arise under and pursuant to Sections 10(b)
and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5
promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5).
18.
This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. § 1331 and Section 27 of the Exchange Act.
19.
Venue is proper in this Judicial District pursuant to Section 27 of the
Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b). Substantial acts in
furtherance of the alleged fraud or the effects of the fraud have occurred in this
Judicial District. Many of the acts charged herein, including the dissemination of
materially false and/or misleading information, occurred in substantial part in this
Judicial District. In addition, the Company’s principal executive offices are located
in this Judicial District.
6
20.
In connection with the acts alleged in this complaint, Defendants,
directly or indirectly, used the means and instrumentalities of interstate commerce,
including, but not limited to, the mails, interstate telephone communications, and the
facilities of the national securities markets.
PARTIES
21.
Plaintiff, as set forth in the attached Certification, acquired Sorrento
securities at artificially inflated prices during the Class Period and was damaged
upon the revelation of the alleged corrective disclosures.
22.
Defendant Sorrento is a Delaware corporation with principal executive
offices located at 4955 Directors Place, San Diego, California 92121. Sorrento
common stock trades in an efficient market on the Nasdaq Stock Market
(“NASDAQ”) under the ticker symbol “SRNE.”
23.
Defendant Ji was Sorrento’s Co-Founder, Chairman of the Board of
Directors, CEO, and President at all relevant times. He has also served as a Director
of Sorrento since January 2006, and previously served as Sorrento’s Chief Scientific
Officer from November 2008 to September 2012.
24.
Defendant Brunswick was the Vice President of Regulatory Affairs and
Quality of Sorrento at all relevant times.
25.
Defendants Ji and Brunswick are sometimes referred to herein
collectively as the “Individual Defendants.”
7
26.
The Individual Defendants possessed the power and authority to control
the contents of Sorrento’s SEC filings, press releases, and other market
communications. The Individual Defendants were provided with copies of
Sorrento’s SEC filings and press releases alleged herein to be misleading prior to or
shortly after their issuance and had the ability and opportunity to prevent their
issuance or to cause them to be corrected. Because of their positions with Sorrento,
and their access to material information available to them but not to the public, the
Individual Defendants knew that the adverse facts specified herein had not been
disclosed to and were being concealed from the public, and that the positive
representations being made were then materially false and misleading. The
Individual Defendants are liable for the false statements and omissions pleaded
herein.
27.
Sorrento and the Individual Defendants are sometimes collectively
referred to herein as “Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
28.
Sorrento was founded in 2006 and is based in San Diego, California.
Sorrento is a clinical stage biopharmaceutical company that engages in the
development of therapies for the treatment of cancer, autoimmune, inflammatory,
and neurodegenerative diseases.
8
29.
On May 8, 2020, Sorrento announced a collaboration with Mount Sinai
for the purpose of “generat[ing] antibody products that would act as a ‘protective
shield’ against SARS-CoV-2 coronavirus infection, potentially blocking and
neutralizing the activity of the virus in naïve at-risk populations as well as recently
infected individuals.”
Materially False and Misleading Statements Issued During the Class Period
30.
The Class Period begins on May 15, 2020, when Fox News reported
that Sorrento had made a “coronavirus antibody breakthrough,” which the Company
would announce in a press release later that day, citing an exclusive interview with
Defendant Ji (the “Fox News Report”). Specifically, Sorrento claimed to have
discovered the STI-1499 antibody, which it stated can provide “100% inhibition” of
COVID-19.
31.
The Fox News Report also quoted Defendant Ji, who touted, in relevant
part: “We want to emphasize there is a cure. There is a solution that works 100
percent . . . . If we have the neutralizing antibody in your body, you don't need the
social distancing. You can open up a society without fear . . . . This puts its arms
around the virus. It wraps around the virus and moves them out of the body . . . .
This is the best solution . . . .” Defendant Ji’s statement misleadingly referred to
Sorrento’s research as a “cure.”
9
32.
Additionally, the Fox News Report quoted Defendant Brunswick, who
touted, in relevant part: “As soon as [the COVID-19 antibody] is infused, that patient
is now immune to the disease . . . . For the length of time, the antibody is in that
system. So, if we were approved [by the FDA] today, everyone who gets that
antibody can go back to work and have no fear of catching COVID-19.” (Alteration
in original). Defendant Brunswick’s statement misleadingly conflated Sorrento’s
finding of 100% inhibition in an in vitro virus infection with 100% inhibition in a
“patient.”
33.
Later that day, Sorrento issued a press release announcing its discovery
of the STI-1499 antibody, which the Company again described as providing “100%
inhibition” of COVID-19 (the “May 2020 Press Release”). Specifically, that press
release touted, in relevant part, that Sorrento’s “anti-SARS-CoV-2 antibody, STI-
1499, demonstrated 100% inhibition of SARS-CoV-2 virus infection in an in vitro
virus infection experiment at a very low antibody concentration”; that “Sorrento has
been diligently screening billions of antibodies” and, “[a]mong the antibodies
showing neutralizing activity, one antibody stood out for its ability to completely
block SARS-CoV-2 infection of healthy cells in the experiments,” namely, STI-
1499, which “completely neutralized the virus infectivity at a very low antibody
dose, making it a prime candidate for further testing and development”; and that
10
“[i]nitial biochemical and biophysical analyses also indicate STI-1499 is a
potentially strong antibody drug candidate.”
34.
Additionally, the May 2020 Press Release quoted Defendant Ji, who
touted, in relevant part: “Our STI-1499 antibody shows exceptional therapeutic
potential and could potentially save lives following receipt of necessary regulatory
approvals. We at Sorrento are working day and night to complete the steps necessary
to get this product candidate approved and available to the waiting public[.]”
35.
Following this news, Sorrento’s stock price rose $4.14 per share, or
158.02%, to close at $6.76 per share on May 15, 2020, on unusually heavy trading
volume. The stock continued to increase after hours and opened at $9.98 per share
on May 18, 2020, trading at a high of $10.00 per share that same day, which
represented an increase of 281.68% from the May 14, 2020 closing price.
36.
The statements referenced in ¶¶ 30-34 were materially false and
misleading because Defendants made false and/or misleading statements, as well as
failed to disclose material adverse facts about the Company’s business, operational
and compliance policies. Specifically, Defendants made false and/or misleading
statements and/or failed to disclose that: (i) Sorrento had overstated the prospects of
the STI-1499 antibody for completely inhibiting COVID-19; (ii) the foregoing, once
revealed, was foreseeably likely to have a material negative impact on the
11
Company’s financial results; and (iii) as a result, the Company’s public statements
were materially false and misleading at all relevant times.
The Truth Begins to Emerge
37.
On May 18, 2020, during pre-market hours, Vital Knowledge Media,
an online investor information resource, expressed skepticism over Sorrento’s
announcement regarding the discovery of the STI-1499 antibody, describing the
Company’s statements as “very disingenuous” and stating that “some of the
narratives around drugs and vaccines” needed to be tempered.
38.
On this news, Sorrento’s stock price fell $0.26 per share, or 3.85%, to
close at $6.50 per share on May 18, 2020.
39.
On May 19, 2020, during pre-market hours, BayStreet, a leading
Canadian online investor news resource, published an article entitled “Sell Sorento,”
which alleged that statements made by Defendant Ji about the STI-1499 antibody
were misleading. Specifically, the article called into question Ji’s representations to
Fox News, wherein Ji stated “[w]e want to emphasize there is a cure” and “[t]here is
a solution that works 100 percent,” noting that “[a]stute investors should recognize
that no true biotechnology firm would make such a claim” and “Sorrento may just
want to get attention and push up the value of its stock” given that “[i]ts balance
sheet is poor with a debt/equity of 2 times.” The article ultimately concluded by
calling the Company’s stock “speculative” and cautioned investors to “[a]void.”
12
40.
On this news, Sorrento’s stock price fell $1.08 per share, or 16.62%, to
close at $5.42 per share on May 19, 2020.
41.
On May 20, 2020, Hindenburg published a report doubting the validity
of Sorrento’s claims and calling them “sensational,” “nonsense” and “too good to be
true.” Hindenburg spoke with researchers at Mount Sinai who stated that Sorrento’s
announcement was “very hyped” and that “nothing in medicine is 100%.” The
Hindenburg Report also asserted that Sorrento faced significant solvency concerns
ahead of its announcement regarding a supposed COVID-19 cure, citing statements
by former employees, and asserted that “Sorrento’s actions are manipulative at the
worst possible time and simply amount to an attempt to shamelessly profiteer off the
pandemic.”
42.
Specifically, with respect to the comments from the researchers at
Mount Sinai, which Sorrento had a collaboration agreement with, the Hindenburg
Report stated, in relevant part:
When reached via e-mail about the Fox News article, one researcher at
the Department of Medicine and Microbiology at Mt. Sinai told us:
“This looks very hyped. You need massive amounts of antibody to
achieve this. This is the reason why this is not used for influenza. Too
expensive, too much antibody needed. This cannot be a solution for
everybody. There are no data yet in humans. For Ebola, there were
several antibodies that worked like this one in vitro, but only a few are
protective in vivo. Bottom line, very early in development to know
feasibility.”
13
A second Mt. Sinai research worker that we reached via e-mail simply
told us that: “In general terms…nothing in medicine is 100%.
Nothing.”
We also communicated with Dr. Charles Rice, the Chair in Virology &
Head of the Laboratory of Virology and Infectious Disease at
Rockefeller University, who told us:
“I don’t know the details of the Sorrento MAb but their claims at this
apparent stage of development, without clinical data, seem
overstated. There are dozens of groups developing these antibodies
and time (and appropriate tests) will tell which are most effective.
As a general solution or “cure” it is unlikely that an infused product,
even if long lasting, will cover all of the bases needed to control this
infection.”
Finally, a PhD at the National Institute of health warned us:
“…be cognizant of the stage of the research (ex. if there is only data in
vitro, which means in a petri dish).”
(Emphases in original.)
43.
Hindenburg also cited “a former C-suite [Sorrento] executive, who
worked at the company for years and has followed its developments closely,” who
stated that, “[i]f you now identify an antibody that binds to an epitope of the viral
spike protein, and you thereby inhibit that virus to bind to the ACE-2 entry receptor
on the human cell and you thereby inhibit infection, my loose estimate would be that
there are literally hundreds of [research and development] groups that have
something like that” (emphasis in original). Furthermore, the former employee
“warned . . . about making such bold claims with in vitro results,” stating, “you do
know that when somebody has data from an agent that shows efficacy in an in vitro
14
assay – that if you then say I have now a cure, then this statement can only be
understood narrowly . . . ” (emphasis in original). The former C-suite executive
also stated “I would have never in my life issued a press release where . . . I say we
have a cure” (emphasis in original).
44.
The Hindenburg Report also cited two other former Sorrento
employees. For example, a former Vice President of Sorrento, who worked at the
Company recently for about a year, stated “I suggest extreme skepticism regarding
any claims made by Sorrento.” Additionally, a former senior scientist at the
Company for more than six years stated: “It is too early to really tell if it will translate
in vivo. And we would have to see safety data. Also, their announced timeline seems
very aggressive[.]”
45.
The Hindenburg Report also included the following quote from George
Yancopoulos, Co-Founder, President, and Chief Scientific Officer of Regeneron, a
company that is also researching an antibody treatment for COVID-19, which
provides additional context of the stages of development of some of Sorrento’s
competitors in the field:
Several companies have previously announced that they have already
generated very potent anti-viral neutralizing antibodies – including our
company as we announced a while back. That is only the first step, and
there are many more steps to manufacture and progress such antibodies
into clinical trials – I believe most accounts suggest that our company
and probably one other company (Lilly) are the leaders into progressing
these antibodies into clinical trials, and both of us are planning on doing
this in the next few weeks. And then there are the challenges of
15
successfully carrying out these clinical trials, which is also not
guaranteed.
I am not aware of any data suggesting Sorrento’s single Ab is as
good as the many others that had already been previously
generated (such as ours or Lilly’s), nor that they have any of the
required downstream capabilities, nor that they have demonstrated any
capabilities or success previously in other programs (such as the
success we demonstrated with our related efforts against Ebola), and
they seemingly are substantially behind the leaders at this time.
So it is very hard to seriously evaluate the Sorrento effort.
(Emphasis in original.)
46.
However, that same day, Defendant Ji appeared on Yahoo! Finance to
rebut the Hindenburg Report, stating:
So you have the antibody that can prevent the virus infecting healthy
cells. That means you’re going to have a real product. If you have a real
product, eventually the stock is going to be reflecting the assets you
have. And we believe right now probably there’s a lot of investor
excited about this story. However, there is a lot of investor suspecting
this is another pump and dump, which is typical, which is normal, but
we don’t believe that’s the case. And we have working with academic
collaborator with a real virus infection. And when you see a virus is not
infecting the healthy cell, you know you have the real deal.
47.
The statements referenced in ¶ 46 were materially false and misleading
because Defendants made false and/or misleading statements, as well as failed to
disclose material adverse facts about the Company’s business, operational and
compliance policies. Specifically, Defendants made false and/or misleading
statements and/or failed to disclose that: (i) Sorrento had overstated the prospects of
the STI-1499 antibody for completely inhibiting COVID-19; (ii) the foregoing, once
16
revealed, was foreseeably likely to have a material negative impact on the
Company’s financial results; and (iii) as a result, the Company’s public statements
were materially false and misleading at all relevant times.
48.
On the Hindenburg Report and rebuttal news, Sorrento’s stock price
closed at $5.70 per share on May 20, 2020, representing a decline of $4.30 per share,
or 43.00%, from the Class Period high, on unusually high volume.
49.
Finally, on May 22, 2020, Hindenburg published a post on Twitter,
alleging that, moments ago, Defendant Ji had “walked back his comments about
having a cure,” that Hindenburg “believe[s] this amounts to flagrant securities fraud
when compared to his statements to Fox [News] last week,” and “encourag[ed]
regulators to investigate any stock sales in the interim.” Specifically, Hindenburg
cited comments Ji made in an interview with BioSpace, an online life science
industry news outlet. The BioSpace article stated that in a May 21, 2020 interview
with Defendants Ji and Brunswick, Ji “insist[ed] that they did not say it was a cure.”
Ji is quoted as saying:
[I]f it gets through safety studies, if it demonstrates efficacy, it
potentially is a cure—if you have the antibody in the blood and it
prevents infection. After virus infection, if it blocks the virus from
replicating in healthy cells continuously, you might have a cure. We
cannot cure the late-stage patients, on ventilators, because of all the
other comorbidities and complications. Those are not the job of the
antibodies.
(Emphases in original.)
17
50.
On this news, Sorrento’s stock price closed at $5.07 per share on May
22, 2020, representing a decline of $4.93 per share, or 49.3%, from the Class Period
high, on unusually high volume.
51.
As a result of Defendants’ wrongful acts and omissions, and the
precipitous decline in the market value of the Company’s securities, Plaintiff and
other Class members have suffered significant losses and damages.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
52.
Plaintiff brings this action as a class action pursuant to Federal Rule of
Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who
purchased or otherwise acquired Sorrento securities during the Class Period (the
“Class”); and were damaged upon the revelation of the alleged corrective
disclosures. Excluded from the Class are Defendants herein, the officers and
directors of the Company, at all relevant times, members of their immediate families
and their legal representatives, heirs, successors or assigns and any entity in which
Defendants have or had a controlling interest.
53.
The members of the Class are so numerous that joinder of all members
is impracticable. Throughout the Class Period, Sorrento securities were actively
traded on the NASDAQ. While the exact number of Class members is unknown to
Plaintiff at this time and can be ascertained only through appropriate discovery,
Plaintiff believes that there are hundreds or thousands of members in the proposed
18
Class. Record owners and other members of the Class may be identified from
records maintained by Sorrento or its transfer agent and may be notified of the
pendency of this action by mail, using the form of notice similar to that customarily
used in securities class actions.
54.
Plaintiff’s claims are typical of the claims of the members of the Class
as all members of the Class are similarly affected by Defendants’ wrongful conduct
in violation of federal law that is complained of herein.
55.
Plaintiff will fairly and adequately protect the interests of the members
of the Class and has retained counsel competent and experienced in class and
securities litigation. Plaintiff has no interests antagonistic to or in conflict with those
of the Class.
56.
Common questions of law and fact exist as to all members of the Class
and predominate over any questions solely affecting individual members of the
Class. Among the questions of law and fact common to the Class are:
•
whether the federal securities laws were violated by Defendants’ acts
as alleged herein;
•
whether statements made by Defendants to the investing public
during the Class Period misrepresented material facts about the
business, operations and management of Sorrento;
•
whether the Individual Defendants caused Sorrento to issue false and
misleading financial statements during the Class Period;
•
whether Defendants acted knowingly or recklessly in issuing false
and misleading financial statements;
19
•
whether the prices of Sorrento securities during the Class Period were
artificially inflated because of the Defendants’ conduct complained of
herein; and
•
whether the members of the Class have sustained damages and, if so,
what is the proper measure of damages.
57.
A class action is superior to all other available methods for the fair and
efficient adjudication of this controversy since joinder of all members is
impracticable. Furthermore, as the damages suffered by individual Class members
may be relatively small, the expense and burden of individual litigation make it
impossible for members of the Class to individually redress the wrongs done to them.
There will be no difficulty in the management of this action as a class action.
58.
Plaintiff will rely, in part, upon the presumption of reliance established
by the fraud-on-the-market doctrine in that:
•
Defendants made public misrepresentations or failed to disclose
material facts during the Class Period;
•
the omissions and misrepresentations were material;
•
Sorrento securities are traded in an efficient market;
•
the Company’s shares were liquid and traded with moderate to heavy
volume during the Class Period;
•
the Company traded on the NASDAQ and was covered by multiple
analysts;
•
the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company’s
securities; and
20
•
Plaintiff and members of the Class purchased, acquired and/or sold
Sorrento securities between the time the Defendants failed to disclose
or misrepresented material facts and the time the true facts were
disclosed, without knowledge of the omitted or misrepresented facts.
59.
Based upon the foregoing, Plaintiff and the members of the Class are
entitled to a presumption of reliance upon the integrity of the market.
60.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens
of the State of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as
Defendants omitted material information in their Class Period statements in violation
of a duty to disclose such information, as detailed above.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated
Thereunder Against All Defendants)
61.
Plaintiff repeats and re-alleges each and every allegation contained
above as if fully set forth herein.
62.
This Count is asserted against Defendants and is based upon Section
10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated
thereunder by the SEC.
63.
During the Class Period, Defendants engaged in a plan, scheme,
conspiracy and course of conduct, pursuant to which they knowingly or recklessly
engaged in acts, transactions, practices and courses of business which operated as a
21
fraud and deceit upon Plaintiff and the other members of the Class; made various
untrue statements of material facts and omitted to state material facts necessary in
order to make the statements made, in light of the circumstances under which they
were made, not misleading; and employed devices, schemes and artifices to defraud
in connection with the purchase and sale of securities. Such scheme was intended
to, and, throughout the Class Period, did: (i) deceive the investing public, including
Plaintiff and other Class members, as alleged herein; (ii) artificially inflate and
maintain the market price of Sorrento securities; and (iii) cause Plaintiff and other
members of the Class to purchase or otherwise acquire Sorrento securities and
options at artificially inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, Defendants, and each of them, took the actions set forth
herein.
64.
Pursuant to the above plan, scheme, conspiracy and course of conduct,
each of the Defendants participated directly or indirectly in the preparation and/or
issuance of the quarterly and annual reports, SEC filings, press releases and other
statements and documents described above, including statements made to securities
analysts and the media that were designed to influence the market for Sorrento
securities. Such reports, filings, releases and statements were materially false and
misleading in that they failed to disclose material adverse information and
misrepresented the truth about Sorrento’s finances and business prospects.
22
65.
By virtue of their positions at Sorrento, Defendants had actual
knowledge of the materially false and misleading statements and material omissions
alleged herein and intended thereby to deceive Plaintiff and the other members of
the Class, or, in the alternative, Defendants acted with reckless disregard for the truth
in that they failed or refused to ascertain and disclose such facts as would reveal the
materially false and misleading nature of the statements made, although such facts
were readily available to Defendants. Said acts and omissions of Defendants were
committed willfully or with reckless disregard for the truth. In addition, each
Defendant knew or recklessly disregarded that material facts were being
misrepresented or omitted as described above.
66.
Information showing that Defendants acted knowingly or with reckless
disregard for the truth is peculiarly within Defendants’ knowledge and control. As
the senior managers and/or directors of Sorrento, the Individual Defendants had
knowledge of the details of Sorrento’s internal affairs.
67.
The Individual Defendants are liable both directly and indirectly for the
wrongs complained of herein. Because of their positions of control and authority,
the Individual Defendants were able to and did, directly or indirectly, control the
content of the statements of Sorrento. As officers and/or directors of a publicly-held
company, the Individual Defendants had a duty to disseminate timely, accurate, and
truthful information with respect to Sorrento’s businesses, operations, future
23
financial condition and future prospects. As a result of the dissemination of the
aforementioned false and misleading reports, releases and public statements, the
market price of Sorrento securities was artificially inflated throughout the Class
Period. In ignorance of the adverse facts concerning Sorrento’s business and
financial condition which were concealed by Defendants, Plaintiff and the other
members of the Class purchased or otherwise acquired Sorrento securities at
artificially inflated prices and relied upon the price of the securities, the integrity of
the market for the securities and/or upon statements disseminated by Defendants,
and were damaged thereby.
68.
During the Class Period, Sorrento securities were traded on an active
and efficient market. Plaintiff and the other members of the Class, relying on the
materially false and misleading statements described herein, which the Defendants
made, issued or caused to be disseminated, or relying upon the integrity of the
market, purchased or otherwise acquired shares of Sorrento securities at prices
artificially inflated by Defendants’ wrongful conduct. Had Plaintiff and the other
members of the Class known the truth, they would not have purchased or otherwise
acquired said securities, or would not have purchased or otherwise acquired them at
the inflated prices that were paid. At the time of the purchases and/or acquisitions
by Plaintiff and the Class, the true value of Sorrento securities was substantially
lower than the prices paid by Plaintiff and the other members of the Class. The
24
market price of Sorrento securities declined sharply upon public disclosure of the
facts alleged herein to the injury of Plaintiff and Class members.
69.
By reason of the conduct alleged herein, Defendants knowingly or
recklessly, directly or indirectly, have violated Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder.
70.
As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and the other members of the Class suffered damages in connection with
their respective purchases, acquisitions and sales of the Company’s securities during
the Class Period, upon the disclosure that the Company had been disseminating
misrepresented financial statements to the investing public.
COUNT II
(Violations of Section 20(a) of the Exchange Act Against The Individual
Defendants)
71.
Plaintiff repeats and re-alleges each and every allegation contained in
the foregoing paragraphs as if fully set forth herein.
72.
During the Class Period, the Individual Defendants participated in the
operation and management of Sorrento, and conducted and participated, directly and
indirectly, in the conduct of Sorrento’s business affairs. Because of their senior
positions, they knew the adverse non-public information about Sorrento’s
misstatement of income and expenses and false financial statements.
25
73.
As officers and/or directors of a publicly owned company, the
Individual Defendants had a duty to disseminate accurate and truthful information
with respect to Sorrento’s financial condition and results of operations, and to correct
promptly any public statements issued by Sorrento which had become materially
false or misleading.
74.
Because of their positions of control and authority as senior officers,
the Individual Defendants were able to, and did, control the contents of the various
reports, press releases and public filings which Sorrento disseminated in the
marketplace during the Class Period concerning Sorrento’s results of operations.
Throughout the Class Period, the Individual Defendants exercised their power and
authority to cause Sorrento to engage in the wrongful acts complained of herein. The
Individual Defendants therefore, were “controlling persons” of Sorrento within the
meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in
the unlawful conduct alleged which artificially inflated the market price of Sorrento
securities.
75.
Each of the Individual Defendants, therefore, acted as a controlling
person of Sorrento. By reason of their senior management positions and/or being
directors of Sorrento, each of the Individual Defendants had the power to direct the
actions of, and exercised the same to cause, Sorrento to engage in the unlawful acts
and conduct complained of herein. Each of the Individual Defendants exercised
26
control over the general operations of Sorrento and possessed the power to control
the specific activities which comprise the primary violations about which Plaintiff
and the other members of the Class complain.
76.
By reason of the above conduct, the Individual Defendants are liable
pursuant to Section 20(a) of the Exchange Act for the violations committed by
Sorrento.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.
Determining that the instant action may be maintained as a class action
under Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the
Class representative;
B.
Requiring Defendants to pay damages sustained by Plaintiff and the
Class by reason of the acts and transactions alleged herein;
C.
Awarding Plaintiff and the other members of the Class prejudgment and
post-judgment interest, as well as their reasonable attorneys’ fees, expert fees and
other costs; and
D.
Awarding such other and further relief as this Court may deem just and
proper.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
27
Dated: June 11, 2020
Respectfully submitted,
POMERANTZ LLP
/s/ Jennifer Pafiti
Jennifer Pafiti (SBN 282790)
1100 Glendon Avenue, 15th Floor
Los Angeles, California 90024
Telephone: (310) 405-7190
jpafiti@pomlaw.com
POMERANTZ LLP
Jeremy A. Lieberman
(pro hac vice application forthcoming)
J. Alexander Hood II
(pro hac vice application forthcoming)
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
jalieberman@pomlaw.com
ahood@pomlaw.com
POMERANTZ LLP
Patrick V. Dahlstrom
(pro hac vice application forthcoming)
10 South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
pdahlstrom@pomlaw.com
BRONSTEIN, GEWIRTZ &
GROSSMAN, LLC
Peretz Bronstein
(pro hac vice application forthcoming)
60 East 42nd Street, Suite 4600
New York, NY 10165
Telephone: (212) 697-6484
28
Facsimile: (212) 697-7296
peretz@bgandg.com
Attorneys for Plaintiff
29
| securities |
n7ERC4cBD5gMZwcz0MAx | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
Case No.
COMPLAINT
ENZO COSTA
Saint Elizabeths Hospital
1100 Alabama Avenue SE
Washington, DC 20032
VINITA SMITH
Saint Elizabeths Hospital
1100 Alabama Avenue SE
Washington, DC 20032
WILLIAM DUNBAR
Saint Elizabeths Hospital
1100 Alabama Avenue SE
Washington, DC 20032
STEFON KIRKPATRICK
Saint Elizabeths Hospital
1100 Alabama Avenue SE
Washington, DC 20032
on behalf of themselves and all persons
similarly situated,
Plaintiffs,
v.
BARBARA J. BAZRON, Director
Department of Behavioral Health
in her individual capacity
64 New York Avenue, NE - 3rd Floor
Washington, DC 20002
MARK J. CHASTANG, Chief
Executive Officer, Saint Elizabeths Hospital
in his individual capacity
1100 Alabama Avenue, SE
Washington, DC 20032
DISTRICT OF COLUMBIA
c/o Attorney General of the District of Columbia
441 4th Street, NW
Washington, DC 20001,
Defendants.
CLASS ACTION COMPLAINT
(For declaratory and injunctive relief—unconstitutional conditions at Saint Elizabeths Hospital)
Introduction
1.
A hospital without water is not really a hospital. Plaintiffs Enzo Costa, Vinita
Smith, Stefon Kirkpatrick, and William Dunbar are all patients at Saint Elizabeths Hospital, the
District’s psychiatric hospital (“Saint Elizabeths” or the “Hospital”). They are four of
approximately 270 individuals with mental health disabilities at Saint Elizabeths Hospital.
Plaintiffs and other similarly situated patients are currently subject to unconstitutional and
inhumane conditions that shock the conscience. Saint Elizabeths Hospital has been without safe,
running water since September 26, 2019, exposing these vulnerable patients to irreparable
harmful physical, emotional, and mental health consequences. Although there are reports that
the water is being turned back on (see ¶34 below), this is not the first time that government
officials have promised that the water will restored during this current crisis. It is also the second
time in three years that Saint Elizabeths Hospital has experienced a major and extended water
outage.
2.
The extended water outage is directly impacting necessary patient medical care.
Defendants closed the Treatment Mall, the location at the Hospital where treatment planning
meetings are held and patients receive group therapy, art therapy, and music therapy, and they
have curtailed or suspended a wide variety of therapy and other forms of psychiatric care on
which Plaintiffs and members of the class demand and need to manage and maintain their mental
health. Patients are confined to their units and their rooms and are unable to attend regularly
scheduled therapy. Patients cannot access other forms of routine medical care.
3.
Unhygienic conditions are pervasive to the point where they are endangering
patient health. As a result of the extended water crisis, patients at Saint Elizabeths, all of whom
are committed to the District’s care and custody, are enduring inhumane, unsafe, and medically
dangerous conditions that risk the health, mental health, and safety. Patients cannot shower,
wash their hands, or use the toilets regularly. Fecal matter, urine, and menstrual blood are
accumulating in the bathrooms. Patients are only allowed to shower on a limited schedule, and
must shower outside in dirty and portable showers which are inaccessible to the many patients
with mobility disabilities.
4.
This Class Action Complaint challenges the Defendant’s decision to keep Saint
Elizabeths operating during this extended water crisis without adequate protections for patients.
Despite the fact that there is no safe, running water, Defendants are continuing to admit new
patients at Saint Elizabeths Hospital and to keep patients at Saint Elizabeths rather than
transferring them to other appropriate facilities or discharging them to community-based care
where appropriate. Defendants are not providing appropriate care and safety for Plaintiffs and
other similarly situated patients in violation their due process rights and rights under federal law
Defendant’s conduct in continuing to commit Plaintiffs in facility with no safe, running, water is
so egregious as to shock the conscience.
Subject Matter Jurisdiction & Venue
5.
The Court has subject matter jurisdiction over this case under 28 U.S.C. §§ 1331
and 1343 because this action presents federal questions and seeks to redress the deprivation of
rights under the Fifth Amendment to the U.S. Constitution, pursuant to 42 U.S.C. §1983.
6.
Venue is proper in this District under 28 U.S.C. §1391(b)(2) because all of the
events giving rise to the claims took place in this District.
7.
Declaratory relief is authorized by 28 U.S.C. §2201. A declaration of law is
necessary and appropriate to determine the parties’ respective rights and duties.
8.
Injunctive relief is authorized by 28 U.S.C. § 2202.
Parties
9.
Enzo Costa is thirty-eight years old and is a patient at Saint Elizabeths Hospital in
Unit 1C. He is diagnosed with schizophrenia, dystonia, schizo-affective disorder, and anti-social
personality disorder. He is indefinitely, involuntarily civilly committed to the District’s care.
10.
Vinita Smith is a fifty-six years old and is a patient at Saint Elizabeths Hospital in
Unit 1F. She is diagnosed with schizo-affective disorder that requires medication and therapy.
She is indefinitely, involuntarily civilly committed to the District’s care.
11.
Stefon Kirkpatrick is thirty years old and is a patient at Saint Elizabeths Hospital
in Unit 2C. He is diagnosed with psychosis disorder. He is indefinitely, involuntarily civilly
committed to the District’s care.
12.
William Dunbar is thirty years old and is a patient at Saint Elizabeths Hospital in
Unit 2A. He is diagnosed with paranoia schizophrenia. He is indefinitely, involuntarily civilly
committed to the District’s care.
13.
Plaintiffs bring this action on behalf of themselves and other similarly situated
patients at Saint Elizabeths Hospital.
14.
The named Plaintiffs and the members of the Plaintiff Class are persons with a
disability or perceived to have a disability, as that term is defined in the Americans with
Disabilities Act (“ADA”), and are entitled to the protections of the ADA. 42 U.S.C.
§12102(2)(A).
15.
Defendant District of Columbia (“the District”) owns and operates Saint
Elizabeths Hospital, and is responsible for the services and supports provided to patients at Saint
Elizabeths. Saint Elizabeths is the District’s only public psychiatric facility for individuals with
serious and persistent mental illness who need intensive inpatient care to support their recovery.
Saint Elizabeths also provides mental health evaluations and care to patients committed by the
16.
The District of Columbia is a public entity as that term is defined in the ADA. 42
U.S.C. § 12131(1).
17.
Defendant Barbara Bazron is the Director of the Department of Behavioral
Health, the District agency that oversees Saint Elizabeth. She is sued in her individual capacity.
18.
Defendant Mark Chastang is the Chief Executive Officer of Saint Elizabeths
Hospital. He is sued in his individual capacity.
Statement of Facts
Contaminated Water at Saint Elizabeths Hospital
19.
Saint Elizabeths Hospital is the District’s public psychiatric facility and serves
individuals with mental illness who need intensive inpatient care. Saint Elizabeths is the
District’s only public psychiatric facility for individuals with serious and persistent mental illness
who need intensive inpatient care to support their recovery. Saint Elizabeth’s also provides
mental health evaluations and care to patients committed by the courts.
20.
Patients at Saint Elizabeths Hospital are entitled to a dignified, respectful and
supportive environment and generally accepted standards of individualized treatment, continuity
of care, professionalism, and health and safety.
21.
Saint Elizabeths has an average of 270 patients per day and approximately 700
employees.
22.
Saint Elizabeths has not had safe, running water since at least September 26,
2019. Since September 26, 2019, the water supply at Saint Elizabeths has been either completely
turned off or has been limited for sewage use only.
23.
Despite the extended water outage and the inability to provide appropriate,
required medical care and therapy, as described below, Saint Elizabeths is still accepting new
patients.
24.
The extended water outage and its effects cause a clear risk to the health and
safety of Saint Elizabeths’ patients, including Plaintiffs and class members. The extended water
outage and its effects creates an unreasonable risk of traumatizing patients and exacerbates
symptoms of mental illness.
25.
The current conditions at Saint Elizabeths, as described below, will result in long
lasting, if not permanent, damage to patients and their efforts at recovery.
26.
The current conditions at Saint Elizabeths, as described below, violate
professional standards of care and treatment.
27.
On September 26, 2019, the D.C. Department of Behavioral Health (“DBH”)
received preliminary lab results for a water quality test of Saint Elizabeths showing evidence of
pseudomonas and legionella bacteria in the facility’s water supply.
28.
Legionella bacteria is known for causing Legionnaires’ disease, which can lead to
severe infections in people with weakened immune systems. According to the Centers for
Disease Control and Prevention, one out of four people who contract Legionnaires’ disease in a
healthcare setting dies because of it.
29.
Pseudomonas bacteria can lead to severe infections for people with weakened
immune systems.
30.
In response to the bacteria found in the water supply, DBH reportedly
implemented its “water emergency protocol” and turned the water off completely. Upon
information and belief, the water has been turned on occasionally and for limited purposes since
September 26, 2019 but at no point has Saint Elizabeths had safe, running water.
31.
At the end of September, Plaintiffs Ms. Smith, Mr. Costa, Mr. Kirkpatrick, and
Mr. Dunbar were abruptly told by staff that the water would be shut off because there was a
water problem.
32.
Upon information and belief, DBH hired contractors to flush Saint Elizabeths’
water system with chlorine, but testing following the “super chlorination” of the water system
continued to show legionella within the facility’s water system.
33.
According to Plaintiff Mr. Costa, as of 4:00 p.m. on October 23, 2019, the water
remained shut off at Saint Elizabeths and upon information and belief, DBH has not given a
precise date that it will be turned back on.
34.
At 5:45 p.m. on October 23, 2019, Councilmember Vincent Gray tweeted that he
had been informed by an unnamed source that “all bacteria has been eliminated” from the water
system at St. Elizabeths Hospital and that “the process has already begun to restore full water
service to the hospital.” According to Vincent Gray’s tweets, the “toilet are fully operational”
and “[F]aucet heads are being reconnected now and that process should be fully completed by
tomorrow [October 24, 2019].” Vincent Gray has shared no supporting documents, water tests,
or information from DBH or Saint Elizabeths Hospital on Twitter.
35.
Each of the previous dates DBH communicated to patients, their attorneys, or the
public for when DBH expected to have safe running water has not been met.
36.
This is the second time in three years that Saint Elizabeths Hospital has
experienced an extended water outage. Defendants’ response to this second extended water
outage indicates that they do not have an appropriate Emergency Water Supply Plan to manage
extended water outages at Saint Elizabeths Hospital.
37.
Plaintiffs are all indefinitely, involuntarily committed to the District’s care and
will likely be committed at Saint Elizabeths for all or most of their lives. For example, Ms.
Smith has been committed to Saint Elizabeth’s for approximately 17 years.
38.
As discussed below, the extended water outage at Saint Elizabeths that plaintiffs
continue to suffer is irreparably harming the Plaintiffs and plaintiff class. Furthermore, even if
the clean water is restored in the near future, Plaintiffs and the plaintiff class will remain at risk
of further irreparable harm until the Defendants remediate conditions at Saint Elizabeths, provide
adequate mental health services to meet the current needs of patients, and establish an
appropriate Emergency Water Supply Plan. Thus, even if the current crisis is ameliorated,
Plaintiffs will still be at risk of further irreparable harm. It is also far from clear that the
wrongful behavior cannot be expected recur.
Defendants Are Depriving Patients of Essential Medical and/or Mental Health Care
39.
The extended water outage at Saint Elizabeths has prevented patients from
receiving appropriate and necessary care, including medical care, psychiatric care, and therapy,
creating an imminent risk of irreparable harm.
40.
Because of the extended water outage, Defendants closed the Treatment Mall.
Patients remain on their locked wards and are not receiving appropriate group therapy, art
therapy, or exercise.
41.
Staff, including psychologists and psychiatrists, are not regularly attending work
because of the water crisis, forcing cancelations of patient team meetings and other
appointments.
42.
Defendants have severely curtailed or suspended the psychiatric care on which
patients depend. Patients at Saint Elizabeths, including Plaintiffs, are receiving fewer services,
and less of the services they are still receiving, than normal. The minimal services they are
receiving are not appropriate or tailored to their needs.
43.
DBH has not explained how it is appropriately dispensing medication, particularly
those medications that need to be suspended in water. DBH has not made any statement about
how they are addressing patients’ medication side effects that are related to the lack of adequate
water or that need water in response, such as dry mouth and dehydration.
44.
In addition to depriving patients of psychiatric care necessary on an ongoing
basis, Saint Elizabeths’ staff are failing to provide other types of health care. Upon information
and belief, staff are not performing routine checks of new patients for lice, bacteria, and other
infections.
45.
Patients have no access to dentistry and podiatry care that is typically available at
Saint Elizabeths.
46.
Ms. Smith has had a toothache but cannot go to the dentist.
47.
Mr. Costa’s ward administrator, psychologist, psychiatrist, and therapist have all
missed work during the time period while the water was shut off and have not been able to
convene his team meetings. Mr. Costa has been unable to talk to his psychiatrist about switching
one of his medications since the water outage occurred.
48.
Mr. Costa has not been able to access behavioral therapy, anger management
classes, group therapy, art therapy, or the gym since Defendants closed the Treatment Mall.
49.
Mr. Costa normally gets 40 hours per week of therapy but Defendants are
providing him with just 2 hours per day (10 hours per week) currently. The little therapy he is
receiving is inappropriate: it is a competency restoration group but Mr. Costa is already
competent.
50.
Because there was no water, Defendants have not provided Mr. Kirkpatrick with
group therapy.
51.
Defendants cancelled a Narcotics Anonymous meeting that both Mr. Kirkpatrick
and Mr. Dunbar attend because there was no water.
52.
Defendants have not provided Mr. Dunbar with group therapy or the opportunity
to exercise since the water was shut off.
The District is Depriving Patients of Essential Hygiene and Endangering Patient Safety
53.
Without safe, running water, patients and staff cannot flush the toilets regularly,
wash their hands, shower, wash clothing, or drink from the water fountains. Patients at Saint
Elizabeths are using bottled water, hand sanitizers, and personal care body wipes to care for their
basic hygiene. Patients are permitted limited use of temporary portable showers and toilets.
Clothes and linens are only washed periodically and must be sent outside of the facility to be
cleaned.
Toilets
54.
Patients and staff cannot regularly and routinely flush the toilets at Saint
Elizabeths. Saint Elizabeths has more than 70 operating bathrooms when the facility has running
water. A limited number of toilets within the facility are in use when the water is turned off.
These toilets must be flushed manually by pouring water into the tanks. Staff are only flushing
the toilets twice per day, leading to the accumulation of feces, urine, and menstrual blood. The
toilets are overflowing and human waste is flowing onto the floors in some bathrooms. There
are also a limited number of port-a-potties outside the facility which were not provided until after
the water had been shut off for some time.
55.
Ms. Smith did not have access to port-a-potties for several days after the water
was shut off. While she was awaiting port-a-potties, she used the indoor toilets. Staff would
flush those toilets twice per day. The indoor toilets were disgusting and unclean. There were
menstrual products all over the bathroom.
56.
Mr. Costa’s unit, Unit 1C, normally has six toilets. Unit 1C houses 26 men.
Currently all of the men on his unit must use one toilet. That toilet is flushed manually by
pouring water into the tank only once a day. The toilets back up and the smell from the toilets is
“disgusting, pungent, sour, and strong.”
57.
Mr. Costa did not have access to a port-a-potty until about a week after the water
was shut off. The port-a-potties are outside and about 200 yards from his unit. The port-a-
potties are not clean and they smell.
58.
Mr. Kirkpatrick’s unit has an average of two usable toilets for approximately 25
people. The toilets do not have running water and are flushed by staff or patients. There is a
buildup of feces on the toilet and floor. The bathroom smells.
59.
Mr. Kirkpatrick did not have access to a port-a-potty until about 2-3 weeks after
the water was shut off.
60.
Mr. Dunbar’s unit, Unit 2A, only has 2 usable toilets for approximately 27 people.
The smell of the toilets is so nasty and strong that it makes Mr. Dunbar want to vomit. Mr.
Dunbar is able to secure day passes to temporarily leave the facility and during this time he tries
holds his solid waste until he can use toilets outside of Saint Elizabeths grounds.
Showers
61.
Patients cannot use the indoor showers at Saint Elizabeths. Patients have to bathe
in portable outdoor showers. DBH secured eight portable showers for Saint Elizabeths’ entire
patient population. The portable showers are clogged and dirty. The patients have to stand
outside in groups and take showers in rotation because they have to travel back inside the facility
as a group. There is no privacy in the showers.
62.
Before the outdoor showers arrived, Ms. Smith had to use wipes to clean herself
because she was not permitted to shower indoors. She does not like using the wipes and does not
feel clean using the wipes.
63.
Ms. Smith is only permitted to use the outdoor showers on Mondays, Wednesdays
and Fridays, rather than showering every day. She is not allowed to use the showers when it is
raining.
64.
Mr. Costa did not have access to a shower until about a week after the water was
shut off. On his unit, only 8 individuals are permitted to use the portable showers per day. His
unit can use the portable showers on Mondays, Wednesday, and Fridays, which means that he is
only able to shower one time per week.
65.
One time that Mr. Costa was permitted to shower, the water was cold. After he
showered he had to stand outside in the cold temperatures while waiting for everyone to finish
showering. He got a headache as a result.
66.
When Mr. Costa does not have access to a shower, he has the options to clean
himself with sanitary wipes or a five gallon bucket of soapy water and a wash rag. The wipes
make his skin uncomfortable. Washing with a bucket is degrading and Mr. Costa has not used
that option because it makes him feel like he is treated like an animal.
67.
Mr. Kirkpatrick used a portable shower and had to stand outside in the cold while
others finished showering. He got sick after using the portable shower, experiencing chills and a
migraine.
68.
Mr. Dunbar did not have access to a portable shower for several days after the
water was shut off. When he was able to access a portable shower, the water kept turning on and
69.
The portable showers are not accessible for patients who use wheelchairs and with
other mobility issues. The portable showers have steps up to them. The portable showers have
narrow passageways inside. Many older patients are unable to use them.
70.
Ms. Smith’s knee gave out one day while walking up the stairs to the shower.
71.
Upon information and belief, the portable showers are being overseen by male
security guards only. Many women at Saint Elizabeths are survivors of sexual assault and do not
feel safe using the portable showers. As a result, some of the women have not showered for more
than four weeks.
Other Essential Hygiene Needs
72.
Ms. Smith cannot wash her hands. She must use bottled water to brush her teeth
and is not always given enough water to brush her teeth. She has not washed her hair in three
weeks. She cannot do laundry in the hospital and when her cloths were sent out to the laundry,
some of them went missing. She currently only has one clean outfit to wear. Ms. Smith’s unit
has been unusually cold while the water has been shut off. Ms. Smith’s unit smells like dead
73.
Mr. Costa cannot use the faucets to wash his hands, brush his teeth, or shower.
The dirty toilets have attracted bugs and mosquitos that are biting him and others on his unit.
74.
Mr. Kirkpatrick cannot use the water. He cannot do laundry and does not have
access to a washer-dryer. He does not know when he will be able to do laundry or obtain clean
clothes again.
75.
Mr. Dunbar cannot use the water and has to use bottled water to drink and to
brush his teeth. Because the conditions in the bathrooms are so dirty and unhygienic, he does not
feel comfortable using the bathrooms or cleaning his teeth. Some of the closed bathrooms in his
unit have signs indicating that they are quarantined because of a bacterial infection. He has had
his laundry sent out only once in the last three weeks. When his clothes were returned some had
shrunk and they still felt dirty.
76.
Mr. Dunbar is permitted to leave the facility on a day pass approximately two
times per month. He normally spends time with his family. Because of the unsanitary
conditions, he worries about bringing home bacteria and spreading it to his family.
The District is Depriving Patients of a Safe and Therapeutic Environment
77.
The lack of water has caused a tense and stressful environment among patients
and staff. Patients are confined to their units during the day instead of receiving therapy and
recreation. Staff are not regularly reporting for work.
78.
A restrictive psychiatric hospital setting like Saint Elizabeths must be safe, calm,
predictable in its routine, and responsive to each individual’s needs for treatment in order to
achieve its goals of preventing and ameliorating harm.
79.
An environment that is chaotic, unpredictable, and unsafe, in which patients are
not receiving individualized, continuous, intensive treatment risks traumatizing people further
and exacerbating the psychiatric needs that were the basis for their admission.
80.
Delays in treatment of psychiatric illness in a psychiatric facility that restricts self-
determination and integration into community-based settings, like Saint Elizabeths, can result in
feelings of isolation, hopelessness, and despair; and increased stress and anxiety.
81.
Patients, including Ms. Smith and Mr. Costa, are unable to leave their units and
rooms to receive treatments or recreate. As a result, they and other patients are sleeping and
dozing during the day.
82.
There has been an increase in fights and physical aggression between patients
following the water outage.
83.
There has been an increase in the use of seclusion and restraint of the patients
following the water outage.
The District Bears Responsibility for the Conditions at St. Elizabeths
84.
As the director of DBH, the agency that oversees Saint Elizabeths, Defendant
Bazron has the authority to “[s]upervise and direct the Department” and “[e]xercise any other
powers necessary and appropriate to implement the provisions of this chapter.” D.C. Code § 7-
1141.04.
85.
These powers make Defendant Bazron the final policymaking authority with
respect to responding to emergencies at St. Elizabeths.
86.
Defendant Bazron is responsible for the fact that, during the water crisis, Saint
Elizabeths has continued housing patients in unsafe conditions without adequate protections.
87.
Defendant Bazron informed reporters that she and her team were “very, very
involved in making sure that we got the [water] problem solved.”
88.
Defendant Bazron further demonstrated her responsibility for Saint Elizabeths’
decision to keep patients in dangerous conditions without adequate protections by explaining and
defending that approach to the public through multiple statements to journalists.
89.
For example, Defendant Bazron told reporters that DBH had procured “an
extensive supply of bottled water” but had continued admitting patients and declined to move
patients to other locations. Defendant Bazron also endorsed DBH’s response, stating that
“[t]hings are really moving very smoothly.
90.
Additionally, Defendants displayed deliberate indifference to the risk that the
response to the conditions at St. Elizabeths would result in constitutional violations. By shutting
off the water at that facility, Defendants knew or should have known that they would drastically
curtail access to showers, toilets, clean clothing, and medical care, and create disorder that could
exacerbate patients’ mental health disabilities. The policy Defendants adopted in response to this
risk was not reasonably calculated to prevent it.
CLASS ACTION ALLEGATIONS
91.
The named Plaintiffs bring this suit on their own behalf and on behalf of all
current Saint Elizabeths Hospital patients and all patients who will be admitted in the future
while the water is shut off.
92.
This class is so numerous that joinder of all members in impractical. Saint
Elizabeths Hospital has approximately 270 patients currently. Because the population changes
on a daily basis, it is inherently fluid and the class also includes future members whose names
are not known at this time. Fed. R. Civ. P. 23(a)(1).
93.
There are questions of law and fact common to all class members, including but
not limited to the Defendants’ deprivation of the class members’ substantive due process rights,
the Defendants’ failure to provide constitutionally safe and humane conditions to class members
and the Defendants’ failure to provide appropriate medical care to class members, and the
District’s violation of the class members’ rights under the Americans with Disabilities Act. Fed.
R. Civ. P. 23(a)(3).
94.
The named Plaintiffs will fairly and adequately represent the interests of the class.
They possess a strong personal interest in the subject matter of the lawsuit and are represented by
experienced counsel with expertise in class action litigation in federal court. Counsel have the
legal knowledge and resources to fairly and adequately represent the interests of all class
members in this action. Fed. R. Civ. P. 23(a)(4).
95.
Defendants have acted or refused to act on grounds generally applicable to the
class in that Defendants’ policies and practices of violating the Plaintiffs’ constitutional rights
have affected all class members. Accordingly, final injunctive and declaratory relief is
appropriate to the class as a whole. Fed. R. Civ. P. 23(b)(2).
NECESSITY FOR EMERGENCY INJUNCTIVE RELIEF
96.
The Defendants have acted and, as of the time of filing, continue to act in
violation of the law as described above. The named Plaintiffs and the class they seek to represent
do not have an adequate remedy at law. As a result of the policies, practices, acts, and omissions
of the Defendants, the named Plaintiffs, and the class they seek to represent, have suffered, are
suffering, and will suffer serious, imminent, irreparable physical, mental, and emotional injuries.
Such serious injuries are continuing and likely irreversible.
FIRST CLAIM FOR RELIEF:
(Claim under 42 U.S.C. §1983 for violation of the Fifth Amendment—Due Process)
97.
The Fifth Amendment’s Due Process Clause protects individuals in the District of
Columbia from government conduct that deprives them of their constitutional rights because it is
“so egregious that it may fairly be said to shock the contemporary conscience.”
98.
Individuals who are committed to the District’s custody, like the named Plaintiffs
and other class members, have a protected constitutional right under the Due Process Clause of
the Fifth Amendment to be housed in humane conditions and to have the District take reasonable
steps to guarantee their safety.
99.
Defendants’ actions are depriving class members of humane conditions by failing
to provide running water which deprives them of basic sanitation including sanitary toileting,
safe and sanitary showers, and clean clothes and linens, as alleged in Paragraphs 22 and 53
through 76 and by failing to maintain an appropriate Emergency Water Supply Plan after the first
extended water outage, as alleged in Paragraph 36, Defendants’ actions and inactions shock the
conscience and deprive class members of their constitutionally protected rights.
100.
Individuals who are committed to the District’s custody, like the named Plaintiffs
and other class members, have a protected constitutional right under the Due Process Clause of
the Fifth Amendment to be afforded adequate medical care, including mental health care.
101.
Defendants’ actions in unilaterally ceasing or altering medical care, as alleged in
Paragraphs 26 and 39 through 52, departs from professionally accepted standards and/or
appropriate professional judgement, and deprive class members of their constitutionally
protected rights.
102.
Defendants’ policies, practices, acts, and/or omissions have placed and will
continue to place the named Plaintiffs and the members of the class they seek to represent at an
unreasonable risk of harm as alleged in Paragraphs 1, 24, 28, 29, 38, and 39.
103.
There is no reasonable justification for the Defendants’ actions.
SECOND CLAIM FOR RELIEF:
(Claim against the District of Columbia under 42 U.S.C. §12131 et seq. for violation of the
Americans with Disabilities Act)
104.
Plaintiffs re-allege the allegations in all preceding paragraphs as though fully set
forth herein.
105.
The named Plaintiffs and the Plaintiff Class are individuals with disabilities
within the meaning of the ADA. Their impairments substantially limit one or more major life
activities, including caring for oneself, concentrating, and thinking.
106.
As adults who have been determined to require intensive inpatient care to support
their recovery from serious and persistent mental illness by the District, the named Plaintiffs and
the Plaintiff Class are qualified to participate in Defendants’ behavioral health programs and
services. 42 U.S.C. § 12131(2).
107.
The District of Columbia is a public entity as defined by Title II of the ADA. 42
U.S.C. § 12131(1).
108.
The District of Columbia is failing to reasonably modify its system to avoid
discrimination, including but not limited to by (i) failing to cease intakes and (ii) failing to
conduct individual assessments of patients to determine whether other options exist in lieu of
continued placement at Saint Elizabeths and (iii) failing to take appropriate action for Plaintiffs
and other class members, including relocating within the District those patients for whom it is
appropriate or providing reasonably modified services for those for whom relocating is not
appropriate. 28 C.F.R. § 35.130(b)(7).
109.
The District of Columbia is utilizing methods of administration, including but not
limited to restricting all access to the Treatment Mall and thereby preventing planning team
meetings and suspending art and music therapy, vocational training, exercise, and socialization;
providing inappropriate and diminished group therapy sessions; restricting patient movement to
the patient’s unit;, intermittently shutting off the water; inappropriately restricting toilets and
shower use, providing inaccessible portable showers; and suspending medically necessary
services such as dentistry and podiatry as alleged in ¶¶ 25, 30, 35, 36, 37, 40, 49, 65, and 73
above, that have the effect of defeating or substantially impairing the accomplishment of the
objectives of Defendants’ behavioral health programs with respect to the Individual Named
Plaintiffs and the Plaintiff Class. 28 C.F.R. § 35.130(b)(3)(ii).
110.
Defendants’ policies, practices, acts, and/or omissions violate the Americans with
Disabilities Act. 42 U.S.C. §12131
PRAYER FOR RELIEF
Based on the foregoing, Plaintiffs request that the Court:
111.
Declare that Defendants violated Plaintiffs’ rights under the Fifth Amendment to
the U.S. Constitution;
112.
Declare that Defendants violated Plaintiffs’ rights under the Americans with
Disabilities Act;
113.
Order injunctive relief requiring Defendants their agents, employees, and all
persons acting in concert with or on behalf of Defendants to cease their unconstitutional and
unlawful practices, including:
a.
During any extended water outage, immediate cessation of admissions at
Saint Elizabeths to the greatest extent possible;
b.
Within 48 hours during any extended water outage,, conduct individual
assessments of patients by the Medical Director with input from the
patients’ treatment team, his/her attorney, and/or other supportive decision
makers as determined by patient choice to assess the effects of the current
conditions and determine whether other options exist in lieu of continued
placement at Saint Elizabeths;
c.
Implement recommendations from the assessments immediately:
i
The assessment team must consider a full range of available
alternative treatment options, including discharge to a community
setting.
ii
Under no circumstances should an individual be transferred to a
jail or nursing home.
iii
To the extent continued placement at Saint Elizabeths’ Hospital is
the only reasonable option, patients must receive medical care and
therapy as scheduled and specific steps should be taken to ensure
that each patient has timely and complete access to sanitation,
clean water, safely prepared meals, and other basic requirements
for health, safety, and privacy.
d.
Conduct independent testing to ensure that the water is safe for all uses;
e.
Sanitize all Saint Elizabeths hospital facilities;
f.
Restore sanitation services and other services that were discontinued or
delayed during the extended water outage;
g.
Immediately resume providing all medical and mental health treatment
services, including but not limited to opening the Treatment Mall and
providing all previously available services;
h.
Within 48 hours, conduct individual assessments of patients by the
Medical Director with input from the patients’ treatment team, his/her
attorney, and/or other supportive decision makers as determined by patient
choice to assess the effects of the stress and trauma of living without safe,
running water in the conditions described above and the deprivation of
appropriate mental health services has had on patients’ mental health
status and determine if changes to individual patients’ treatment plans are
needed;
i.
Implement any changes and recommendations from the individualized
assessments immediately;
j.
Conduct regular, independent testing to ensure that the water is safe; and
k.
Appoint an independent monitor to advise the parties and the court about
the implementation of any injunctive relief.
Order Defendants to develop and adopt an appropriate Emergency Water Supply
Plan with input from community members and the District’s protection and
advocacy organization.
114.
Certify this case as a Class Action pursuant to Fed. R. Civ. P. 23(b)(2);
115.
Designate undersigned counsel as attorneys for the certified class;
116.
Award to Plaintiffs their reasonable attorney’s fees and costs, as provided by law;
117.
Grant the Plaintiffs such other relief as the Court deems just.
Dated October 23, 2019
Respectfully submitted,
/s/ Arthur B. Spitzer
Arthur B. Spitzer (D.C. Bar No. 235960)
AMERICAN CIVIL LIBERTIES UNION FOUNDATION
OF THE DISTRICT OF COLUMBIA
915 15th Street NW, Second Floor
Washington, D.C. 20005
(202) 457-0800
aspitzer@acludc.org
Kaitlin Banner (D.C. Bar No. 1000436)
Margaret Hart (D.C. Bar No. 1030528 )
Hannah Lieberman (D.C. Bar No. 336776 )
Jonathan Smith (D.C. Bar No. 396578 )
Maria Morris*
WASHINGTON LAWYERS’ COMMITTEE FOR CIVIL
RIGHTS AND URBAN AFFAIRS
700 14th Street, NW, Suite 400
Washington, DC 20005
Phone: (202) 319-1000
Fax: (202) 319-1010
margaret_hart@washlaw.org
hannah_lieberman@washlaw.org
jonathan_smith@washlaw.org
maria_morris@washlaw.org
*Admitted to practice law in Alabama, New York, and
California. Practicing under the supervision of DC Bar
members.
Scott Michelman (D.C. Bar No. 1006945)
Michael Perloff (D.C. Bar No. 1601047)
AMERICAN CIVIL LIBERTIES UNION FOUNDATION
OF THE DISTRICT OF COLUMBIA
915 15th Street NW, Second Floor
Washington, D.C. 20005
(202) 457-0800
smichelman@acludc.org
mperloff@acludc.org
John A. Freedman (D.C. Bar No. 453075)
Tirzah S. Lollar (D.C. Bar No. 497295)
Emily Reeder (D.C. Bar No. 252710)
ARNOLD & PORTER KAYE SCHOLER LLP
601 Massachusetts Avenue, N.W.
Washington, D.C. 20004
(202) 942-5000
John.Freedman@arnoldporter.com
Tirzah.Lollar@arnoldporter.com
Emily.Reeder@arnoldporter.com
| civil rights, immigration, family |
q-aSEYcBD5gMZwczyCka | ROBBINS GELLER RUDMAN
& DOWD LLP
DAVID C. WALTON (167268)
BRIAN E. COCHRAN (286202)
655 West Broadway, Suite 1900
San Diego, CA 92101-8498
Telephone: 619/231-1058
619/231-7423 (fax)
davew@rgrdlaw.com
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– and –
SAMUEL H. RUDMAN
58 South Service Road, Suite 200
Melville, NY 11747
Telephone: 631/367-7100
631/367-1173 (fax)
srudman@rgrdlaw.com
Attorneys for Plaintiff
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'16CV0685
BGS
BTM
Case No.
CLASS ACTION
CHARTER TOWNSHIP OF CLINTON
POLICE AND FIRE RETIREMENT
SYSTEM, Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
COMPLAINT FOR VIOLATION OF
THE FEDERAL SECURITIES LAWS
vs.
LPL FINANCIAL HOLDINGS INC.,
MARK S. CASADY and MATTHEW J.
AUDETTE,
Defendants.
DEMAND FOR JURY TRIAL
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Plaintiff Charter Township of Clinton Police and Fire Retirement System,
individually and on behalf of all others similarly situated, by plaintiff’s undersigned
attorneys, for plaintiff’s complaint against defendants, alleges the following based
upon personal knowledge as to plaintiff and plaintiff’s own acts, and upon information
and belief as to all other matters based on the investigation conducted by and through
plaintiff’s attorneys, which included, among other things, a review of U.S. Securities
and Exchange Commission (“SEC”) filings by LPL Financial Holdings Inc. (“LPL” or
the “Company”), as well as media and analyst reports about the Company and
Company press releases. Plaintiff believes that substantial additional evidentiary
support will exist for the allegations set forth herein after a reasonable opportunity for
discovery.
NATURE OF THE ACTION
1.
This is a securities class action on behalf of all purchasers of LPL
common stock between December 8, 2015 and February 11, 2016, inclusive (the
“Class Period”), against LPL and certain of its officers and/or directors for violations
of the Securities Exchange Act of 1934 (“1934 Act”).
2.
Defendant LPL is an independent broker-dealer, a custodian for
registered investment advisors (“RIAs”) and an independent consultant to retirement
plans. The Company provides a platform of brokerage and investment advisory
services to independent financial advisors enabling them to provide their retail
investors with financial and investment advice. The Company generates revenues
primarily from fees and commissions on clients’ brokerage and advisory assets.
3.
Prior to 2010, LPL was majority owned by TPG Capital (“TPG”) and
Hellman & Friedman LLC (“Hellman & Friedman”), two private equity firms. In
November 2010, these private equity firms took LPL public in an initial public
offering (“IPO”) in which 15.7 million LPL shares were sold to the public at $30 per
share.
4.
After the IPO, TPG retained a substantial ownership stake in the
Company and influence over its affairs. For example, two TPG partners, Richard
Boyce and Richard Schifter, served as directors of the Company. LPL has also
identified TPG as a “related party” in SEC filings and stated that it has continued to
enter into various related-party transactions with TPG and certain of TPG’s portfolio
companies since the IPO. As of December 31, 2014, TPG owned approximately 13%
of the outstanding shares of LPL common stock. LPL’s annual report on Form 10-K
for fiscal 2014 stated that as a result of this ownership interest, TPG “will continue to
be able to influence our decisions, regardless of whether or not other stockholders
believe that the transaction is in their own best interests.”
5.
Following the IPO, the Company became the subject of several
regulatory and governmental investigations into allegedly fraudulent, deceptive and/or
legally deficient business practices at LPL and among its network of financial
advisors. For example:
•
In February 2013 it was announced that LPL had settled allegations by
Massachusetts securities regulators that it had failed to adequately
supervise its brokers who sold investments in non-traded real estate
investment trusts (“REITs”) for $2.5 million.
•
In May 2015 the Financial Industry Regulatory Authority (“FINRA”)
announced that it had sanctioned LPL $11.7 million for “[w]idespread
[s]upervisory [f]ailures [r]elated to [c]omplex [p]roduct [s]ales, [t]rade
[s]urveillance and [t]rade [c]onfirmations [d]elivery.”
•
In September 2015 it was announced that LPL had agreed to pay $1.8
million to settle charges by the Massachusetts Attorney General that it
had improperly sold and marketed risky exchange-traded funds (“ETFs”)
to retail investors.
•
Also in September 2015, it was announced that LPL had agreed to
remediate investor losses and pay $1.425 million in civil penalties to
regulators in 48 states, the District of Columbia, Puerto Rico and the
U.S. Virgin Islands for its alleged failure to implement an adequate
supervisory system regarding its sale of non-traded REITs and its failure
to enforce its written procedures regarding the sale of non-traded REITs.
6.
On October 29, 2015, LPL announced its third quarter fiscal 2015
financial results. LPL reported adjusted earnings per share (“EPS”) for the quarter of
$0.55 per share, above consensus analyst estimates, and stated that it expected to
move on from its regulatory problems with “meaningfully lower” regulatory-related
charges going forward. It also announced that it would be implementing a new
“capital management plan to create greater shareholder value.” Key to this plan was a
$500 million share repurchase program authorized by LPL’s board of directors (the
“Board”). The Company stated that in order to pay for this share repurchase it
planned to significantly increase its leverage from a target ratio in the range of two to
three times net debt-to-earnings before interest, taxes, depreciation and amortization
(“EBITDA”) to a target ratio of four times net debt-to-EBITDA. On a conference call
to discuss the quarterly results, defendant Mark S. Casady (“Casady”), LPL’s Chief
Executive Officer (“CEO”) and Chairman of the Board, stated that the share buyback
was a “bargain,” as he believed LPL shares were trading “at a significant discount to
what we believe is their intrinsic value.” Defendant Matthew J. Audette (“Audette”),
LPL’s Chief Financial Officer (“CFO”), meanwhile stated that increasing the
Company’s leverage to a four times net debt-to-EBITDA ratio is “what makes the
most sense today,” and that LPL would only exceed the four times net debt-to-
EBITDA ratio if there were “very good returns to justify doing so.”
7.
Also on October 29, 2015, national credit rating agency Moody’s
Investors Service, Inc. (“Moody’s”) downgraded LPL’s corporate credit rating to Ba3
from Ba2 as a result of the Company’s announced share repurchase plan and expected
leverage increases.
8.
On November 24, 2015, LPL issued a press release announcing that it
had entered into $700 million of new term loans due November 20, 2022 and had
extended $631 million of existing term loans to March 29, 2021 in order to pay for a
$250 million accelerated share repurchase plan. As a result of the debt transaction, the
Company stated its net target leverage had increased to a 3.7 times net debt-to-
EBITDA ratio, and that it would breach its credit covenants if its leverage exceeded a
five times net debt-to-EBITDA ratio. In connection with the transaction, the
Company incurred $21 million of debt issuance costs and its total weighted average
interest rate for debt outstanding increased from 3.1% to 3.9%. The Company also
announced that it had entered into an agreement with Goldman, Sachs & Co.
(“Goldman”) whereby it would pay Goldman $250 million to carry out the accelerated
share repurchase on LPL’s behalf. The press release stated that LPL estimated the
accelerated share repurchase “will take several months to complete.”
9.
Analysts widely panned the debt transaction as unfavorably increasing
LPL’s cost of debt. For example, following the announcement a UBS analyst lowered
LPL’s stock price target based on what were viewed as “[u]nattractive [d]ebt [t]erms.”
Another analyst at Susquehanna Financial Group put things more bluntly, writing the
“Transaction Does Not Make Economic Sense.”
10.
On December 2, 2015, LPL announced that it would be presenting at a
financial services conference sponsored by Goldman on December 8, 2015. Around
this time, TPG approached Goldman about cashing out a significant portion of its LPL
stock as part of the accelerated share repurchase program.
11.
At the December 8, 2015 conference and in the related slide presentation,
defendants Casady and Audette made false and misleading statements regarding
LPL’s business, prospects and financial results. Specifically, defendants provided a
near-end-of-quarter financial update for LPL stating, among other false and
misleading statements, that:
(a)
LPL had an “earnings stream that is quite steady,” and the
Company had been “executing it all well” over “the last two months,” when in fact
quarterly adjusted earnings and net income would be down 46% and 45% year over
year, respectively;
(b)
LPL was in the midst of a “recovery” and had experienced a “nice
rebound” in client assets since the end of the third quarter, specifically highlighting
$483 billion in client assets at the end of October 2015, when in fact client assets had
deteriorated and would actually decline by billions of dollars by quarter end;
(c)
gross profits would likely decline only “slightly on a sequential
basis,” when in fact LPL would experience its worst sequential gross profit decline in
four years;
(d)
commission revenues were “slow” but would be “more of the
same that we saw in the third quarter,” when in fact alternative investment revenues
(including investment categories in which LPL had paid substantial regulatory fines,
settlements and penalties) would drop a staggering 75% year-over-year;
(e)
the Company was “still on track” to meet its general and
administrative (“G&A”) expenses for the year, but would in fact have higher non-
G&A expenses, including $8 million in regulatory-related charges and $22.5 million
in depreciation and amortization costs (a 37% sequential increase); and
(f)
the recently announced share repurchase plan was the “best use” of
the Company’s capital because of the then-current “price” of LPL’s common stock,
when in fact defendants knew that LPL’s stock price was artificially inflated and if the
truth had been disclosed LPL would have suffered a negative share price decline, and
thus its proposed share repurchase was a wasteful and inefficient use of Company
capital that also increased the risk that LPL would violate the leverage covenants in its
credit agreements.
12.
As a result of defendants’ false statements, LPL common stock traded at
artificially inflated prices during the Class Period, with its shares reaching a high of
$45.06 per share on December 8, 2015, the day of the conference.
13.
On December 10, 2015, LPL issued a press release announcing the early
completion of its accelerated share repurchase program, stating that TPG had
“approached Goldman about selling a block of shares, providing the opportunity to
settle the [accelerated share repurchase program] more quickly.” TPG sold 4.3
million shares of LPL common stock at $43.27 per share to Goldman to be delivered
to the Company through the accelerated share repurchase program. As a result, TPG
generated approximately $187 million in insider sales proceeds. The release stated
that TPG had approached Goldman as it was “buying the Company’s shares” for the
accelerated share repurchase program, a process which began prior to defendants’
December 8, 2015 conference.
14.
On February 11, 2016, LPL issued a press release announcing its fourth
quarter and full year 2015 financial results. The Company reported results that fell
well below analyst’s estimates. For example, LPL stated that it had generated only
$0.37 per share in adjusted EPS, well below consensus analyst estimates of $0.51 per
share. The Company also stated that client assets at quarter end totaled only $476
billion, $7 billion below the amount of client assets touted at the December 8, 2015
conference. The Company also revealed disappointing revenues, primarily as a result
of dramatically lower commission revenues and revenues from alternative
investments, as well as higher-than-expected expenses for the quarter.
15.
As a result of this news, the price of LPL common stock dropped $8.76
per share to close at $16.50 per share on February 12, 2016, a one-day decline of
nearly 35% on unusually high trading volume of over 11.4 million shares. Analysts
described the results as “[u]gly” and noted a “lack of confidence in management,”
with some expressing concern over the Company’s substantially increased leverage
and ability to remain under its maximum leverage ratio as required by its revised
credit agreements.
16.
Notably, if TPG had sold the same 4.3 million shares of LPL stock to the
Company at the February 12, 2016 closing price, its sale proceeds would have been
diminished by approximately $115 million. By the same token, if LPL had waited to
purchase shares from TPG until after announcing its fourth quarter results, it could
have purchased the same number of shares from TPG for $115 million less. Thus, its
purchase from TPG of LPL shares at $43.27 per share was a wasteful and inefficient
use of Company capital. The following chart illustrates defendants’ fraudulent
scheme to allow TPG to cash out at artificially inflated price before LPL’s true
business, prospects and financial results were revealed:
17.
As a result of defendants’ false statements, LPL common stock traded at
artificially inflated prices during the Class Period. However, after the above
revelations seeped into the market, the Company’s common stock was hammered by
massive sales, sending the price of the Company’s stock down 63% from its Class
Period high and causing economic harm and damages to class members. TPG,
meanwhile, avoided tens of millions of dollars in investment losses and pocketed $187
million in insider sales proceeds.
JURISDICTION AND VENUE
18.
The claims asserted herein arise under and pursuant to §§10(b) and 20(a)
of the 1934 Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated
thereunder by the SEC, 17 C.F.R. §240.10b-5.
19.
This Court has jurisdiction over the subject matter of this action pursuant
to 28 U.S.C. §1331 and §27 of the 1934 Act.
20.
Venue is proper in this District pursuant to §27 of the 1934 Act and 28
U.S.C. §1391(b). Many of the acts charged herein, including the preparation and
dissemination of materially false and misleading information, occurred in substantial
part in this District. LPL also maintains primary offices in this District and has
publicly stated that defendant Audette will be based out of this District.
21.
In connection with the acts alleged in this complaint, defendants, directly
or indirectly, used the means and instrumentalities of interstate commerce, including,
but not limited to, the mails, interstate telephone communications and the facilities of
the NASDAQ stock market.
PARTIES
22.
Plaintiff Charter Township of Clinton Police and Fire Retirement System
acquired LPL common stock as set forth in the attached certification and has been
damaged thereby.
23.
Defendant LPL is an independent broker-dealer, a custodian for RIAs and
an independent consultant to retirement plans. The Company maintains offices at
4707 Executive Drive, San Diego, California 92121.
24.
Defendant Casady is, and at all relevant times was, the Company’s
Chairman of the Board and CEO.
25.
Defendant Audette is, and at all relevant times was, the Company’s CFO.
26.
The defendants referenced above in ¶¶24-25 are referred to herein as the
“Individual Defendants.” The Individual Defendants made, or caused to be made,
false statements which caused the price of LPL common stock to be artificially
inflated during the Class Period.
27.
The Individual Defendants, because of their positions with the Company,
possessed the power and authority to control the contents of LPL’s quarterly reports,
shareholder letters, press releases and presentations to securities analysts, money and
portfolio managers and institutional investors, i.e., the market. They were provided
with copies of the Company’s reports and press releases alleged herein to be
misleading prior to or shortly after their issuance and had the ability and opportunity
to prevent their issuance or cause them to be corrected. They also participated in
conference calls with securities analysts and investors in which they made materially
misleading statements and omissions and held themselves out to be knowledgeable on
the topics which they discussed. Because of their positions with the Company, and
their access to material non-public information available to them but not to the public,
the Individual Defendants knew that the adverse facts specified herein had not been
disclosed to and were being concealed from the public, and that the positive
representations being made were then materially false and misleading. The Individual
Defendants are liable for the false and misleading statements pleaded herein.
DEFENDANTS’ FRAUDULENT SCHEME
AND COURSE OF BUSINESS
28.
Defendants are liable for: (i) making false statements; or (ii) failing to
disclose adverse facts known to them about LPL. Defendants’ fraudulent scheme and
course of business that operated as a fraud or deceit on purchasers of LPL common
stock was a success, as it: (i) deceived the investing public regarding LPL’s prospects
and business; (ii) artificially inflated the price of LPL common stock; and (iii) caused
plaintiff and other members of the Class (as defined below) to purchase LPL common
stock at inflated prices.
BACKGROUND
29.
LPL, together with its subsidiaries, provides an integrated platform of
brokerage and investment advisory services to independent financial advisors and
financial advisors at financial institutions in the United States. Its brokerage offerings
include variable and fixed annuities, mutual funds, equities, retirement and 529
education savings plans, fixed income products, insurance and alternative investments.
LPL’s insurance offerings comprise personalized advance case design, point-of-sale
service, and product support for a range of life, disability, and long-term care
products. The Company also offers fee-based advisory platforms and support, which
provide access to no-load/load-waived mutual funds, ETFs, stocks, bonds,
conservative option strategies, unit investment trusts, institutional money managers,
and no-load multi-manager variable annuities. In addition, it offers cash sweep
programs and retirement solution, a fee-based service that allows qualified advisors to
provide consultation and advice. Further, it provides other services comprising tools
and services enabling advisors to maintain and grow their practices and custodial
services to trusts for estates and families. The Company offers its services to
approximately 14,000 independent financial advisors, including financial advisors at
approximately 700 financial institutions.
30.
The majority of LPL’s revenue streams fall into two categories:
commission revenues and advisory revenues. For fiscal 2014, commission revenues
and advisory revenues generated 48% and 31%, respectively, of LPL’s total net
revenues. Commission revenues derive from upfront advisor fees and commissions
for investment products and, for certain products, a trailing commission. Advisory
revenues derive from fee-based advisory platforms and the provision of ongoing
investment advisory services. For fiscal 2014, 68% of LPL’s revenue was recurring in
nature, providing the Company substantial visibility into its future revenue streams.
In addition, for transaction-based commissions, the Company generates revenues “at
the point of sale,” providing the Company with further visibility into its commission-
based revenues at a given point in time. LPL also has significant visibility into its
depreciation and amortization expenses. These expenses are computed by taking the
book values of long-lived assets, such as internally developed software, leasehold
improvements, computers and software, and furniture and equipment (recorded at
historical cost and reduced by accumulated depreciation and amortization), and then
dividing those assets on a straight-line basis over the estimated useful lives of the
assets – all things readily determined and anticipated and under the control of
management.
31.
Prior to 2010, LPL was majority owned by TPG and Hellman &
Friedman, two private equity firms that owned a combined 72% stake in the
Company. In November 2010, these private equity firms took LPL public in an IPO
in which 15.7 million LPL shares were sold to the public at $30 per share.
32.
Even after the IPO, TPG retained a substantial ownership stake in the
Company and influence over its affairs. For example, two TPG partners, Richard
Boyce and Richard Schifter, served as directors of the Company. While Boyce and
Schifter retired from their positions with TPG in 2013, they remained on the Board
throughout the relevant time frame and kept in close contact with TPG. LPL has also
identified TPG as a “related party” in SEC filings, and stated that it has continued to
enter into various related-party transactions with TPG and certain of TPG’s portfolio
companies since the IPO. As of December 31, 2014, TPG owned approximately 13%
of the outstanding shares of LPL common stock. LPL’s annual report on Form 10-K
for fiscal 2014 stated that as a result of this ownership interest, TPG “will continue to
be able to influence our decisions, regardless of whether or not other stockholders
believe that the transaction is in their own best interests.”
33.
Following the IPO, LPL became the subject of several regulatory and
governmental investigations into allegedly fraudulent, deceptive and/or legally
deficient business practices at the Company and among its network of financial
advisors. For example:
•
In February 2013 it was announced LPL had settled allegations by
Massachusetts securities regulators that it had failed to adequately
supervise its brokers who sold investments in non-traded REITs for $2.5
million.
•
In May 2015 FINRA announced that it had sanctioned LPL $11.7
million for “[w]idespread [s]upervisory [f]ailures [r]elated to [c]omplex
[p]roduct [s]ales, [t]rade [s]urveillance and [t]rade [c]onfirmations
[d]elivery.”
•
In September 2015 it was announced that LPL had agreed to pay $1.8
million to settle charges by the Massachusetts Attorney General that it
had improperly sold and marketed risky ETFs to retail investors.
•
Also in September 2015, it was announced that LPL had agreed to
remediate investor losses and pay $1.425 million in civil penalties to
regulators in 48 states, the District of Columbia, Puerto Rico and the
U.S. Virgin Islands for its alleged failure to implement an adequate
supervisory system regarding its sale of non-traded REITs and its failure
to enforce its written procedures regarding the sale of non-traded REITs.
34.
On October 29, 2015, LPL financial announced its third quarter fiscal
2015 financial results. LPL reported adjusted EPS for the quarter of $0.55 per share,
above consensus analyst estimates, and stated that it expected to move on from its
regulatory problems with “meaningfully lower” regulatory-related charges going
forward. It also announced that it would be implementing a new “capital management
plan to create greater shareholder value.” Key to this plan was a $500 million share
repurchase program authorized by the Board. The Company stated that in order to
pay for this share repurchase it planned to significantly increase its target leverage
ratio from a range of two to three times net debt-to-EBITDA to a ratio of four times
net debt-to-EBITDA. On a conference call to discuss the quarterly results, defendant
Casady stated that the share buyback was a “bargain,” as he believed LPL shares
were trading “at a significant discount to what we believe is their intrinsic value.”
Defendant Audette meanwhile stated that increasing the Company’s leverage to a four
times net debt-to-EBITDA ratio is “what makes the most sense today,” and that LPL
would only go above the four times debt-to-EBITDA ratio if there were “very good
returns to justify doing so.”
35.
Also on October 29, 2015, national credit rating agency Moody’s
downgraded LPL’s corporate credit rating to Ba3 from Ba2 as a result of “increased
credit risk” following the Company’s announced share repurchase plan and expected
leverage increases.
36.
On November 24, 2015, LPL issued a press release announcing that it
had entered into $700 million of new term loans due November 20, 2022 and had
extended $631 million of existing term loans to March 29, 2021 in order to pay for a
$250 million accelerated share repurchase plan. As a result of the debt transaction, the
Company stated its net target leverage had increased to a 3.7 times net debt-to-
EBITDA ratio, and that it would breach its revised credit covenants if its leverage
exceeded a five times net debt-to-EBITDA ratio. In connection with the transaction,
the Company incurred $21 million of debt issuance costs and its total weighted
average interest rate for debt outstanding increased from 3.1% to 3.9%. The Company
also announced that it had entered into an agreement with Goldman whereby it would
pay Goldman $250 million to carry out the accelerated share repurchase on LPL’s
behalf. The press release stated that LPL estimated the accelerated share repurchase
“will take several months to complete.”
37.
Analysts widely panned the debt transaction as unfavorably increasing
LPL’s cost of debt. For example, following the announcement a UBS analyst lowered
LPL’s stock price target based on what were viewed as “[u]nattractive [d]ebt [t]erms.”
Another analyst at Susquehanna Financial Group put things more bluntly, writing the
“Transaction Does Not Make Economic Sense.”
38.
On December 2, 2015, LPL announced that it would be presenting at a
financial services conference sponsored by Goldman on December 8, 2015. This was
around the same time TPG approached Goldman to discuss cashing out a significant
portion of its LPL stock through the accelerated share repurchase program.
FALSE AND MISLEADING STATEMENTS
ISSUED DURING THE CLASS PERIOD
39.
At the December 8, 2015 conference and in the related slide presentation,
defendants Casady and Audette made false and misleading statements regarding
LPL’s business, prospects and financial results. For example, in response to an
analyst question about how LPL would “turn the page” on its recent regulatory
problems, defendant Casady stated that “execut[ing]” the share repurchase would be
“key.”
40.
The analyst also asked defendant Audette what he had seen in his short
time with the Company, having only joined as CFO in September 2015. Audette
responded by again highlighting the share repurchase capital plan, claiming that it was
“in the best interest of shareholders,” and stating that he had witnessed a Company
that was a “lot more powerful and compelling than I thought from the outside,” with
“an earnings stream that is quite steady and produces cash flow over time,” and that
LPL had been “executing it all well” since he had come on board:
But, now, being here, a little bit over two months, spending a lot of time
with the team just getting up to speed on what our offering is, and
starting to think through our key customer and client; the advisor running
a small advisory shop in their hometown area and thinking through
we’ve got the ability to have them offer brokerage services through us, to
offer advisory services, whether I’m a small firm that wants [to] utilize
our compliance work and regulatory work on the corporate side, or if I’m
a bigger player and I want to utilize the overall hybrid platform and have
both brokerage and independent advisory. Being here for these two
months and spending a lot of time, I wouldn’t say it was a surprise
because it was expected, but I think it’s a lot more powerful and
compelling than I thought from the outside.
Third, and what Mark kind of hinted to on the capital plan side,
being at a place where there’s a lot less approvals necessary to go
execute on a capital plan in the best interest of shareholders. So, the
way we speak about it, a capital-lite model, an earnings stream that is
quite steady and produces cash flow over time. Hopefully, the last two
months have shown that that opportunity absolutely was there. We’re
executing it all well.
41.
Defendant Audette continued by giving a mid-quarter update that
concealed the amount and extent of LPL’s gross profit, earnings and revenue declines
and non-G&A expense growth, claiming LPL was in the midst of a “recovery” with
client assets experiencing a “nice rebound” since the end of the third quarter:
I would say, very broadly, we say more of the same that we saw in the
third quarter. Just the very top bullet point, we did see market levels
and asset levels recover nicely. Those of you that I’m sure follow
closely, September 30th or Q3 quarter end, markets went down a fair bit
on that day. So, we’re up at the end of October to $483 billion versus
$462 billion at the end of the quarter. So, nice rebound there.
Second thing is in that first bullet, net new advisory assets
continue to flow in well. And we are averaging about $1.5 billion a
month. And you see that we had that in October. Now, at the same time,
on that second bullet, I think the key thing here, and I would underscore
the word slightly, is that Q4 gross profit is likely to decline slightly for a
few reasons, including the one that I just mentioned, is that first sub-
bullet; that advisory fees are really grounded in the prior quarter’s
balances, meaning right on September 30th. So the recovery we see,
there will be a little bit of a lag of that showing up in gross profit going
forward.
In the second bullet, sales commissions continue to be slow. They
were slow last quarter. They continue to be slow from what we’ve seen
so far this quarter. So, I think those are probably the key drivers on the
gross profit side.
Final bullet here, advisor headcount growth consistent with what
we saw in the third quarter. The numbers are relatively small with high-
quality, higher asset level advisors coming in being offset by the lower
asset size or the lower-quality items, advisors.
Turning to page 21, I would say, broadly, this page with respect to
expenses and the capital plan, is largely just reiterating that what we
said on the earnings call is we are still on track to do and that’s still
our guidance. And just quickly, to highlight probably the most notable
ones in the first two sub bullet points in the top half of the page on
expenses; that our 2015 core G&A guidance is 7.5% to 8.5% and, in
dollars, roughly $700 million, that $697 million to $703 million. We’re
still on track.
And then, specifically for next year, 2016, core G&A in that $715
million to $730 million range, which is that 2% to 4% growth. So that
largely – not largely – that remains on track. So, no news here. Just
reiterating that what we said on the call is still the case.
42.
Defendant Casady then responded to an analyst’s question about what he
was seeing in terms of advisor growth, stating that he “like[d] th[e] trend,” as he was
seeing more productive advisors join the Company’s network while less productive
advisors were leaving:
How we know that’s true is that we have 97% retention revenue.
So, with the folks who are leaving, it’s clear that they’re small producers.
And we see good advisory asset growth overall. And we know that the
market data that tells us about movement of advisors puts us right at the
top of the league tables as it relates to advisors joining LPL. So,
fundamentally, this year is sort of like any other in terms of the gross
amount and what’s different is that we do have the smaller producers
leaving.
Classes that are coming in are bigger, on average, in terms of
production than those who are with us already. So, we like that trend, as
well. And we’re staying right around that $0.25 to the dollar, on
average, cost of acquisition transition assistance, which is very good vis
a vis the market. We do see a strong pipeline. So, we do think that the
numbers will pick up in terms of the gross – again, it would be larger.
Not so sure about the small producers continuing to move out. But we
do see the pipeline building in strength over time. So, I’d call this a
pretty typical year or average year for us.
43.
Defendant Audette later stressed that he and the Company were focused
on providing investors with “transparency of [LPL’s] results” and “[j]ust grounding it
all.”
44.
Later during the conference, defendant Casady was asked about the
Company’s recently announced share repurchase program and he reaffirmed that the
share repurchase would be the “best use” of Company capital because of LPL’s then-
current share price:
So, it’s just price. At the end of the day, we can buy our own stock at 8-
to 9-times EBITDA. And what seems to be available to us in the M&A
market appears to be more like 10-, 12-, 14-times EBITDA. And, quite
simply, I think it’s a question of allocation of capital, the best use. And
so, it’s no more complex than that.
45.
The statements referenced above in ¶¶39-44 were materially false and
misleading when made because they failed to disclose the following adverse facts
which were known by defendants or recklessly disregarded by them:
(a)
that LPL’s earnings and revenue were not “steady,” but were
substantially declining, as LPL’s fourth quarter adjusted earnings, EPS and net income
would be down double digits year over year;
(b)
that LPL’s client assets were not “rebound[ing]” nicely and in the
midst of a “recovery,” but were actually deteriorating and would decline by billions of
dollars from the October figure provided at the conference through the end of the
fourth quarter;
(c)
that LPL’s gross profits would not decline “slightly on a
sequential basis,” but significantly, and LPL would in fact experience its worst
sequential gross profit decline in four years;
(d)
that commission revenues would not be “more of the same that
[LPL] saw in the third quarter,” but down sequentially from the end of the third
quarter, and in fact, LPL was suffering a staggering loss of revenue from alternative
investments, including from investment categories in which LPL had paid substantial
regulatory fines, settlements and penalties;
(e)
that the Company was expecting a substantial increase in non-
G&A expenses, including $8 million in regulatory-related charges and a 37%
sequential increase in depreciation and amortization costs; and
(f)
that the announced share repurchase plan was not the “best use” of
the Company’s capital because of the then-current “price” of LPL’s common stock,
but rather a wasteful and inefficient use of Company capital in light of the inflated
price of LPL shares, which also increased the risk that LPL would violate the leverage
covenants in its credit agreements.
46.
As a result of defendants’ false statements, LPL common stock traded at
artificially inflated prices during the Class Period, with its shares reaching a high of
$45.06 per share on December 8, 2015, the day of the conference.
47.
On December 10, 2015, LPL issued a press release announcing the early
completion of its accelerated share repurchase program, stating that TPG had
“approached Goldman about selling a block of shares, providing the opportunity to
settle the [accelerated share repurchase program] more quickly.” TPG sold 4.3
million shares of LPL common stock at $43.27 per share to Goldman to be delivered
to the Company through the accelerated share repurchase program. As a result, TPG
generated approximately $187 million in insider sales proceeds. The release stated
that TPG had approached Goldman as it was “buying the Company’s shares” for the
accelerated share repurchase program, a process which began prior to the December 8,
2015 conference.
48.
On February 11, 2016, LPL issued a press release announcing its fourth
quarter and full year 2015 financial results. The Company reported results that fell
well below analyst’s estimates. For example, LPL stated that it had generated only
$0.37 per share in adjusted EPS, 27% below consensus analyst estimates of $0.51 per
share. The Company also stated that gross profit had declined more than 5% since the
end of the third quarter, the largest sequential decline in four years. The Company
also revealed that client assets at quarter end totaled only $476 billion, $7 billion
below the amount of client assets at the end of October that defendants had touted at
the December 8, 2015 conference. In addition, LPL revealed disappointing revenues,
including a 4% sequential decline in quarterly commission revenues and a staggering
75% decline in alternative investments year over year. Further, LPL disclosed that
depreciation and amortization expenses had increased 37% sequentially and that it had
recorded an $8 million regulatory charge during the quarter.
49.
As a result of this news, the price of LPL common stock dropped $8.76
per share to close at $16.50 per share on February 12, 2016, a one-day decline of 35%
on unusually high trading volume of over 11.4 million shares. Analysts described the
results as “[u]gly” and noted a “lack of confidence in management,” with some
expressing concern over the Company’s substantially increased leverage and ability to
remain under its maximum leverage ratio as required by its credit agreements.
50.
Notably, if TPG had sold the same 4.3 million shares of LPL stock to the
Company at the February 12, 2016 closing price, its sale proceeds would have been
diminished by approximately $115 million. By the same token, if LPL had waited to
purchase shares from TPG until after announcing its fourth quarter results, it could
have purchased the same number of shares from TPG for $115 million less. Thus, its
purchase from TPG of LPL shares at $43.27 per share was a wasteful and inefficient
use of Company capital.
51.
As a result of defendants’ false statements, LPL common stock traded at
artificially inflated prices during the Class Period. However, after the above
revelations seeped into the market, the Company’s common stock was hammered by
massive sales, sending the price of the Company’s stock down 63% from its Class
Period high and causing economic harm and damages to Class members. TPG,
meanwhile, avoided tens of millions of dollars in investment losses and pocketed $187
million in insider sales proceeds.
LOSS CAUSATION/ECONOMIC LOSS
52.
During the Class Period, as detailed herein, defendants made false and
misleading statements by misrepresenting the Company’s business and prospects and
engaged in a scheme to deceive the market and a course of conduct that artificially
inflated the price of LPL common stock and operated as a fraud or deceit on Class
Period purchasers of LPL common stock. Later, when defendants’ prior
misrepresentations and fraudulent conduct became apparent to the market, the price of
LPL common stock fell precipitously, as the prior artificial inflation came out of the
price over time. As a result of their purchases of LPL common stock during the Class
Period, plaintiff and other members of the Class suffered economic loss, i.e., damages,
under the federal securities laws.
APPLICABILITY OF THE PRESUMPTION OF RELIANCE
AND FRAUD ON THE MARKET
53.
Plaintiff will rely upon the presumption of reliance established by the
fraud-on-the-market doctrine in that, among other things:
(a)
Defendants made public misrepresentations or failed to disclose
material facts during the Class Period;
(b)
The omissions and misrepresentations were material;
(c)
The Company’s stock traded in an efficient market;
(d)
The misrepresentations alleged would tend to induce a reasonable
investor to misjudge the value of the Company’s common stock; and
(e)
Plaintiff and other members of the Class purchased LPL common
stock between the time defendants misrepresented or failed to disclose material facts
and the time the true facts were disclosed, without knowledge of the misrepresented or
omitted facts.
54.
At all relevant times, the market for LPL common stock was efficient for
the following reasons, among others:
(a)
LPL stock met the requirements for listing, and was listed and
actively traded on the NASDAQ, a highly efficient and automated market;
(b)
As a regulated issuer, LPL filed periodic public reports with the
SEC; and
(c)
LPL regularly communicated with public investors via established
market communication mechanisms, including through regular disseminations of
press releases on the major news wire services and through other wide-ranging public
disclosures, such as communications with the financial press, securities analysts and
other similar reporting services.
NO SAFE HARBOR
55.
Defendants’ false and misleading statements during the Class Period
were not forward-looking statements (“FLS”) and/or identified as such by defendants,
and thus did not fall within any “Safe Harbor.”
56.
LPL did not issue verbal “Safe Harbor” warnings to accompany its oral
FLS issued during the Class Period and, in any event, any warnings were ineffective
to shield those statements from liability.
57.
Defendants are also liable for any false or misleading FLS pleaded
because, at the time each FLS was made, the speaker knew the FLS was false or
misleading and the FLS was authorized and/or approved by an executive officer of
LPL who knew that the FLS was false. Further, none of the historic or present tense
statements made by defendants were assumptions underlying or relating to any plan,
projection or statement of future economic performance, as they were not stated to be
such assumptions underlying or relating to any projection or statement of future
economic performance when made.
CLASS ACTION ALLEGATIONS
58.
Plaintiff brings this action as a class action pursuant to Rule 23 of the
Federal Rules of Civil Procedure on behalf of all persons who purchased LPL
common stock during the Class Period (the “Class”). Excluded from the Class are
defendants and their families, the officers and directors of the Company, at all relevant
times, members of their immediate families and their legal representatives, heirs,
successors or assigns, and any entity in which defendants have or had a controlling
interest.
59.
The members of the Class are so numerous that joinder of all members is
impracticable. LPL stock is actively traded on the NASDAQ and there are nearly 89
million shares of LPL common stock outstanding. While the exact number of Class
members is unknown to plaintiff at this time and can only be ascertained through
appropriate discovery, plaintiff believes that there are hundreds of members in the
proposed Class. Record owners and other members of the Class may be identified
from records maintained by LPL or its transfer agent and may be notified of the
pendency of this action by mail, using the form of notice similar to that customarily
used in securities class actions.
60.
Common questions of law and fact predominate and include: (i) whether
defendants violated the 1934 Act; (ii) whether defendants omitted and/or
misrepresented material facts; (iii) whether defendants knew or recklessly disregarded
that their statements were false; and (iv) whether defendants’ statements and/or
omissions artificially inflated the price of LPL common stock and the extent and
appropriate measure of damages.
61.
Plaintiff’s claims are typical of the claims of the members of the Class as
all members of the Class are similarly affected by defendants’ wrongful conduct in
violation of federal law that is complained of herein.
62.
Plaintiff will fairly and adequately protect the interests of the members of
the Class and has retained counsel competent and experienced in class and securities
litigation.
63.
A class action is superior to all other available methods for the fair and
efficient adjudication of this controversy since joinder of all members is
impracticable. Furthermore, as the damages suffered by individual Class members
may be relatively small, the expense and burden of individual litigation make it
impossible for members of the Class to individually redress the wrongs done to them.
There will be no difficulty in the management of this action as a class action.
COUNT I
For Violation of §10(b) of the 1934 Act and Rule 10b-5
Against All Defendants
64.
Plaintiff incorporates all allegations in ¶¶1-63 above by reference.
65.
During the Class Period, defendants disseminated or approved the false
statements specified above, which they knew or recklessly disregarded were
misleading in that they contained misrepresentations and failed to disclose material
facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
66.
Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:
(a)
Employed devices, schemes and artifices to defraud;
(b)
Made untrue statements of material facts or omitted to state
material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
(c)
Engaged in acts, practices, and a course of business that operated
as a fraud or deceit upon plaintiff and others similarly situated in connection with their
purchases of LPL common stock during the Class Period.
67.
Plaintiff and the Class have suffered damages in that, in reliance on the
integrity of the market, they paid artificially inflated prices for LPL common stock.
Plaintiff and the Class would not have purchased LPL common stock at the prices
they paid, or at all, if they had been aware that the market price had been artificially
and falsely inflated by defendants’ misleading statements.
68.
As a direct and proximate result of defendants’ wrongful conduct,
plaintiff and the other members of the Class suffered damages in connection with their
purchases of LPL common stock during the Class Period.
COUNT II
For Violation of §20(a) of the 1934 Act
Against All Defendants
69.
Plaintiff incorporates all allegations in ¶¶1-68 above by reference.
70.
The Individual Defendants acted as controlling persons of LPL within the
meaning of §20(a) of the 1934 Act. By virtue of their positions with the Company,
and ownership of LPL common stock, the Individual Defendants had the power and
authority to cause LPL to engage in the wrongful conduct complained of herein. LPL
controlled the Individual Defendants and all of its employees. By reason of such
conduct, defendants are liable pursuant to §20(a) of the 1934 Act.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
A.
Determining that this action is a proper class action, designating plaintiff
as Lead Plaintiff and certifying plaintiff as a class representative under Rule 23 of the
Federal Rules of Civil Procedure and plaintiff’s counsel as Lead Counsel;
B.
Awarding damages and interest;
C.
Awarding plaintiff’s reasonable costs, including attorneys’ fees; and
D.
Awarding such equitable/injunctive or other relief as the Court may deem
just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: March 22, 2016
ROBBINS GELLER RUDMAN
& DOWD LLP
DAVID C. WALTON
BRIAN E. COCHRAN
s/David C. Walton
DAVID C. WALTON
655 West Broadway, Suite 1900
San Diego, CA 92101-8498
Telephone: 619/231-1058
619/231-7423 (fax)
ROBBINS GELLER RUDMAN
& DOWD LLP
SAMUEL H. RUDMAN
58 South Service Road, Suite 200
Melville, NY 11747
Telephone: 631/367-7100
631/367-1173 (fax)
VANOVERBEKE MICHAUD &
TIMMONY, P.C.
MICHAEL J. VANOVERBEKE
79 Alfred Street
Detroit, MI 48201
Telephone: 313/578-1200
313/578-1201 (fax)
Attorneys for Plaintiff
I:\Admin\CptDraft\Securities\Cpt LPL Financial.docx
CERTIFICATION OF NAMED PLAINTIFF
PURSUANT TO FEDERAL SECURITIES LAWS
CHARTER
TOWNSHIP
OF
CLINTON
POLICE
AND
FIRE
RETIREMENT SYSTEM (“Plaintiff”) declares:
1.
Plaintiff has reviewed a complaint and authorized its filing.
2.
Plaintiff did not acquire the security that is the subject of this action at
the direction of plaintiff’s counsel or in order to participate in this private action or
any other litigation under the federal securities laws.
3.
Plaintiff is willing to serve as a representative party on behalf of the
class, including providing testimony at deposition and trial, if necessary.
4.
Plaintiff has made the following transaction(s) during the Class Period
in the securities that are the subject of this action:
Security
Transaction
Date
Price Per Share
See attached Schedule A.
5.
Plaintiff has not sought to serve or served as a representative party in
a class action that was filed under the federal securities laws within the three-year
period prior to the date of this Certification except as detailed below:
Charter Township of Clinton Police and Fire Ret. Sys. v. Volkwagen AG, et al., No. 2:15-cv-13999 (E.D. Mich.)
6.
The Plaintiff will not accept any payment for serving as a
representative party on behalf of the class beyond the Plaintiff’s pro rata share of
SECURITIES TRANSACTIONS
Acquisitions
Date
Type/Amount of
Acquired
Price
Securities Acquired
01/19/2016
2,600
$34.26
02/02/2016
1,400
$28.07
| securities |
y1NnBIkBRpLueGJZm5Qb | Jeff D. Friedman (SBN 173886)
HAGENS BERMAN SOBOL SHAPIRO LLP
715 Hearst Avenue, Suite 202
Berkeley, CA 94710
Telephone: (510) 725-3000
Facsimile: (510) 725-3001
jefff@hbsslaw.com
Steve W. Berman (pro hac vice to be filed)
Sean R. Matt (pro hac vice to be filed)
HAGENS BERMAN SOBOL SHAPIRO LLP
1301 Second Avenue, Suite 2000
Seattle, WA 98101
Telephone: (206) 623-7292
Facsimile: (206) 623-0594
steve@hbsslaw.com
sean@hbsslaw.com
Attorneys for Plaintiffs
[Additional Counsel Listed on the Signature Page]
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
No. 18-cv-07054
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
CHRISTOPHER MOONAN, SEAN T. SMITH,
ISAIAH RUDY, JOSE HERNANDEZ, SEAN
M. BUOB, RICHARD SAMSON, RYAN
ARTHUR JENSEN, DOUGLAS CRENSHAW,
ANTHONY RAYMOND SMITH, BRADLEY
RICE, BRUCE K. GARLOCK, CHRIS S.
MCALISTER, COLBY BARRY, DEBRA
KAY CASKEY, DOUGLAS HUGHES, ERIC
THOMAS CORDER, ERNEST HAROLD
MILLER, GEOFF COCHEMS, JOHN
THOMAS WHITE, KALEB BEAN,
KENNETH MUNRO, KENNY TRAN, KEVIN
ALLEN LAWSON, KEVIN SUTHERLAND,
MICHAEL L. MCCOY, MILTON LEON
HUSS, JR., NICHOLAS BROCK, STACY
WADE SIZELOVE, THORIN JAY ASKIN,
RYAN MADURO, MARCOS R. COBAIN,
JR., MICHELE DINIZ, JAMES DUSTIN
MORGANTI, and BRANDON TIROZZI, each
plaintiff is a citizen of the State of California
and each plaintiff brings suit individually and on
behalf of all others similarly situated,
Plaintiffs,
v.
GENERAL MOTORS LLC, a Delaware
corporation,
Defendant.
TABLE OF CONTENTS
I.
INTRODUCTION ................................................................................................................... 1
II.
INTRADISTRICT ASSIGNMENT ........................................................................................ 4
III.
PARTIES ................................................................................................................................. 5
A.
The Plaintiffs ............................................................................................................... 5
B.
The Defendant. .......................................................................................................... 48
IV.
VENUE AND JURISDICTION ............................................................................................ 49
V.
FACTUAL ALLEGATIONS ................................................................................................ 50
A.
The Class Vehicles .................................................................................................... 50
B.
The rise of diesel vehicles in the United States ......................................................... 50
C.
Pre-Class Period Failures ot the CP4 Are Known Within The auto
Industry ...................................................................................................................... 52
D.
GM’s Additional Knowledge of Incompatibility, Defectiveness,
and Failures Associated with Bosch’s CP4 Pump. .................................................... 61
E.
Supposed “Remedies” are Insufficient and Costly. ................................................... 74
F.
GM Knew Durability and Superiority Were Material to Consumers
and Made Hollow Promises of Durability and Superiority. ...................................... 76
VI.
TOLLING OF THE STATUTE OF LIMITATIONS ........................................................... 85
VII.
CLASS ACTION ALLEGATIONS ...................................................................................... 87
VIII.
CAUSES OF ACTION CLAIMS BROUGHT ON BEHALF OF THE
CLASS AND ON BEHALF OF THE NAMED PLAINTIFFS ............................................ 91
COUNT I FRAUD BY CONCEALMENT ....................................................................................... 91
COUNT II VIOLATIONS OF THE CALIFORNIA UNFAIR COMPETITION
LAW (CAL. BUS. & PROF. CODE § 17200, ET SEQ.) ...................................................... 94
COUNT III VIOLATIONS OF THE CONSUMER LEGAL REMEDIES ACT
(“CLRA”) (CAL. CIV. CODE § 1750, ET SEQ.) ................................................................. 98
COUNT IV UNJUST ENRICHMENT ............................................................................................ 99
COUNT V BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY
(CAL. COM. CODE §§ 2314 AND 10212) ........................................................................ 100
COUNT VI VIOLATION OF THE MAGNUSON-MOSS WARRANTY ACT,
(15 U.S.C. § 2301, ET SEQ.) ............................................................................................... 102
PRAYER FOR RELIEF .................................................................................................................. 105
DEMAND FOR JURY TRIAL ....................................................................................................... 106
Christopher Moonan, Sean T. Smith, Isaiah Rudy, Jose Hernandez, Sean M. Buob, Richard
Samson, Ryan Arthur Jensen, Douglas Crenshaw, Anthony Raymond Smith, Bradley Rice, Bruce K.
Garlock, Chris S. McAlister, Colby Barry, Debra Kay Caskey, Douglas Hughes, Eric Thomas
Corder, Ernest Harold Miller, Geoff Cochems, John Thomas White, Kaleb Bean, Kenneth Munro,
Kenny Tran, Kevin Allen Lawson, Kevin Sutherland, Michael L. Mccoy, Milton Leon Huss, Jr.,
Nicholas Brock, Stacy Wade Sizelove, Thorin Jay Askin, Ryan Maduro, Marcos R. Cobain, Jr.,
Michele Diniz, James Dustin Morganti, and Brandon Tirozzi, each individually and on behalf of all
others similarly situated (“the Class”), file this suit against Defendant General Motors LLC. This
lawsuit is based upon the investigation of counsel, the review of scientific and automotive industry
papers, and the investigation of experts with relevant education and experience. In support thereof,
Plaintiffs state as follows:
I.
INTRODUCTION
1.
General Motors LLC (“GM”) has sold millions of diesel-tank automobiles equipped
with high-pressure fuel injection pumps that are proverbial ticking time bombs, wholly unbeknownst
to an unassuming American public who ponies-up big bucks for these vehicles’ fictitious
“durability,” “longevity,” and “topnotch fuel economy.” GM promised consumers the continued
reliability of their diesel engines, but with increased fuel efficiency and power at greater fuel
efficiency. However, this came with a hidden and catastrophic cost that was secretly passed on to
consumers. The key was the Bosch-supplied CP4 high pressure fuel injection pump, which
unbeknownst to consumers is a ticking time bomb when used in American vehicles. As GM knew
all along, Bosch’s CP4 pump was never compatible with American diesel fuel standards. The CP4
pump is not built to withstand the specifications for U.S. diesel fuel in terms of lubrication or water
content, and it struggles to lift a volume of fuel sufficient to lubricate itself. As a result, the pump is
forced to run dry and destroy itself as air bubbles allow metal to rub against metal. As a result of this
defect, the pump secretly deposits metal shavings and debris throughout the fuel injection system and
the engine until it suddenly and cataclysmically fails without warning, further contaminating the fuel
delivery system with larger pieces of metal. The “catastrophic” (i.e., complete and total) pump
failure often occurs as early as “mile 0,” as the fuel injection disintegration process begins at the very
first fill of the tank. This total fuel injection system failure and consequential engine failure results in
an outrageously expensive repair bill, even when it is “covered under warranty,” all for a repair that
will not truly ameliorate the issue so long as the vehicle is being filled with U.S. diesel. And,
although complete and total pump failure takes time to occur, the defective CP4 pump starts
damaging the vehicle’s fuel injection system and engine immediately upon the vehicle’s first use.
Further, the sudden and unexpected shutoff of the vehicle’s engine while it is in motion and then
subsequent inability to restart the vehicle present an inherent risk to consumer safety—one which
GM itself has acknowledged in the past. Thus, Plaintiffs and other Class members have suffered
from a defect that existed in the Class Vehicles, which began damaging the Class Vehicles and their
fuel delivery systems upon the first use of the Class Vehicles and throughout their lifetime. Plaintiffs
and other Class members are seeking recovery for this manifested and immediately damaging defect,
in addition to any and all consequential damages stemming therefrom.
2.
What is worse, consumers are left with repair bills that range from $8,000.00 to
$20,000.00 per vehicle. Some victims of GM’s grand scam are American businesses who own
several vehicles and have suffered multiple failures. Others have spent several hundred or several
thousand dollars attempting to prevent or mitigate these failures. Moreover, diesel fans pay so much
more for their trucks because diesel trucks are expected to last for 500,000 to 800,000 miles, and
have more power, and a lower fuel bill. Put simply, Plaintiffs and all members of the proposed Class
paid a premium for their diesel vehicles, and were harmed by being sold vehicles with a defective
fuel injection pump that is substandard for American fuel.
3.
GM saw Bosch’s CP4 fuel injection pump as another way to make money—to take
advantage of consumers’ desire to drive diesel vehicles that were reliable, durable, fuel-efficient, and
powerful. After the CP4 fuel injection system worked successfully in vehicles in Europe, GM
sought to use the CP4 system in American vehicles, promising consumers exactly what they were
looking for—improvements in torque, horsepower, durability, and fuel economy. But GM could
never deliver on that promise for American vehicles because the CP4 fuel pump is not compatible
with American diesel fuel; in fact, GM knew this from the start, and equipped its modern Duramax
diesel vehicles with the European-designed CP4 fuel pump anyway.
4.
Unbeknownst to consumers, the improved fuel efficiency of the Bosch-made
component CP4 pump in American vehicles comes at the cost of running the pump nearly dry so that
it destroys itself, and—ultimately and catastrophically—destroys the fuel injection system and the
engine altogether. American diesel fuel is cleaner, which means that it also provides less lubrication
than European diesel fuel. The lubricity specifications of American diesel are incompatible with the
specifications of the CP4 system. When American diesel fuel is run through the fast moving, high
pressure, lower volume CP4 pump, it struggles to maintain lubrication. The cleaner, thinner diesel
allows air pockets to form inside the pump during operation, causing metal to rub against metal,
generating metal shavings which are dispersed throughout the fuel injection system, contaminating
and destroying the fuel system and indeed the entire engine. Contrary to GM’s claims that the CP4
fuel injection system is more reliable, more durable, more powerful, and more fuel-efficient, the CP4
fuel injection system is costly, destructive, and dangerous.
5.
The kicker is, GM knew from the specifications of the pump as compared to the
specifications of American diesel, that the Bosch-made CP4 pump was clearly incompatible with the
ordinary use of American diesel fuel. Indeed, well before GM ever chose to implement the CP4
component part (as incorporated in the diesel engines of the subject Class Vehicles), the issue of
incompatibility was (or should have been) known and yet was totally ignored in the design of the
Class Vehicles’ engine systems. This is further evidenced by the fact that GM, as well as its fellow
mega-automotive manufacturers, had experience with widespread catastrophic fuel injection pump
failures when cleaner diesel standards were first implemented in the 1990s. By 2002, the Truck &
Engine Manufacturers Association (“EMA”)—of which GM is a member company1—acknowledged
that the lower lubricity of American diesel could cause catastrophic failure in fuel injection system
components that are made to European diesel specifications. Not only did GM fail to inform
1 See Truck & Engine Manufacturers Association (EMA) membership webpage,
http://www.truckandenginemanufacturers.org/companies/ (last visited Nov. 13, 2018).
American consumers and fail to stop touting the fabricated benefits of the vehicles containing CP4
pumps, they actively attempted to shift the blame to the American consumers. For instance, GM
claimed it was consumers’ improper use of contaminated or substandard fuels that damaged the
vehicles’ fuel system, even when GM knew that the malfunction was actually the result of the CP4
fuel injection pump design, which was simply not fit for American diesel fuel.
6.
Vehicle engines with the Bosch CP4 fuel injection pumps are not compatible with
American fuel, and GM’s conduct is not compatible with American law. GM knowingly and
intentionally deceived American consumers through its individual representations to respective
consumers in a (successful) effort to increase revenues and profits at the expense of consumers.
7.
Indeed, Plaintiffs and similarly situated Class members have suffered from an innately
manifested—though not readily apparent—defect that existed in the Class Vehicles prior to purchase
(or lease), and which began damaging the Class Vehicles and their fuel delivery systems upon first
use. Plaintiffs were thus injured at the point of sale and throughout their ownership of the vehicle
and paid far more than they would have if GM had told the truth. Indeed, Plaintiffs and no
reasonable consumer would have bought these vehicles if GM had told the truth.
8.
These consumers are entitled to be reimbursed for the millions of dollars GM
fraudulently obtained from them, and to be compensated for their actual losses. This lawsuit seeks to
hold GM accountable to these consumers, who are the unwitting casualties of the company’s massive
fraud.
II.
INTRADISTRICT ASSIGNMENT
9.
This action is properly assigned to the San Francisco Division of this District pursuant
to N.D. Cal. L.R. 3-2, because a substantial part of the events or omissions giving rise to the
Plaintiffs’ and Class members’ claims arose in the counties served by the San Francisco
Division. Several Plaintiffs and proposed Class members purchased and maintained their Class
Vehicles in the counties served by this Division. Moreover, (a) GM conducts substantial business in
the counties served by this Division; (b) GM has marketed, advertised, and sold/leased the Class
Vehicles in those counties; and (c) GM caused harm to Plaintiffs and Class members residing in
those counties.
III.
PARTIES
A.
The Plaintiffs
10.
For ease of reference, the following chart identifies the Representative Plaintiffs and
their vehicles:
Representative Plaintiff
Make
Model
Year
Isaiah Rudy
Chevrolet
Silverado 2500 HD
2012
Kaleb Bean
Chevrolet
Silverado 2500 HD
2011
Jose Hernandez
Chevrolet
Silverado 2500 HD
2012
Stacy Wade Sizelove
Chevrolet
Silverado 2500 HD
2011
Milton Leon Huss Jr.
Chevrolet
Silverado 2500 HD
2015
Christopher Moonan
Chevrolet
Silverado 2500 HD
2016
Bruce K. Garlock
Chevrolet
Silverado 3500 HD
2016
Geoff Cochems
Chevrolet
Silverado 2500 HD
2011
Sean M. Buob
Chevrolet
Silverado 2500 HD
2015
Michael L. Mccoy
Chevrolet
Silverado 2500 HD
2015
Chris S. McAlister
Chevrolet
Silverado 3500 HD
2015
John Thomas White
Chevrolet
Silverado 2500 HD
2016
Sean T. Smith
Chevrolet
Silverado 2500 HD
2016
Kevin Allen Lawson
Chevrolet
Silverado 2500 HD
2013
Kevin Sutherland
Chevrolet
Silverado 2500 HD
2011
Ernest Harold Miller
Chevrolet
Silverado 2500 HD
2012
Kenneth Munro
Chevrolet
Silverado 2500 HD
2015
Douglas Hughes
Chevrolet
Silverado 2500 HD
2015
Nicholas Brock
Chevrolet
Silverado 2500 HD
2011
Colby Barry
Chevrolet
Silverado 3500 HD
2016
Kenny Tran
GMC
Sierra 2500 HD
2015
Richard Samson
GMC
Sierra HD Denali
2016
Bradley Rice
GMC
Sierra HD
2014
Debra Kay Caskey
GMC
Sierra 2500 HD
2014
Douglas Crenshaw
GMC
Sierra 2500 HD
2015
Eric Thomas Corder
GMC
Sierra 2500 HD
2011
Representative Plaintiff
Make
Model
Year
Anthony Raymond Smith
GMC
Sierra 2500 HD
2011
Ryan Arthur Jensen
GMC
Sierra 3500 HD
2015
Thorin Jay Askin
GMC
Sierra 2500 HD
2015
Ryan Maduro
GMC
Sierra 2500 HD
2016
Marcos R. Cobain, Jr.
Chevrolet
Silverado 3500 HD
2014
Michele Diniz
GMC
Sierra 2500 HD
2013
James Dustin Morganti
Chevrolet
Silverado 2500 HD
2014
Brandon Tirozzi
Chevrolet
Silverado 2500 HD
2013
11.
Plaintiff Isaiah Rudy (for the purpose of this paragraph, “Plaintiff”) is a citizen of the
State of California, and domiciled in Riverside, California. On or around November 1, 2011 Plaintiff
purchased a new 2012 Chevrolet Silverado 2500 HD, VIN 1GC1KYC83CF105132 (for the purpose
of this paragraph, the “Class Vehicle”) for $64,000.00 from Carmel Chevy, an authorized GM
dealership in Los Angeles, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses
his Silverado 2500 HD to tow his 25-foot boat and 35-foot 5th wheel trailer on vacations with his
family. His 2012 truck currently has 120,000 miles on it. In the days and weeks preceding his
purchase, Plaintiff Rudy saw and heard Chevrolet’s television commercials, radio advertisements,
and printed brochures and advertisements wherein Chevrolet claimed the Duramax diesel truck, like
the one Plaintiff would purchase, had superior horsepower and durability compared to other diesel
trucks in the American market. On the date that Plaintiff Rudy purchased the vehicle, and in
purchasing the vehicle, Plaintiff Rudy relied on representations that the vehicle was compatible with
American diesel fuel, was durable, and was reliable. Plaintiff Rudy relied on these representations in
purchasing the vehicle and, absent these representations, would not have purchased the vehicle
and/or would have paid less for it. Plaintiff Rudy relied on GM’s representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Plaintiff Rudy experienced a failure of his CP4 fuel injection pump. One morning, in 2017, the Class
Vehicle would not turn on; it had approximately 90,000 miles on it at the time. He brought the
vehicle in to Extreme Diesel in Hemet, California, who attempted to repair and replace the damaged
parts. Plaintiff Rudy also reported the failure to Chevrolet on two different occasions. Chevrolet
investigated the engine problems twice because Plaintiff Rudy brought the vehicle in after getting a
“check engine” light alert. Neither GM nor any of its agents, dealers, or other representatives
informed Plaintiff or Class members of the existence of the unlawfully and/or unexpectedly defective
nature of the GM Duramax diesel engine’s CP4 high pressure fuel pump system—which is common
to all Class Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered
concrete economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and
would not have purchased the Class Vehicle or would have paid less for it, had GM not concealed
the CP4 fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class
member’s ascertainable losses include, but are not limited to, a high premium for the engine
compared to what they would have paid for a gas-powered engine, out-of-pocket losses by
overpaying for the vehicles at the time of purchase, decreased performance of the vehicles, and
diminished value of the vehicles.
12.
Plaintiff Kaleb Bean (for the purpose of this paragraph, “Plaintiff”) is a citizen of the
State of California, and domiciled in Bakersfield, California. On or around October 1, 2010 Plaintiff
purchased a new 2011 Chevrolet Silverado 2500 HD, VIN 1GC1KXC8XBF126570 (for the purpose
of this paragraph, the “Class Vehicle”) for $43,000.00 from Santa Paula Chevrolet, an authorized
GM dealership in Santa Paula, California. Plaintiff purchased and still owns the vehicle. Plaintiff
uses his Silverado 2500 HD as his personal vehicle to get to work and for daily activities. Prior to
purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and
could obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Bean
purchased the Class Vehicle, and prior to his purchase, Plaintiff Bean relied on GM’s specific
representations concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the
sales representatives told Plaintiff Bean that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff
Bean relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
13.
Plaintiff Jose Hernandez (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Sylmar, California. On or around January 1, 2013 Plaintiff
purchased a used 2012 Chevrolet Silverado 2500 HD, VIN 1GC1KYE89CF149780 (for the purpose
of this paragraph, the “Class Vehicle”) for $42,000.00 from Carmax in Burbank, California. Plaintiff
purchased and still owns the vehicle. Mr. Hernandez purchased his diesel truck in order to haul is 24-
foot camper trailer on family vacations to watch his children play in softball tournaments. Prior to
purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and
could obtain the high mileage per gallon of a diesel vehicle. In the days and weeks preceding his
purchase, Plaintiff Hernandez saw and heard Chevrolet’s television commercials, radio
advertisements, and printed brochure and advertisements wherein Chevrolet claimed the Duramax
diesel truck, like the one Plaintiff would purchase, had superior horsepower, durability, and greater
longevity as compared to other diesel trucks in the American market. On the date that Plaintiff
Hernandez purchased the vehicle, and in purchasing the vehicle, Plaintiff Hernandez relied on
representations that the vehicle was compatible with American diesel fuel, was durable, and was
reliable and had good longevity. Plaintiff Hernandez relied on these representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. Plaintiff Hernandez relied on GM’s representations in purchasing the vehicle and,
absent these representations, would not have purchased the vehicle and/or would have paid less for
it. These knowingly false representations, in combination with the advertised fuel efficiency and
performance, the representation that the vehicle would retain all of its promised fuel economy and
performance throughout its useful life, and the Class Vehicle’s reputation for maintaining a high
resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and
purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a
defective CP4 fuel injection system that was not suitable for American vehicles and which deceived
American consumers. Consequently, the vehicle could not deliver the advertised combination of
durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor
any of its agents, dealers, or other representatives informed Plaintiff or Class members of the
existence of the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s
CP4 high pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
14.
Plaintiff Stacy Wade Sizelove (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Long Beach, California. On or around September
24, 2010 Plaintiff purchased a new 2011 Chevrolet Silverado 2500 HD, VIN 1GC1KYE89BF137238
(for the purpose of this paragraph, the “Class Vehicle”) for $67,000.00 from Harbor Chevrolet, an
authorized GM dealership in Long Beach, California. Plaintiff purchased and still owns the vehicle
which he uses as his daily transportation and occasionally uses to pull his trailer. Prior to purchasing
the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could
obtain the high mileage per gallon of a diesel vehicle. Plaintiff Sizelove sought to purchase a diesel
truck to tow his 24-foot trailer. In the days and weeks preceding his purchase, Plaintiff Sizelove saw
and heard Chevrolet’s television commercials, radio advertisements, and printed brochures and
advertisements wherein Chevrolet claimed the Duramax diesel truck, like the one Plaintiff would
purchase, had superior horsepower and durability compared to other diesel trucks in the American
market. On the date that Plaintiff Sizelove purchased the vehicle, and in purchasing the vehicle,
Plaintiff Sizelove relied on representations that the vehicle was compatible with American diesel
fuel, was durable, and was reliable. Plaintiff Sizelove relied on these representations in purchasing
the vehicle and, absent these representations, would not have purchased the vehicle and/or would
have paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Further, Plaintiff Sizelove experienced a failure of his CP4 fuel injection pump approximately three
months after of the time limit for warranty claim, so GM did not cover replacement or repairs under
warranty. Plaintiff Sizelove has purchased 13 Chevrolet's in his life and yet GM refused to cover the
pump failure in this vehicle. Repairing the vehicle cost Mr. Sizelove $9,000.00 and it was in the shop
for nine days. Moreover, as a result of his vehicle’s failure, he was left stranded in the desert for
seven hours on Highway 95 in middle of the summer heat. No one could locate him. He still owns
the vehicle but he does not trust it at all, but does still use it only when he has to pull his trailer (he
relies on another vehicle for all other travel). Neither GM nor any of its agents, dealers, or other
representatives informed Plaintiff or Class members of the existence of the unlawfully and/or
unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high pressure fuel pump
system—which is common to all Class Vehicles—prior to purchasing. Accordingly, Plaintiff and
each Class member suffered concrete economic injury as a direct and proximate result of GM’s
wrongful, deceptive conduct, and would not have purchased the Class Vehicle or would have paid
less for it, had GM not concealed the CP4 fuel injection system defects. As deemed appropriate,
Plaintiff’s and each other Class member’s ascertainable losses include, but are not limited to, a high
premium for the engine compared to what they would have paid for a gas-powered engine, out-of-
pocket losses by overpaying for the vehicles at the time of purchase, decreased performance of the
vehicles, and diminished value of the vehicles. Chevrolet
15.
Plaintiff Milton Leon Huss, Jr. (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in La Mirada, California. On or around September
9, 2015 Plaintiff purchased a new 2015 Chevrolet Silverado 2500 HD, VIN 1GC1CWE83FF651836
(for the purpose of this paragraph, the “Class Vehicle”) for $59,000.00 from AutoNation Chevrolet
Valencia, an authorized Chevrolet dealership in Santa Clarita, California. Plaintiff purchased and
still owns the vehicle. Plaintiff uses his Silverado 2500 HD to travel between his home in La
Miranda, California and his vacation home, in Arizona. While in Arizona, Mr. Huss uses his truck to
two his boats to and from the lake. Plaintiff Huss sought to purchase a diesel truck for this purpose,
to tow his 28-foot and 22-foot trailers to and from Arizona. In the days and weeks preceding his
purchase, Plaintiff Huss saw and heard Chevrolet’s television commercials, radio advertisements,
and printed brochures and advertisements wherein Chevrolet claimed the Duramax diesel truck, like
the one Plaintiff would purchase, was the best truck on the market, that it had superior horsepower,
durability, and reliability as compared to other diesel trucks in the American market. On the date that
Plaintiff Huss purchased the vehicle, and in purchasing the vehicle, Plaintiff Huss relied on
representations that the vehicle was compatible with American diesel fuel, was durable, and was
reliable. Plaintiff Huss relied on these representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
16.
Plaintiff Christopher Moonan (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Corona, California. On or around January 1, 2018
Plaintiff purchased a used 2016 Chevrolet Silverado 2500 HD, VIN 1GC1CVE80GF272501 (for the
purpose of this paragraph, the “Class Vehicle”) for $40,000.00 from Dutton GMC and Cadillac, an
authorized GM dealership in Corona, California. Plaintiff purchased and still owns the vehicle. Mr.
Moonan, who is a general contractor, uses his Silverado 2500 HD as his personal vehicle as well as
to tow dump trailers, equipment and other materials needed as his contacting sites. Prior to
purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and
could obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff
Moonan purchased the Class Vehicle, and prior to his purchase, Plaintiff Moonan relied on GM’s
specific representations concerning the Class Vehicle’s fuel economy and reliability. At the
dealership, the sales representatives told Plaintiff Moonan that the vehicle had superior fuel economy
with American diesel fuel as compared to other diesel trucks on the market and that is was more
reliable. Plaintiff Moonan relied on GM’s representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Plaintiff Moonan
experienced a failure of his CP4 fuel injection pump. He was in the desert in 127º heat when his CP4
fuel injection pump failed. Plaintiff Moonan suffered from heat stroke and suffered symptoms for
over three days. To date, Plaintiff Moonan continues to suffer from anxiety over the event. He took
the vehicle into Bradley Chevrolet in Park, Arizona, which informed him that the CP4 fuel injection
pump had “exploded.” He informed the dealership that the vehicle should be recalled as it posed a
significant health hazard. The engine light recently came back on and he can smell burning coolant.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
17.
Plaintiff Bruce K. Garlock (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Madera, California. On or around January 1, 2016
Plaintiff purchased a new 2016 Chevrolet Silverado 3500 HD, VIN 1GC4K0E80GF140860 (for the
purpose of this paragraph, the “Class Vehicle”) for $65,000.00 from Hedrick's Chevrolet, a certified
GM dealership in Clovis, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his
Silverado 3500 HD as his personal vehicle to get to work and for daily activities. Prior to purchasing
the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could
obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Garlock
purchased the Class Vehicle, and prior to his purchase, Plaintiff Garlock relied on GM’s specific
representations concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the
sales representatives told Plaintiff Garlock that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff
Garlock relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
18.
Plaintiff Geoff Cochems (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Ridgecrest, California. On or around September 1, 2018
Plaintiff purchased a used 2011 Chevrolet Silverado 2500 HD, VIN 1GC1KXC83BF122411 (for the
purpose of this paragraph, the “Class Vehicle”) for $37,500.00 from Pacific Auto Sales, in Fontana,
California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Silverado 2500 HD as his
personal vehicle to get to work and for daily activities. Prior to purchasing the Class Vehicle,
Plaintiff was looking for a car that was durable, powerful, reliable, and could obtain the high mileage
per gallon of a diesel vehicle. Specifically, on the day Plaintiff Cochems purchased the Class
Vehicle, and prior to his purchase, Plaintiff Cochems relied on GM’s specific representations
concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the sales
representatives told Plaintiff Cochems that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff
Cochems relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
19.
Plaintiff Sean M. Buob (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Bakersfield, California. On or around October 1, 2017
Plaintiff purchased a new 2015 Chevrolet Silverado 2500 HD, VIN 1GT1KWE87FF564810 (for the
purpose of this paragraph, the “Class Vehicle”) for $48,000.00 from 3 Way Cheverolet, an
authorized Chevrolet dealership in Bakersfield, California. Plaintiff purchased and still owns the
vehicle. Plaintiff uses his Silverado 2500 HD as his personal vehicle to get to work and for daily
activities. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable,
powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, on
the day Plaintiff Buob purchased the Class Vehicle, and prior to his purchase, Plaintiff Buob relied
on GM’s specific representations concerning the Class Vehicle’s fuel economy and reliability. At the
dealership, the sales representatives told Plaintiff Buob that the vehicle had superior fuel economy
with American diesel fuel as compared to other diesel trucks on the market and that is was more
reliable. Plaintiff Buob relied on GM’s representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
20.
Plaintiff Michael L. McCoy (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Menifee, California. On or around October 14, 2014
Plaintiff purchased a new 2015 Chevrolet Silverado 2500 HD, VIN 1GC1CVE87FF19739 (for the
purpose of this paragraph, the “Class Vehicle”) for $52,000.00 from Paradise Chevrolet, an
authorized Chevrolet dealership in Temecula, California. Plaintiff purchased and still owns the
vehicle. Plaintiff uses his Silverado 2500 HD as his personal vehicle and to haul his 30’ trailer and
his boat. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable,
powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, on
the day Plaintiff McCoy purchased the Class Vehicle, and prior to his purchase, Plaintiff McCoy
relied on GM’s specific representations concerning the Class Vehicle’s fuel economy and reliability.
At the dealership, the sales representatives told Plaintiff McCoy that the vehicle had superior fuel
economy with American diesel fuel as compared to other diesel trucks on the market and that is was
more reliable. Plaintiff McCoy relied on GM’s representations in purchasing the vehicle and, absent
these representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
21.
Plaintiff Chris S. McAlister (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Visalia, California. On or around May 1, 2015 Plaintiff
purchased a new 2015 Chevrolet Silverado 3500 HD, VIN 1GC1KVE88FF586334 (for the purpose
of this paragraph, the “Class Vehicle”) for $58,000.00 from Ed Dena's Auto Center, an authorized
Chevrolet, GMC, and Buick dealership in Dinuba, California. Plaintiff purchased and still owns the
vehicle. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable,
powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, on
the day Plaintiff McAlister purchased the Class Vehicle, and prior to his purchase, Plaintiff
McAlister relied on GM’s specific representations made through television and print advertisements
concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the sales
representatives told Plaintiff McAlister that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable; sales
representatives told Plaintiff McAlister that the vehicle was “the best truck out there.” Plaintiff
McAlister relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
22.
Plaintiff John Thomas White (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Beaumont, California. On or around November 6,
2016 Plaintiff purchased a new 2016 Chevrolet Silverado 2500 HD, VIN 1GC1KWE83GF288393
(for the purpose of this paragraph, the “Class Vehicle”) for $61,000.00 from Gosch Chevrolet, a
certified GM dealership in Hemet, California. Plaintiff purchased and still owns the vehicle. Plaintiff
purchased his truck as a retirement gift to himself and uses it for personal traveling and errands
around town. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable,
powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, in
the days and weeks prior to Plaintiff White purchasing the Class Vehicle, he saw internet
advertisements from GM containing specific representations concerning the Class Vehicle’s fuel
economy and reliability. At the dealership, the sales representatives told Plaintiff White that the
vehicle had superior fuel economy with American diesel fuel as compared to other diesel trucks on
the market and that is was more reliable. Plaintiff White relied on GM’s representations in
purchasing the vehicle and, absent these representations, would not have purchased the vehicle
and/or would have paid less for it. These knowingly false representations, in combination with the
advertised fuel efficiency and performance, the representation that the vehicle would retain all of its
promised fuel economy and performance throughout its useful life, and the Class Vehicle’s
reputation for maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which
is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the
Class Vehicle contained a defective CP4 fuel injection system that was not suitable for American
vehicles and which deceived American consumers. Consequently, the vehicle could not deliver the
advertised combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff
relied upon. Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff
or Class members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
23.
Plaintiff Sean T. Smith (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Santa Clarita, California. On or around March 1, 2017
Plaintiff purchased a new 2016 Chevrolet Silverado 2500 HD, VIN 1GC1KWE86GF286430 (for the
purpose of this paragraph, the “Class Vehicle”) for $67,000.00 from Rydell Chevrolet, an authorized
GM dealership in Vanys, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his
Silverado 2500 HD as his personal vehicle to get to work and for daily activities. Prior to purchasing
the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could
obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Smith
purchased the Class Vehicle, and prior to his purchase, Plaintiff Smith relied on GM’s specific
representations concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the
sales representatives told Plaintiff Smith that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff
Smith relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
24.
Plaintiff Kevin Allen Lawson (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Temecula, California. On or around January 1,
2013 Plaintiff purchased a new 2013 Chevrolet Silverado 2500 HD, VIN 1GC1KYE82DF168947
(for the purpose of this paragraph, the “Class Vehicle”) for $62,000.00 from Paradise Chevrolet, an
authorized Chevrolet dealership in Temecula, California. Plaintiff purchased and still owns the
vehicle. Plaintiff uses his Silverado 2500 HD as his personal vehicle to get to work and for daily
activities. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable,
powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, on
the day Plaintiff Lawson purchased the Class Vehicle, and prior to his purchase, Plaintiff Lawson
relied on GM’s specific representations concerning the Class Vehicle’s fuel economy and reliability.
At the dealership, the sales representatives told Plaintiff Lawson that the vehicle had superior fuel
economy with American diesel fuel as compared to other diesel trucks on the market and that is was
more reliable. Plaintiff Lawson relied on GM’s representations in purchasing the vehicle and, absent
these representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
25.
Plaintiff Kevin Sutherland (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Westminster, California. On or around July 1, 2013
Plaintiff purchased a used 2011 Chevrolet Silverado 2500 HD, VIN 1GC1KYC8XBF182773 (for the
purpose of this paragraph, the “Class Vehicle”) for $42,000.00 from a private seller in Long Beach,
California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Silverado 2500 HD as his
personal vehicle and to tow all his “toys,” his fishing boat, off-road cars, dirt-bikes, and trailers.
Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful,
reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day
Plaintiff Sutherland purchased the Class Vehicle, and prior to his purchase, Plaintiff Sutherland
relied on GM’s specific representations concerning the Class Vehicle’s fuel economy, durability, fuel
efficiency, and reliability. Plaintiff Sutherland relied on GM’s representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Plaintiff Sutherland’s Class Vehicle experienced failure of its CP4 fuel injection pump. On or
around August 8, 2018, Plaintiff and two children were in the Class Vehicle traveling from
California to Arizona and towing a boat. He pulled over to use a rest stop and when he got back in
the Class Vehicle, he travelled for a short distance when the CP4 fuel injection pump had failed. He
pulled to the right shoulder of the highway and the Class Vehicle would not start. Over two hours
later, a tow truck finally arrived. Plaintiff Sutherland called Bradley Chevrolet who informed him
“We’ve been seeing a lot of this lately, you better hope it’s not your fuel pump.” When Bradley
Chevrolet finally got the opportunity to look at the vehicle, they informed him that it was a failed
CP4 fuel injection pump and that it would need to be replaced to the tune of $12,000.00. GM would
not cover the part under warranty and he was ultimately able to have it repaired at his own expense at
Bradley Chevrolet at Havasu City, Arizona. Neither GM nor any of its agents, dealers, or other
representatives informed Plaintiff or Class members of the existence of the unlawfully and/or
unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high pressure fuel pump
system—which is common to all Class Vehicles—prior to purchasing. Accordingly, Plaintiff and
each Class member suffered concrete economic injury as a direct and proximate result of GM’s
wrongful, deceptive conduct, and would not have purchased the Class Vehicle or would have paid
less for it, had GM not concealed the CP4 fuel injection system defects. As deemed appropriate,
Plaintiff’s and each other Class member’s ascertainable losses include, but are not limited to, a high
premium for the engine compared to what they would have paid for a gas-powered engine, out-of-
pocket losses by overpaying for the vehicles at the time of purchase, decreased performance of the
vehicles, and diminished value of the vehicles. Plaintiff thusly brings claims individually and as a
representative of the Class.
26.
Plaintiff Ernest Harold Miller (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Huntington Beach, California. On or around
November 1, 2011 Plaintiff purchased a new 2012 Chevrolet Silverado 2500 HD, VIN
1GC1KYE86CF175995 (for the purpose of this paragraph, the “Class Vehicle”) for $54,000.00 from
Bradley Chevrolet, an authorized GM dealership in Parker, Arizona. Plaintiff purchased and still
owns the vehicle. Plaintiff uses his Silverado 2500 HD as his personal vehicle to get to work and for
daily activities. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was
durable, powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle.
Specifically, on the day Plaintiff Miller purchased the Class Vehicle, and prior to his purchase,
Plaintiff Miller relied on GM’s specific representations concerning the Class Vehicle’s fuel economy
and reliability. At the dealership, the sales representatives told Plaintiff Miller that the vehicle had
superior fuel economy with American diesel fuel as compared to other diesel trucks on the market
and that is was more reliable. Plaintiff Miller relied on GM’s representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
Plaintiff thusly brings claims individually and as a representative of the Class.
27.
Plaintiff Kenneth Munro (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Temecula, California. On or around October 17, 2017
Plaintiff purchased a used 2015 Chevrolet Silverado 2500 HD, VIN 1GC1KWE83FF543879 (for the
purpose of this paragraph, the “Class Vehicle”) for $54,000.00 from a private seller, in Temecula,
California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Silverado 2500 HD as his
personal vehicle to get to work and for daily activities. Prior to purchasing the Class Vehicle,
Plaintiff was looking for a car that had great performance, fuel economy, durability, reliability, and
efficiency of a diesel vehicle. Specifically, on the day Plaintiff Munro purchased the Class Vehicle,
and prior to his purchase, Plaintiff Munro relied on GM’s specific representations concerning the
Class Vehicle’s fuel economy and reliability. . Plaintiff Munro relied on GM’s representations in
purchasing the vehicle and, absent these representations, would not have purchased the vehicle
and/or would have paid less for it. These knowingly false representations, in combination with the
advertised fuel efficiency and performance, the representation that the vehicle would retain all of its
promised fuel economy and performance throughout its useful life, and the Class Vehicle’s
reputation for maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which
is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the
Class Vehicle contained a defective CP4 fuel injection system that was not suitable for American
vehicles and which deceived American consumers. Consequently, the vehicle could not deliver the
advertised combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff
relied upon. Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff
or Class members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
Plaintiff thusly brings claims individually and as a representative of the Class.
28.
Plaintiff Douglas Hughes (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Mokelumne Hill, California. On or around October 31,
2015 Plaintiff purchased a new 2015 Chevrolet Silverado 2500 HD, VIN 1GC1KWE80FF671495
(for the purpose of this paragraph, the “Class Vehicle”) for $59,000.00 from Burbank Chevrolet, an
authorized GM dealership in Burbank, California. Plaintiff purchased and still owns the vehicle.
Plaintiff uses his Silverado 2500 HD as his personal vehicle to get to work and for daily activities.
Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful,
reliable, and could obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day
Plaintiff Hughes purchased the Class Vehicle, and prior to his purchase, Plaintiff Hughes relied on
GM’s specific representations concerning the Class Vehicle’s fuel economy and reliability. At the
dealership, the sales representatives told Plaintiff Hughes that the vehicle had superior fuel economy
with American diesel fuel as compared to other diesel trucks on the market and that is was more
reliable. Plaintiff Hughes relied on GM’s representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
29.
Plaintiff Nicholas Brock (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Fontana, California. On or around October 29, 2012
Plaintiff purchased a used 2011 Chevrolet Silverado 2500 HD (for the purpose of this paragraph, the
“Class Vehicle”) for $48,999.00 from Mark Christopher Chevrolet, a certified GM dealership in
Ontario, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Silverado 2500
HD as his personal vehicle for daily activities and to tow his camper trailer. Prior to purchasing the
Class Vehicle, Plaintiff Brock was looking for a car that was durable, powerful, reliable, and could
obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Brock
purchased the Class Vehicle, and prior to his purchase, Plaintiff Brock relied on GM’s specific
representations from dealership sales representatives concerning the Class Vehicle’s fuel economy
and reliability. At the dealership, the sales representatives told Plaintiff Brock that the vehicle had
superior fuel economy with American diesel fuel as compared to other diesel trucks on the market
and that is was more reliable. Plaintiff Brock relied on GM’s representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
30.
Plaintiff Colby Barry (for the purpose of this paragraph, “Plaintiff”) is a citizen of the
State of California, and domiciled in Antioch, California. On or around July 27, 2016 Plaintiff
purchased a new 2016 Chevrolet Silverado 3500 HD, VIN 1GC4K1E86GF125043 (for the purpose
of this paragraph, the “Class Vehicle”) for $63,843.00 from Chase Chevrolet, a certified GM
dealership in Stockton, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his
Silverado 3500 HD as his daily driver and to occasionally haul his 40’ camping trailer. Prior to
purchasing the Class Vehicle, Plaintiff Barry was looking for a car that was durable, powerful,
reliable, and could obtain the high mileage per gallon of a diesel vehicle. Prior to his purchase,
Plaintiff Barry researched the Class Vehicle on the internet and saw GM’s internet advertisements
representing the Class Vehicle’s reliability, durability, and efficiency. GM represented to Plaintiff
Barry that the Class Vehicle had superior fuel economy with American diesel fuel as compared to
other diesel trucks on the market and that is was more reliable. Plaintiff Barry relied on GM’s
representations in purchasing the vehicle and, absent these representations, would not have
purchased the vehicle and/or would have paid less for it. These knowingly false representations, in
combination with the advertised fuel efficiency and performance, the representation that the vehicle
would retain all of its promised fuel economy and performance throughout its useful life, and the
Class Vehicle’s reputation for maintaining a high resale value, caused Plaintiff to purchase the Class
Vehicle, which is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of
acquisition, the Class Vehicle contained a defective CP4 fuel injection system that was not suitable
for American vehicles and which deceived American consumers. Consequently, the vehicle could
not deliver the advertised combination of durability, power, reliability, and fuel efficiency of diesel
that Plaintiff relied upon. Neither GM nor any of its agents, dealers, or other representatives
informed Plaintiff or Class members of the existence of the unlawfully and/or unexpectedly defective
nature of the GM Duramax diesel engine’s CP4 high pressure fuel pump system—which is common
to all Class Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered
concrete economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and
would not have purchased the Class Vehicle or would have paid less for it, had GM not concealed
the CP4 fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class
member’s ascertainable losses include, but are not limited to, a high premium for the engine
compared to what they would have paid for a gas-powered engine, out-of-pocket losses by
overpaying for the vehicles at the time of purchase, decreased performance of the vehicles, and
diminished value of the vehicles.
31.
Plaintiff Kenny Tran (for the purpose of this paragraph, “Plaintiff”) is a citizen of the
State of California, and domiciled in Garden Grove, California. On or around April 6, 2016 Plaintiff
purchased a used 2015 GMC Sierra 2500 HD, VIN 1GT12YE82FF163671 (for the purpose of this
paragraph, the “Class Vehicle”) for $43,000.00 from Ken Garff Chevorlet, a certified GM dealership
in American Fork, Utah. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Sierra 2500
HD for daily activities and heavy duty towing. Prior to purchasing the Class Vehicle, Plaintiff was
looking for a car that was durable, powerful, reliable, and could obtain the high mileage per gallon of
a diesel vehicle. Specifically, in the days and weeks preceding Plaintiff Tran’s purchase of the Class
Vehicle, Plaintiff Tran saw and relied on GM’s specific representations in television advertisements
concerning the Class Vehicle’s durability and reliability. GM represented to Plaintiff Tran, and
Plaintiff Tran believed based on those representations, that the vehicle had superior fuel economy
with American diesel fuel as compared to other diesel trucks on the market and that is was more
reliable. Plaintiff Tran relied on GM’s representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
32.
Plaintiff Richard Samson (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Apple Valley, California. On or around January 1, 2018
Plaintiff purchased a new 2016 GMC Sierra HD Denali, VIN 1GT12UE82GF100516 (for the
purpose of this paragraph, the “Class Vehicle”) for $67,000.00 from Platinum Auto Group, in
Victorville, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Sierra HD
Denali as his personal vehicle to get to work and for daily activities. Prior to purchasing the Class
Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could obtain the
high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Samson purchased the
Class Vehicle, and prior to his purchase, Plaintiff Samson relied on GM’s specific representations
concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the sales
representatives told Plaintiff Samson that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff
Samson relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
33.
Plaintiff Bradley Rice (for the purpose of this paragraph, “Plaintiff”) is a citizen of the
State of California, and domiciled in Penryn, California. On or around March 17, 2014 Plaintiff
purchased a new 2014 GMC Sierra HD, VIN 1GT125E83EF149839 (for the purpose of this
paragraph, the “Class Vehicle”) for $58,500.00 from Folsom Buick GMC, a certified GM dealership
in Folsom, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his Sierra HD as
his personal vehicle to get to work and for daily activities. Prior to purchasing the Class Vehicle,
Plaintiff was looking for a car that was durable, powerful, reliable, and could obtain the high mileage
per gallon of a diesel vehicle. Specifically, on the day Plaintiff Rice purchased the Class Vehicle,
and prior to his purchase, Plaintiff Rice relied on GM’s specific representations concerning the Class
Vehicle’s fuel economy and reliability. At the dealership, the sales representatives told Plaintiff Rice
that the vehicle had superior fuel economy with American diesel fuel as compared to other diesel
trucks on the market and that is was more reliable. Plaintiff Rice relied on GM’s representations in
purchasing the vehicle and, absent these representations, would not have purchased the vehicle
and/or would have paid less for it. These knowingly false representations, in combination with the
advertised fuel efficiency and performance, the representation that the vehicle would retain all of its
promised fuel economy and performance throughout its useful life, and the Class Vehicle’s
reputation for maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which
is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the
Class Vehicle contained a defective CP4 fuel injection system that was not suitable for American
vehicles and which deceived American consumers. Consequently, the vehicle could not deliver the
advertised combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff
relied upon. Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff
or Class members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
34.
Plaintiff Debra Kay Caskey (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Fairfield, California. On or around October 5, 2016
Plaintiff purchased a used 2014 GMC Sierra 2500 HD, VIN 1GT125E86EF174170 (for the purpose
of this paragraph, the “Class Vehicle”) for $50,000.00 from Christopher Creamer, in Sacramento,
California. Plaintiff purchased and still owns the vehicle. Ms. Caskey uses the truck to haul the
family’s 28-foot travel trailer and to tow large items. Prior to purchasing the Class Vehicle, Plaintiff
was looking for a car that was durable, powerful, reliable, and could obtain the high mileage per
gallon of a diesel vehicle. Specifically, on the day Plaintiff Caskey purchased her Class Vehicle, and
prior to her purchase, Plaintiff Caskey relied on GM’s specific representations through internet
advertisements concerning the Class Vehicle’s reliability, durability, and compatibility with
American diesel fuel. At the dealership, the sales representatives told Plaintiff Caskey that the
vehicle had superior fuel economy with American diesel fuel as compared to other diesel trucks on
the market and that is was more reliable. Plaintiff Caskey relied on GM’s representations in
purchasing the vehicle and, absent these representations, would not have purchased the vehicle
and/or would have paid less for it. These knowingly false representations, in combination with the
advertised fuel efficiency and performance, the representation that the vehicle would retain all of its
promised fuel economy and performance throughout its useful life, and the Class Vehicle’s
reputation for maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which
is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the
Class Vehicle contained a defective CP4 fuel injection system that was not suitable for American
vehicles and which deceived American consumers. Consequently, the vehicle could not deliver the
advertised combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff
relied upon. Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff
or Class members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
35.
Plaintiff Douglas Crenshaw (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Visalia, California. On or around December 1, 2015
Plaintiff purchased a new 2015 GMC Sierra 2500 HD, VIN 1GT12ZE81FFS12020 (for the purpose
of this paragraph, the “Class Vehicle”) for $61,695.00 from Thompson Auto and Truck Center, a
certified GMC dealership in Placerville, California. Plaintiff purchased and still owns the Class
Vehicle. Mr. Crenshaw uses his truck everyday and often tows his 37-foot 5th wheel camper on
vacation and weekend getaways. Prior to purchasing the Class Vehicle, Plaintiff Crenshaw was
looking for a car that was durable, powerful, reliable, and could obtain the high mileage per gallon of
a diesel vehicle. Specifically, on the day Plaintiff Crenshaw purchased the Class Vehicle, and prior
to his purchase, Plaintiff Crenshaw relied on GM’s specific representations through its authorized
representatives concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the
sales representatives told Plaintiff Crenshaw that the vehicle had superior fuel economy with
American diesel fuel as compared to other diesel trucks on the market and that is was more reliable.
Plaintiff Crenshaw relied on GM’s representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
36.
Plaintiff Eric Thomas Corder (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Grand Terrace, California. On or around June 4,
2015 Plaintiff purchased a used 2011 GMC Sierra 2500 HD, VIN 1GT121C8XBF173482 (for the
purpose of this paragraph, the “Class Vehicle”) for $36,000.00 from Selman Chevrolet, an
authorized GM dealership in Orange, California. Plaintiff purchased and still owns the vehicle.
Plaintiff uses his Sierra 2500 HD for work purposes and to tow his 27-foot camper trailer. Prior to
purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and
could obtain the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Corder
purchased the Class Vehicle, and prior to his purchase, Plaintiff Corder relied on GM’s specific
representations through internet advertisements concerning the Class Vehicle’s fuel economy and
reliability. Through the internet advertisements and through statements made by sales representatives
at the dealership, GM told Plaintiff Corder that the vehicle had superior fuel economy with American
diesel fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff
Corder relied on GM’s representations in purchasing the vehicle and, absent these representations,
would not have purchased the vehicle and/or would have paid less for it. These knowingly false
representations, in combination with the advertised fuel efficiency and performance, the
representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
37.
Plaintiff Anthony Raymond Smith (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Simi Valley, California. On or around August 1,
2015 Plaintiff purchased a used 2011 GMC Sierra 2500 HD, VIN 1GT121C8XBF256930 (for the
purpose of this paragraph, the “Class Vehicle”) for $40,000.00 from Carmax, in Burbank, California.
Plaintiff purchased and still owns the vehicle. Mr. Smith purchased his GMC truck to help tow large
loads for work and maintenance. Prior to purchasing the Class Vehicle, Plaintiff was looking for a
car that was durable, powerful, reliable, and could obtain the high mileage per gallon of a diesel
vehicle. Specifically, on the day Plaintiff Smith purchased the Class Vehicle, and prior to his
purchase, Plaintiff Smith relied on GM’s specific representations through printed sales and
advertising materials concerning the Class Vehicle’s fuel economy and reliability. At the dealership,
the sales representatives told Plaintiff Smith that the vehicle had superior fuel economy with
American diesel fuel as compared to other diesel trucks on the market and that is was more reliable.
Plaintiff Smith relied on GM’s representations in purchasing the vehicle and, absent these
representations, would not have purchased the vehicle and/or would have paid less for it. These
knowingly false representations, in combination with the advertised fuel efficiency and performance,
the representation that the vehicle would retain all of its promised fuel economy and performance
throughout its useful life, and the Class Vehicle’s reputation for maintaining a high resale value,
caused Plaintiff to purchase the Class Vehicle, which is unfit for its ordinary use and purpose.
Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle contained a defective CP4 fuel
injection system that was not suitable for American vehicles and which deceived American
consumers. Consequently, the vehicle could not deliver the advertised combination of durability,
power, reliability, and fuel efficiency of diesel that Plaintiff relied upon. Neither GM nor any of
its agents, dealers, or other representatives informed Plaintiff or Class members of the existence of
the unlawfully and/or unexpectedly defective nature of the GM Duramax diesel engine’s CP4 high
pressure fuel pump system—which is common to all Class Vehicles—prior to purchasing.
Accordingly, Plaintiff and each Class member suffered concrete economic injury as a direct and
proximate result of GM’s wrongful, deceptive conduct, and would not have purchased the Class
Vehicle or would have paid less for it, had GM not concealed the CP4 fuel injection system defects.
As deemed appropriate, Plaintiff’s and each other Class member’s ascertainable losses include, but
are not limited to, a high premium for the engine compared to what they would have paid for a gas-
powered engine, out-of-pocket losses by overpaying for the vehicles at the time of purchase,
decreased performance of the vehicles, and diminished value of the vehicles.
38.
Plaintiff Ryan Arthur Jensen (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Visalia, California. On or around June 1, 2014
Plaintiff purchased a new 2015 GMC Sierra 3500 HD, VIN 1GT412C84FF141767 (for the purpose
of this paragraph, the “Class Vehicle”) for $55,000.00 from Bojorn, a certified GM dealership in
Paso Robles, California. Plaintiff experienced a CP4-pump-induced failure in January 2017, causing
the truck to stall while he was driving down the road with his family. Plaintiff rolled through an
intersection without vehicle power, but was then able to safely coast to the side of the road. Plaintiff
dispensed with the defective vehicle shortly thereafter, in February 2017, after being told at the GMC
dealership (Visalia Buick GMC, an authorized GM dealership in Visalia, California) that repairs to
the vehicle were going to cost him approximately $13,000. While the dealership did ultimately cover
the repair ($5,000) under warranty, Plaintiff knew the expiration of his manufacturer warranty was
coming up, and knowing that the vehicle was not adequately repaired (i.e., knowing that this problem
was likely to occur again), Plaintiff traded in the defective vehicle at a non-GM dealership at a loss
of $11,000. Plaintiff used his Sierra 3500 HD as his personal vehicle to get to work and for daily
activities, and for travel and to haul horse trailers. Prior to purchasing the Class Vehicle, Plaintiff
was looking for a car that was durable, powerful, reliable, and could obtain the high mileage per
gallon of a diesel vehicle. Specifically, on the day Plaintiff Jensen purchased the Class Vehicle, and
prior to his purchase, Plaintiff Jensen relied on GM’s specific representations concerning the Class
Vehicle’s fuel economy and reliability. At the dealership, the sales representatives told Plaintiff
Jensen that the vehicle had superior fuel economy with American diesel fuel as compared to other
diesel trucks on the market and that is was more reliable. Plaintiff Jensen relied on GM’s
representations in purchasing the vehicle and, absent these representations, would not have
purchased the vehicle and/or would have paid less for it. These knowingly false representations, in
combination with the advertised fuel efficiency and performance, the representation that the vehicle
would retain all of its promised fuel economy and performance throughout its useful life, and the
Class Vehicle’s reputation for maintaining a high resale value, caused Plaintiff to purchase the Class
Vehicle, which is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of
acquisition, the Class Vehicle contained a defective CP4 fuel injection system that was not suitable
for American vehicles and which deceived American consumers. Consequently, the vehicle could
not deliver the advertised combination of durability, power, reliability, and fuel efficiency of diesel
that Plaintiff relied upon. Neither GM nor any of its agents, dealers, or other representatives
informed Plaintiff or Class members of the existence of the unlawfully and/or unexpectedly defective
nature of the GM Duramax diesel engine’s CP4 high pressure fuel pump system—which is common
to all Class Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered
concrete economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and
would not have purchased the Class Vehicle or would have paid less for it, had GM not concealed
the CP4 fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class
member’s ascertainable losses include, but are not limited to, a high premium for the engine
compared to what they would have paid for a gas-powered engine, out-of-pocket losses by
overpaying for the vehicles at the time of purchase, decreased performance of the vehicles, and
diminished value of the vehicles.
39.
Plaintiff Thorin Jay Askin (for the purpose of this paragraph, “Plaintiff”) is a citizen
of the State of California, and domiciled in Placerville, California. On or around January 6, 2018
Plaintiff purchased a used 2015 GMC Sierra 2500 HD, VIN 1GT12YE81FF125977 (for the purpose
of this paragraph, the “Class Vehicle”) for $38,000.00 from Thompsons Buick GMC, a certified GM
dealership in Placerville, California. Plaintiff purchased and still owns the vehicle. Plaintiff uses his
Sierra 2500 HD as his personal vehicle to get to work and for daily activities. Prior to purchasing the
Class Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could obtain
the high mileage per gallon of a diesel vehicle. Specifically, on the day Plaintiff Askin purchased the
Class Vehicle, and prior to his purchase, Plaintiff Askin relied on GM’s specific representations
concerning the Class Vehicle’s fuel economy and reliability. At the dealership, the sales
representatives told Plaintiff Askin that the vehicle had superior fuel economy with American diesel
fuel as compared to other diesel trucks on the market and that is was more reliable. Plaintiff Askin
relied on GM’s representations in purchasing the vehicle and, absent these representations, would not
have purchased the vehicle and/or would have paid less for it. These knowingly false representations,
in combination with the advertised fuel efficiency and performance, the representation that the
vehicle would retain all of its promised fuel economy and performance throughout its useful life, and
the Class Vehicle’s reputation for maintaining a high resale value, caused Plaintiff to purchase the
Class Vehicle, which is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time
of acquisition, the Class Vehicle contained a defective CP4 fuel injection system that was not
suitable for American vehicles and which deceived American consumers. Consequently, the vehicle
could not deliver the advertised combination of durability, power, reliability, and fuel efficiency of
diesel that Plaintiff relied upon. Neither GM nor any of its agents, dealers, or other representatives
informed Plaintiff or Class members of the existence of the unlawfully and/or unexpectedly defective
nature of the GM Duramax diesel engine’s CP4 high pressure fuel pump system—which is common
to all Class Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered
concrete economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and
would not have purchased the Class Vehicle or would have paid less for it, had GM not concealed
the CP4 fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class
member’s ascertainable losses include, but are not limited to, a high premium for the engine
compared to what they would have paid for a gas-powered engine, out-of-pocket losses by
overpaying for the vehicles at the time of purchase, decreased performance of the vehicles, and
diminished value of the vehicles.
40.
Plaintiff Ryan Maduro (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Covina, California. On or around October 1, 2016, Plaintiff
purchased a new 2016 GMC Sierra 2500 HD, VIN 1GT12UE81GF254392 (for the purpose of this
paragraph, the “Class Vehicle”) for $66,000.00 from Simpson Buick GMC of Buena Park, an
authorized GM dealership in Buena Park, California. Plaintiff purchased this vehicle for recreational
and/or towing purposes, namely for his leisure 20-foot boat and two Sea-Doo watercrafts, and still
owns the vehicle to this day. Prior to purchasing the Class Vehicle, Plaintiff was looking for a car
that was durable, powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle.
Specifically, on the day Plaintiff Maduro purchased the Class Vehicle, and prior to his purchase,
Plaintiff Maduro relied on GM’s specific representations concerning the Class Vehicle’s fuel
economy and reliability, and had heard, seen, and relied upon promises made by the manufacturer
via its television advertisements. Plaintiff Maduro relied on GM’s representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
41.
Plaintiff Marcos R. Cobain, Jr. (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Los Angeles, California. On or around October 1,
2016, Plaintiff purchased a used 2014 Chevrolet Silverado 3500 HD, VIN 1GB4KZC87EF130562
(for the purpose of this paragraph, the “Class Vehicle”) for $46,000.00 from an automotive
dealership in Sacramento, California. Plaintiff still owns this vehicle. Prior to purchasing the Class
Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could obtain the
high mileage per gallon of a diesel vehicle. Plaintiff relied on GM’s representations in purchasing the
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
42.
Plaintiff Michele Diniz (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Atwater, California. On or around October 1, 2018,
Plaintiff purchased a relatively new 2013 GMC Sierra 2500 HD, VIN 1GT120C87DF113155 (for the
purpose of this paragraph, the “Class Vehicle”) for $47,000.00 from Tracy Chevrolet, a GM-
authorized dealership in Tracy, California. Plaintiff purchased this automobile for recreational use,
with plans to tow a 26-foot camping trailer with the Class Vehicle. Upon information and belief,
there are approximately 11,000 miles on this vehicle at present. Prior to purchasing the Class
Vehicle, Plaintiff was looking for a car that was durable, powerful, reliable, and could obtain the
high mileage per gallon of a diesel vehicle. More specifically, prior to purchasing the Class Vehicle,
Plaintiff heard, saw, and relied on promises made by GM via its television commercials about the
power, durability, and reliability of the Class Vehicle, and moreover was lured by GM’s promises
that the Class Vehicle could obtain high mileage per gallon. Plaintiff relied on GM’s representations
in purchasing the vehicle and, absent these representations, would not have purchased the vehicle
and/or would have paid less for it. These knowingly false representations, in combination with the
advertised fuel efficiency and performance, the representation that the vehicle would retain all of its
promised fuel economy and performance throughout its useful life, and the Class Vehicle’s
reputation for maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which
is unfit for its ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the
Class Vehicle contained a defective CP4 fuel injection system that was not suitable for American
vehicles and which deceived American consumers. Consequently, the vehicle could not deliver the
advertised combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff
relied upon. Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff
or Class members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
43.
Plaintiff James Dustin Morganti (for the purpose of this paragraph, “Plaintiff”) is a
citizen of the State of California, and domiciled in Oceanside, California. On or around May 1,
2014, Plaintiff purchased a relatively new 2014 Chevrolet Silverado 2500 HD, VIN
1GC1KYE85EF123275 (for the purpose of this paragraph, the “Class Vehicle”) for $69,000.00 from
Keller Chevrolet, a GM-authorized dealership in Hanford, California. Plaintiff still owns this vehicle.
Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable, powerful,
reliable, and could obtain the high mileage per gallon of a diesel vehicle. Plaintiff relied on GM’s
representations regarding the aforementioned qualities of the Class Vehicle in purchasing said
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
44.
Plaintiff Brandon Tirozzi (for the purpose of this paragraph, “Plaintiff”) is a citizen of
the State of California, and domiciled in Rialto, California. On or around November 22, 2013,
Plaintiff purchased a used 2013 Chevrolet Silverado 2500 HD, VIN 1GC1KXE8XDF171704 (for the
purpose of this paragraph, the “Class Vehicle”) with approximately 20,000 miles on it for the price
of $56,000.00 from Mark Christopher Auto Center in Ontario, California. Plaintiff no longer owns
this vehicle. On August 2, 2015, Plaintiff was driving approximately 65 miles per hour on Interstate
I-70 when his Silverado suddenly shut down. Being a skilled professional driver with his
commercial driver’s license (“CDL”), he was able to maneuver the vehicle off the roadway onto the
shoulder relatively safely. However, the vehicle would not restart. The vehicle was eventually towed
to Ed Bozarth Chevrolet and Buick, Inc., a certified GM dealership in Grand Junction, Colorado.
Plaintiff was received an estimate of over $8,000 from the GM dealership, despite the vehicle still
being under manufacturer warranty. When Plaintiff took the vehicle to another, non-GM dealer, the
non-GM dealer sent him photographs of the vehicle’s high-injection fuel pump gasket which was
covered with metal shavings; indeed, he was told there were likely metal shavings throughout his
fuel and engine systems. After finding a GM technical service bulletin about this very issue, Plaintiff
repeatedly contacted GM headquarters in Detroit to alert them about the issue and see if they would
in fact pay for the repair. GM refused to honor their warranty and did not reimburse the repair.
45.
Prior to purchasing the Class Vehicle, Plaintiff was looking for a car that was durable,
powerful, reliable, and could obtain the high mileage per gallon of a diesel vehicle. In fact, he
purchased the vehicle to earn a living pulling new travel trailers, as Plaintiff has a Commercial
Driver’s License (“CDL”) and is therefore a professional driver. Plaintiff relied on GM’s
representations regarding the aforementioned qualities of the Class Vehicle in purchasing said
vehicle and, absent these representations, would not have purchased the vehicle and/or would have
paid less for it. These knowingly false representations, in combination with the advertised fuel
efficiency and performance, the representation that the vehicle would retain all of its promised fuel
economy and performance throughout its useful life, and the Class Vehicle’s reputation for
maintaining a high resale value, caused Plaintiff to purchase the Class Vehicle, which is unfit for its
ordinary use and purpose. Unbeknownst to Plaintiff, at the time of acquisition, the Class Vehicle
contained a defective CP4 fuel injection system that was not suitable for American vehicles and
which deceived American consumers. Consequently, the vehicle could not deliver the advertised
combination of durability, power, reliability, and fuel efficiency of diesel that Plaintiff relied upon.
Neither GM nor any of its agents, dealers, or other representatives informed Plaintiff or Class
members of the existence of the unlawfully and/or unexpectedly defective nature of the GM
Duramax diesel engine’s CP4 high pressure fuel pump system—which is common to all Class
Vehicles—prior to purchasing. Accordingly, Plaintiff and each Class member suffered concrete
economic injury as a direct and proximate result of GM’s wrongful, deceptive conduct, and would
not have purchased the Class Vehicle or would have paid less for it, had GM not concealed the CP4
fuel injection system defects. As deemed appropriate, Plaintiff’s and each other Class member’s
ascertainable losses include, but are not limited to, a high premium for the engine compared to what
they would have paid for a gas-powered engine, out-of-pocket losses by overpaying for the vehicles
at the time of purchase, decreased performance of the vehicles, and diminished value of the vehicles.
B.
The Defendant.
46.
Defendant General Motors LLC (“GM”) is a Delaware corporation with its
headquarters and principal place of business located at 300 Renaissance Center, Detroit, Michigan
48232. GM can be served with process through its agent at the aforementioned Detroit, Michigan
address. The sole member and owner of General Motors LLC is General Motors Holdings LLC.
General Motors Holdings LLC is a Delaware limited liability company with its principal place of
business in the State of Michigan. GM is in the business of marketing, supplying, and selling motor
vehicles in this District.
47.
Defendant GM, through its various entities, including Chevrolet and GMC, designs,
manufactures, distributes, and sells GM-brand automobiles in this District and multiple other
locations in the United States and worldwide. GM and/or its agents designed, manufactured, and
installed the engine systems in the Class Vehicles. GM also developed and disseminated the
materially misrepresentative owner’s manuals and warranty booklets, advertisements, and other
intentionally unreasonable and deceptive promotional materials relating to the Class Vehicles. GM
also designed advertising material that it sent to GM Dealerships for the purpose of having dealers
distribute these to consumers, and GM authorized dealers to communicate with consumers about the
performance of the vehicles, and GM further undertook that the dealership was a plae where GM
could disclose material facts to prospective buyers.
IV.
VENUE AND JURISDICTION
48.
Venue is proper in this District under 28 U.S.C. § 1391 in light of the following: (1)
GM conducts substantial business in this District and have intentionally availed themselves of the
laws and markets of the United States and this District; and/or (2) Many of the acts and transactions
giving rise to this action occurred in this District, including, inter alia, the GM’s promotion,
marketing, distribution, and sale of vehicles containing Bosch’s high injection CP4 fuel pump known
in this District. Several named Plaintiffs and proposed representatives, as well as tens of thousands
of Class members, purchased their Class Vehicles from the multiple GM dealerships located in this
District. Further, a significant number of the Class Vehicles were registered in this District and
thousands of Class Vehicles were in operation in this District. Venue is also proper under 18 U.S.C.
§ 1965(a) because GM is subject to personal jurisdiction in this District as alleged, infra, and GM
has multiple agents, i.e., GM-certified dealerships, located in this District.
49.
The Court has jurisdiction over this action pursuant to the Class Action Fairness Act
(“CAFA”), 28 U.S.C. § 1332(d), because at least one Class member is of diverse citizenship from the
Defendant, there are more than 100 Class members, and the aggregate amount in controversy
exceeds $5,000,000.00, exclusive of interests and costs. Subject-matter jurisdiction also arises under
the Magnuson-Moss Warranty Act claims asserted under 15 U.S.C. § 2301, et seq. The Court has
personal jurisdiction over GM pursuant to 18 U.S.C. §§1965(b) and (d), and Cal. Code Civ. Proc §
410.10, and supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367.
50.
This Court has personal jurisdiction over Defendant GM. GM has committed and
continues to commit acts giving rise to this action within California and within this judicial District.
GM has established minimum contacts within the forum such that the exercise of jurisdiction over
GM would certainly not offend traditional notions of fair play and substantial justice. In conducting
business, i.e., marketing, supplying, and distributing GM-brand automobiles within the State of
California, and specifically, within this judicial District, GM derives substantial revenue from its
activities and its products being sold, used, imported, and/or offered for sale in California and this
judicial District. GM has more than one-hundred-and-fifty certified GM-brand dealerships in the
state of Califgornia and sells hundreds of thousands of automobiles each year in the state. GM
provides advertising and customer facing information to these dealers for the purpose of exposing
consumers in California to that information.
V.
FACTUAL ALLEGATIONS
A.
The Class Vehicles
51.
For purposes of this Complaint, the “Class Vehicles” consist of the following GM-
manufactured diesel-fueled U.S. automobiles:
2011–2016 2500HD Silverado 6.6L V8 Duramax Diesel Trucks with
LML engines;
2011–2016 3500HD Silverado 6.6L V8 Duramax Diesel Trucks with
LML engines;
2011–2016 2500HD Sierra 6.6L V8 Duramax Diesel Trucks with LML
engines;
2011–2016 3500HD Sierra 6.6L V8 Duramax Diesel Trucks with LML
engines;
2010–2011 Chevrolet Express van with Duramax LGH engines;
2010–2011 GMC Savana van with Duramax LGH engines;
2010–2011 GMC Sierra trucks with RPO ZW9 (chassis cabs or trucks
with pickup box delete) with Duramax LGH engines;
2011–2012 2500HD 3500 Silverado 6.6L V8 Duramax Diesel Trucks
with LGH engines; and
2011–2012 2500HD 3500 Sierra 6.6L V8 Duramax Diesel Trucks
with LGH engines.
B.
The rise of diesel vehicles in the United States
52.
Diesel engines have long enjoyed a loyal following in some U.S. market segments
because of their reliability, fuel efficiency, and power. Diesel engines produce higher torque, even at
low revolutions per minute (“RPM”), making them popular in buses, heavy-duty pickups, and vans,
including commercial vehicles, farm trucks, and ambulances.
53.
With the invention of common-rail systems, diesel fuel was injected at higher
pressure, forming a finer mist that increases fuel efficiency and power. Common-rail systems also
made diesel engines burn cleaner and with less noise. While diesel had long been popular overseas,
these advances fueled a growing market here in the U.S. for diesel trucks, and even diesel passenger
cars.
54.
From the outset, GM was in competition with fellow “Big Three” auto manufacturers
like Ford and Fiat Chrysler, each racing to dominate the growing American diesel vehicle market.
GM looked to Europe and the expertise of international automotive parts supplier Bosch to increase
the fuel efficiency and power of its diesel engines. The heart of this diesel revolution would be
powered by Bosch’s extremely durable CP3 fuel injection pump, the predecessor to the CP4 fuel
injection pump at issue in this suit. The CP3 pump was one of Bosch’s heavy-duty injection pumps,
simplified for increased reliability. The reliability of the CP3 became key to the “million-mile”
performance of diesel truck engines in the U.S. Not surprisingly, American trust in diesel
technology grew.
55.
Americans paid a premium for the increased reliability, fuel efficiency, and power of
diesel—and, Bosch promised to continue to deliver advances and continued improvements in diesel
engine technology. Bosch claimed that the next generation of fuel pump, the CP4, would maintain
reliability while also increasing fuel efficiency and power.
56.
However, much like what occurred in the nationwide Volkswagen emissions scandal
involving Bosch, reliance on Bosch’s expertise in the design of diesel engines would lead GM into a
course of action it should now regret. The heart of GM’s success under increasingly competitive fuel
efficiencies was Bosch’s cheaper, substandard CP4 fuel injection pump. Bosch had the technical
know-how to do what needed to be done to get ahead; unfortunately for the American public, the
easiest way for GM to succeed was to cheat American consumers on durability and overall vehicle
functionality by equipping the Class Vehicles with this ticking time bomb of a fuel injection pump
that doomed the modern GM Duramax diesel engine system from day one.
C.
Pre-Class Period Failures ot the CP4 Are Known Within The auto Industry
57.
As GM knew or should have known, the Bosch CP4 fuel injection pump was
defective and incompatible with U.S. diesel fuel from the get-go, as CP4 failures began running
rampant in American Audi and Volkswagen vehicles at least as early as 2008, before GM ever
implemented the cheaper, less robust pump in its 2011 and later model year diesel automobiles.
Indeed, in February 2008, Bosch began meeting with Audi and Volkswagen representatives on a
monthly – or sometimes weekly – basis to track CP4 pump field failures that the auto manufacturers
were seeing in the U.S.; indeed, these failures echo the very failures that continue to occur in the
Class Vehicles to this day, and documentation regarding CP4 failures was provided to the National
Highway Traffic Safety Administration (“NHTSA”) in connection with NHTSA’s Office of Defect
Investigations (“ODI”) Inquiry No. INRD-EA11003, an investigation which GM was subject to as
well.2 See, e.g., Jul. 7, 2008 email between Audi and Bosch representatives re: “Performance drop
AU716 98017 with shavings in the HPP,” discussing how “[s]omething is disintegrating” in the Audi
716 fuel pump and that “[w]e are a bit speechless” about “[t]he shavings, or whatever it is”),
submitted as part of Bosch’s responses to NHTSA ODI Inquiry No. INRD-EA11003, document
entitled, “INRD-EA11003-59334P.pdf,” at 6; id. at 27 (Jul. 31, 2008 email from Audi representative
re: “Fuel quality in [REDACTED],” stating that, “With our [Audi’s] V6TDI with the high-pressure
pump CP4.2 we have significantly higher failure rates in [REDACTED] (higher by a factor of
approx. 30 than the average of all markets) . . . . Have you any information suggesting that such a
thing could be possible with this country-specific diesel fuel?”); id. at 28-31 (Feb.-May 2011 email
chain between Audi, Volkswagen and Bosch representatives re: “Status CP4 USA,” in which the
parties discuss the substantial increase in warranty claims involving fuel pump failures in MY 2010
versus 2009 vehicles in the US market).
2 See infra ¶ 64 & n. 11 (discussing GM’s response to NHTSA’s requests pursuant to ODI
Inquiry No. INRD-EA11003).
58.
In July 2008, Audi representatives reached out to Bosch regarding their investigative
efforts into CP4 pump failures, explaining to Bosch that, “We have biggish problems in the field and
already have 4 failures in [the] Q verification in the U.S. . . . Failure Q7 USA no. 3 is on its way to
Germany, fuel samples as well.”3 “Q7 USA” was a U.S. Audi vehicle equipped with a CP4. Bosch
diagnosed the problem as being due to a vehicle “manufacturing fault” in what it called a “sluggish
roller,” but also noted that they could not rule out the “‘sluggish roller’ [being caused by] water in
the fuel. (Water in fuel significantly increases the friction coefficient between roller and roller
support).”4 However, Audi representatives did not appear to be buying the water-contamination line
from Bosch, nor Bosch’s half-hearted attempts at “ameliorative measures” to a known, continuing
problem.5
59.
Similarly, in August 2009, Audi sent Bosch a failed CP4 fuel pump for analysis after
“[t]he high pressure fuel pump failed catastrophically shedding metal shavings throughout the entire
fuel system. . . . This car will require a complete new fuel system from tank to injectors and
everything in between. This will be a very lengthy repair (weeks). . . We need to determine if
component failure or bad fuel is to blame.” March 7, 2011 Bosch submission to NHTSA in response
to Inquiry No. INRD-EA11003, document entitled, “INRD-EA11003-59347P.pdf,” at 35. Thereafter,
on September 1, 2009, Bosch responded to Audi with the following flippant analysis note from their
3 Jul. 10, 2008, email from Audi representative to Bosch representatives regarding “Information
on pump failures in the U.S.,” produced in response to NHTSA Inquiry EA11003EN-00639[0],
available at https://static.nhtsa.gov/odi/inv/2011/INRD-EA11003-59428P.PDF (last accessed Nov. 6,
2018), at 141.
4 See id.
5 See March 7, 2011 Bosch submission to NHTSA in response to Inquiry No. INRD-EA11003,
document entitled, “INRD-EA11003-59347P.pdf,” at 157 (May 11, 2009 email between Bosch and
Audi representatives re: “Breakdown: KPM report 4987001),” in which Audi notes while discussing
the analysis of “[s]havings in the high-pressure pump” that, “During the last regular meeting on
breakdowns, [REDACTED] (among others) complained that [(1) there is a] known problem with the
high-pressure pump from Bosch[; and (2)] various measures from the Bosch Company are not
convincing”); see also id. at 159-60 (Apr. 30, 2009 email from Bosch to Audi re: “Metal splashes
curve for CP4 roller support and overview of measures,” in which Bosch’s “not convincing”
measures are laid out).
failed pump inspection: “Gentleman, The pump mentioned below was analyzed. The result of the
finding is sand-like particles in the fuel. Defect caused by customer.” Id. at 38 (emphasis added).
60.
Thus, early-on, it was well-known in the U.S. automotive industry that there were
serious U.S. diesel incompatibility issues that now run rampant in the Class Vehicles due to the
defective CP4 pump. See March 7, 2011 Bosch submission to NHTSA in response to Inquiry No.
INRD-EA11003, document entitled, “INRD-EA11003-59347P.pdf,” at 21 (Mar. 31, 2008 email
from Volkswagen to Bosch re: “Radio: Drivetrain damage failure US07 (Jetta),” in which the parties
are discussing an HPFP failure in a 2007 Jetta and the Volkswagen representative frustratedly states,
“Can you (panel of experts) explain to us how the failure mechanism was after this mileage? . . . .
We will certainly not accept a failure because of fuel quality! . . . . We also see a big risk here for our
BIN5 pump, which has to manage with the same fuel in USA”); May 2012 Bosch submission to
NHTSA in response to Inquiry No. INRD-EA11003, document entitled, “INRD-EA11003-
59334P.pdf,” at 9-10 (Jul. 4, 2008 email from Audi to Bosch re: “CP4 BIN5 3rd and 4th failure in
USA,” analyzing root cause of CP4 field failures and positing, “Why is it that EC pumps do not fail?
Because of a different fuel?”); id. at 13-14 (Jul. 11, 2008 email between Audi and Bosch
representatives re: “W19 BIN5 pump failure” in which Audi writes, “For the zero error meeting in
FeP on Tuesday we expect the information discussed at the error meeting on endurance testing of
fuels with ‘poor lubricity, containing water etc.’ and all failures, drivetrain damage in all component,
system and other endurance runs of Bosch and all customers”); Jul. 27, 2012 Bosch submission to
NHTSA in response to Inquiry No. INRD-EA11003, document entitled, “INRD-EA11003-
59345P.pdf,” at 7 (emphasis added) (Jun. 30, 2009 email between Bosch and Audi representatives re:
“ANS: HPP measures/ USE,” in which the Audi representative writes, “I don’t think you’re reading
my mails anymore! Please look at the failure curves specifically, then you’ll see that we only have a
problem in certain markets[.] . . . Depending on how poor the fuel currently on the market is”); id.
(“I’d prefer to have a more robust pump”).
61.
In September 2009, Audi contacted Bosch about a “3rd HPP failure” in the U.S.,
explaining, “I’m afraid there’s bad news from the U.S.: After 2 failures in the field. . . the 3rd HPP
failure has now occurred in the EC endurance run.”6 Photos attached to the email show the failed
Bosch CP4 fuel pump, replete with metal shavings in the gasket:7
6 Sept. 2, 2009, email from Audi representative to Bosch representatives regarding “3rd HPP
Failure USA,” produced in response to NHTSA Inquiry EA11003EN-00639[0], available
at https://static.nhtsa.gov/odi/inv/2011/INRD-EA11003-59428P.PDF (last accessed Nov. 6, 2018), at
146.
7 Id. at 148–50.
62.
By March 2011, Bosch was continuing to receive “a respectable number of claimed
[failures in] CR-pumps Typ CP4 for US-07” in Volkswagen vehicles, and specifically “a few pumps
with the fault description from [a] local VW [dealership]: ‘Metal particle [sic] at the filter.’ In a few
cases the [dealer] use[s] this as an indication, to verify a mechanical breakdown from the CR-pump. .
. . Please note[:] To find some particle [sic] or dust in the main filter box, can not be prevented.”8
63.
In June 2011, Bosch received a report from Volkswagen regarding a CP4 pump
failure in a 2.0L Volkswagen TDI in which the Volkswagen representative explained, “I have here a
pump from [sic] a 2.0L TDI. I have been testing a lot of these this week and many have an amount of
‘metal Debris’ or other metallic particles in them.”9 The following image of the contaminated pump
accompanied the email:
64.
Indeed, Bosch CP4 failures in U.S. Audi and Volkswagen vehicles were widespread
and catastrophic by the end of 2011. See Jul. 27, 2012 Bosch submission to NHTSA in response to
Inquiry No. INRD-EA11003, document entitled, “INRD-EA11003-59345P.pdf,” at 69 (emphasis
added) (Sept. 15, 2011 email from Volkswagen to Bosch re: “080211_Status_CP4.1_Bosch,” in
which the Volkswagen representative sends a formal “change request in [the] form of exemplary
documents on failures of high-pressure diesel pump Bosch CP4.1. I think the failures are well
8 Mar. 22, 2011, email from Bosch employee to Volkswagen employees regarding analysis of
failing CP4 fuel pumps, produced in response to NHTSA Inquiry EA11003EN-00639[0], available
at https://static.nhtsa.gov/odi/inv/2011/INRD-EA11003-59428P.PDF (last accessed Nov. 6, 2018),
at 11; see also id. at 19-22 (spreadsheet showing results of Bosch’s pre-analysis of HPFP failures in
Volkswagen/Audi vehicles where “metal chips found in fuel system”).
9 Mar. 7, 2011 Bosch submission to NHTSA in response to Inquiry No. INRD-EA11003,
document entitled, “INRD-EA11003-59347P.pdf,” at 12 (Jun. 9, 2011 email from Volkswagen
Group of America, Inc. to Bosch re: “2.0L TDI Fuel Pump”).
known. It is also important to know that not only the high-pressure fuel pump, but the entire
injection system is to be replaced in case of damage to a HPP with a cost >[REDACTED] caused by
chip contamination”).
65.
Yet, GM went on to contract with Bosch to supply the CP4 fuel pumps in 2011 and
later model years. Seeking to gain an advantage, GM began a long partnership with Bosch in 2000.
But from the beginning, GM was aware of a mismatch between Bosch’s European fuel injection
pumps and American diesel fuel.
66.
GM set out to design a modern diesel engine for its pickup trucks. In 2000, GM
formed a joint venture with Isuzu, called “DMAX” to create the 6.6L Duramax V8 engine. DMAX
then teamed up with Robert Bosch GmbH to incorporate Bosch’s high pressure common-rail for fuel
injection. Two years later, the Duramax engine had garnered 30% of the U.S. market for diesel
pickup trucks. The Duramax engine has long been an option on GM pickups, vans, and medium-
duty trucks, and has undergone many changes over the years.
67.
For 2010, GM created the LGH version of the Duramax engine. It featured increased
power, increased torque, and greater fuel efficiency. But, in order to achieve greater fuel efficiency,
the Duramax LGH engine incorporated a newer, lower-volume fuel injection pump, Bosch’s CP4
pump.
68.
On February 7, 2011, as the first models of the Class Vehicles were being sold,
NHTSA’s Office of Defect Investigations (“ODI”) opened an investigation certain major automotive
manufacturers for a potential defect in predecessor diesel high pressure fuel injection pumps as well
as certain model year vehicles containing the CP4 pump.10 As part of that investigation, in October
2011, ODI requested “peer vehicle” information from GM, specifically regarding (among other
things) an “[a]lleged defect” involving “[a]ny one or more of the following symptoms or conditions.
. .: (1) HPFP failure; (2) Metallic debris/contamination in the fuel system; (3) Repairs involving
10 See Feb. 7, 2011, NHTSA ODI Resume for Investigation No. EA 11-003 regarding “High-
Pressure Fuel Pump Failure (HPFP),” available at https://static.nhtsa.gov/odi/inv/2011/INOA-
EA11003-5971.PDF (last accessed Nov. 16, 2018) .
fuel system replacement; (4) General allegations of fuel pump failure (i.e., the specific fuel pump is
not identified); or (5) All other allegations of fuel system failures or malfunctions resulting in engine
stall.”11
69.
Among other things, GM responded that in the 2nd quarter of 2011 alone, it was
aware of at least ninety-nine (99) field reports of high-pressure fuel pump failure in the 2011
Chevrolet Silverado HD, thirty (30) of which involved moving stalls.12
70.
Meanwhile in 2011, GM was touting the improved durability of its all-new Duramax
LML engine, which was installed in many of the subject Class Vehicles and incorporated the CP4
fuel pump. Indeed, GM claimed that the Duramax LML improve durability while increasing fuel
injection pressure to 29,000 psi, increasing noise reduction and also tolerating up to 20% biodiesel
fuel mixtures, and added a urea-based diesel exhaust fluid (“DEF”) system to treat its exhaust. The
Duramax LML continued to use the new lower-volume Bosch CP4 fuel injection pump, as did some
of the Duramax LGH’s, including but not necessarily limited to the following vehicles:
2011–2016 Chevrolet 2500HD Silverado 6.6L V8 Duramax Diesel Trucks with LML
engines
2011–2016 Chevrolet 3500HD Silverado 6.6L V8 Duramax Diesel Trucks with LML
engines
2011–2016 Chevrolet 2500HD Sierra 6.6L V8 Duramax Diesel Trucks with LML
engines
2011–2016 GMC 3500HD Sierra 6.6L V8 Duramax Diesel Trucks with LML engines
2010–2011 Chevrolet Express van with Duramax LGH engines
2010–2011 GMC Savana Van with Duramax LGH engines
11 Oct. 7, 2011, Ltr. from Frank S. Borris, Director, Office of Defects Investigation, to Carmen
Benavides, GM Director of Product Investigations, available at
https://static.nhtsa.gov/odi/inv/2011/INPR-EA11003-48548.pdf (last accessed Nov. 16, 2018).
12 Dec. 3, 2011, Ltr. from Carmen Benavides, head of GM Product Investigations and Safety
Regulations, to Frank Borris, head of NHTSA’s Office of Defects Investigations (ODI), in response
to ODI Inquiry No. EA11-003, at 3, available at https://static.nhtsa.gov/odi/inv/2011/INRL-
EA11003-50067P.pdf (last accessed Nov. 16, 2018).
2010–2011 GMC Sierra Trucks with RPO ZW9 (chassis cabs or trucks with pickup
box delete) with Duramax LGH engines
2011–2012 Chevrolet 2500HD Silverado 6.6L V8 Duramax Diesel Trucks
with LGH engines
2011-2012 Chevrolet 3500HD Silverado 6.6L V8 Duramax Diesel Trucks with LGH
engines
2011–2012 Chevrolet 2500HD Sierra 6.6L V8 Duramax Diesel Trucks
with LGH engines
2011-2012 Chevrolet 3500HD Sierra 6.6L V8 Duramax Diesel Trucks
with LGH engines
71.
Some of these vehicles are modified for commercial purposes, such as cargo vans,
specialized work trucks, and a variety of ambulances offered by GM. The CP4 has long experienced
problems, and the failure of these pumps can be devastating to people and businesses alike. The CP4
performed terribly from the start, but GM put it into more and more engines.
72.
Moreover, GM was on notice—and indeed, has repeatedly admitted—that the safety
risks of moving stalls or “no-starts” such as those associated with the CP4 fuel pump pose an
inherent risk to vehicle occupant safety. In 2014, GM issued a series of safety recalls for
approximately 30 million vehicles due to an ignition switch defect which caused, among other
things, loss of engine power (in other words, moving stalls), which “increase[e] the risk of a crash.”13
Thus, pursuant to California law, because the Class Vehicles have an inherent safety defect (as
evidenced by the customer complaints cited herein), the purchasers and lessors of the Class Vehicles
have been economically injured, because a vehicle which later turns out to have a safety defect is
clearly worth less than it was at the point-of-sale while the defect was still being concealed.
13 See, e.g., GM 573 Ltr. to NHTSA re: NHTSA Recall No. 14V346, Jun. 19, 2014. The full
relevant text of paragraph 573.6(c)(5) reads as follows:
“There is a risk, under certain conditions, that some drivers may bump the ignition
key with their knee and unintentionally move the key away from the “run” position. If
this occurs, engine power, and power braking will be affected and power steering may
be affected, increasing the risk of a crash. . . .”
D.
GM’s Additional Knowledge of Incompatibility, Defectiveness, and Failures Associated
with Bosch’s CP4 Pump.
73.
The Bosch CP4 Pump operates at higher pressures than its predecessor, the CP3. The
CP4 achieves greater fuel efficiency by pumping less fuel through the engine. The Bosch CP4 Pump
had a proven track record in Europe, but it is not compatible with American diesel fuel.
74.
The CP4 relies on the diesel fuel itself to maintain lubrication. The lubricity of diesel
in Europe is more standardized than American diesel, but European diesel is also dirtier. Because
the sulfur in diesel exhaust is a major cause of smog and acid rain, in 2007, the EPA required diesel
fuel sold in the U.S. to have less than 15 ppm of sulfur. This is known as Ultra Low Sulfur Diesel
(“ULSD”). It is produced through a refinery process known as hydrodesulfurization (“HDS”).
Sulfur provides some of the lubricity needed for the pump to operate. But more importantly, the
refinery process required to produce low sulfur diesel destroys a variety of important nitrogen and
oxygen based polar and organic compounds that give diesel fuel its lubricity. As a result, American
diesel does not contain the lubrication necessary for the Bosch CP4 Pump to operate durably.
75.
Low sulfur diesel fuel first appeared in American markets in the 1990’s, with fewer
than 500 ppm of sulfur. It is estimated that 65 million fuel injection pumps failed as a result. It was
thought that the pumps failed at the equivalent of 100 to 200 hours of operation. Thus, the critical
importance of lubricity for diesel injection pumps was well known to all auto manufacturers for a
decade or more before the Class Vehicles were designed or introduced into the market.
76.
Engine manufacturers were well aware of the mismatch between engine part
specifications that require a maximum of 460 wear scar, and the lower lubricity specifications of
Ultra Low Sulphur American diesel fuel:
Lubricity describes the ability of a fluid to minimize friction between, and damage to,
surfaces relative to motion under loaded conditions. Diesel fuel injection equipment
relies on the lubricating properties of fuel. Shortened life of engine components such
as fuel injection pumps and unit injectors can usually be attributed to lack of fuel
lubricity and, hence, lubricity is of concern to engine manufacturers. This property is
not addressed adequately by ASTM D 975.
4/22/2002 Engine Manufacturers’ Association, Position Statement titled, “EMA Consensus Position
Pump Grade Specification.” GM is a member of the Engine Manufacturers’ Association.14
77.
Further, the Engine Manufacturers’ Association made clear:
Regardless of the fuel sulfur level, ASTM D975 currently requires lubricity specified
as a maximum wear scar diameter of 520 micrometers using the HFRR test method
(ASTM D6079) at a temperature of 60°C. Based on testing conducted on ULSD fuels,
however, fuel injection equipment manufacturers have required that ULSD fuels have
a maximum wear scar diameter of 460 micrometers. EMA recommends that the
lubricity specification be consistent with the fuel injection equipment manufacturers’
recommendation.
8/8/2005 Engine Manufacturers Association, Position Paper titled “North American Ultra Low Sulfur
Diesel Fuel Properties.”
78.
In 2005, the EPA instituted a lubricity requirement for the lower sulfur diesel sold in
the U.S. It required sellers of diesel to ensure the fuel meets a minimum lubricity level of a
maximum wear scar diameter of 520 microns based on the testing and standard propounded by the
American Society for Testing and Materials (“ASTM”) D-975. A prudent manufacturer would
design or select a fuel injection pump designed for this low lubricity fuel.
79.
Yet, Bosch provided the CP4 Pump for GM’s Duramax engines in the 2010 and 2011
model years. It was no secret to any of them that the Bosch CP4 Pump is inappropriate for diesel
vehicles in the U.S. The Bosch CP4 Pump specifications for fuel lubricity allow for a maximum of
460 wear scar. By definition, the 520 wear scar specification of American diesel fuel is inadequate
to lubricate the Bosch CP4 Pump.
80.
In order to increase fuel efficiency, GM sold vehicles with a fuel injection pump that
was clearly out of specification, having inadequate lubrication for the U.S. market.
81.
GM and its inherent cohort Bosch were aware of the incompatibility issues early on.
For example, in May 2010, after analyzing foreign particles found in the fuel filter of a failed Audi
diesel engine and determining that the biodiesel used in the subject engine was “insufficient[ly]
14 See Truck & Engine Manufacturers Association (EMA) membership webpage,
http://www.truckandenginemanufacturers.org/companies/ (last accessed Nov. 13, 2018).
cleans[ed]” resulting in deposit formation “which is not conducive to establishing the lubricating
film in the [fuel pump] roller support,” Bosch noted that, “When [diesel fuel] viscosity is too low, the
lubricating film is not established properly and mixed friction and surface contact occurs = bad.”15
82.
The Bosch CP4 Pump multiplies the diesel fuel problem in ways that are catastrophic.
But GM chose the Bosch CP4 Pump because it was supposed to improve fuel efficiency by using
less fuel. The Bosch CP4 Pump struggles to supply adequate fuel to the engine under the lower
pressure of newer engines. The combination of the low volume of fuel, which is under constant
suction, and the low lubricity of the fuel, allows cavitation of the fuel. Air pockets form inside the
pump during operation. These air bubbles allow metal to rub against metal. GM had achieved
greater fuel efficiency at the expense of running the pump dry.
83.
As the Bosch CP4 Pump wears, it sends metal shavings and sometimes even larger
particles throughout the fuel system. As the shavings disperse and contaminate the engine and the
high-pressure fuel system, the fuse of the proverbial CP4 “time bomb” has been lit, and it is only a
matter of time before the entire engine system fails. The failure of a CP4 pump requires repair or
replacement of the entire high-pressure fuel system, including the pump, fuel injectors, fuel rails, and
injection lines.16 Repair costs when a CP4 pump fails average between $8,000.00 and $20,000.00.
84.
Indeed, field incidents involving CP4 implosions in 2011 MY Class Vehicles came
rolling in almost as soon as the vehicles were off the assembly line. To be sure, GM has had notice
of scores of consumer complaints regarding the now-notorious CP4 pump failure, and is notorious
for blatantly refusing to take responsibility for its own defective vehicle design.
15 Jul. 27, 2012 Bosch submission to NHTSA in response to Inquiry No. INRD-EA11003,
document entitled, “INRD-EA11003-59345P.pdf,” at 12-14 (May 26, 2010 email chain between
Audi and Bosch representatives re: “Particle analyses, fuel filter”).
16 See, e.g., Nov. 18, 2016, “2011-2015 6.6L LML/LGH Duramax Diagnostics,” Oregon Fuel
Injection, Inc., at 6, available at https://cdn.oregonfuelinjection.com/content/uploads/2016/08/gm-
duramax-11-15-diagnostic.pdf (last accessed Nov. 17, 2018) (providing diagnostic tips for
addressing CP4 failures and noting, “Note: The CP4.2 pumps are not as durable as the CP3
pumps. . . . When they fail it is often catastrophic and they send metal particles throughout the
high pressure side of the fuel system, causing further damage”).
85.
For example, on October 5, 2010, a Duramax Forum member posted the following
regarding a nearly brand-new 2011 Chevrolet Silverado 3500 Crew Cab 6.6L Duramax:
“Ive got 3200 miles on my 2011 3500 srw, crew cab, 4x4, z71, duramax. And ive
already got- in my opinion a serious[] problem- it wont start. Cranks and Cranks and
cranks. Usually it finally starts. After extensive diagnostic review, the dealer and the
chief duramax engineer from gm feel its an Injector Pump issue. . . . Of course the part
is back ordered. Any one else had similar issues? Im pretty frustrated.”17
86.
In the same vein, on October 13, 2013, the owner of a 2011 GMC Sierra HD 2500
posted the following on the diesel enthusiast website TheDieselPageForums.com: “My 2011 GMC
2500HD recently experienced what has been diagnosed at a GM dealership as a high pressure fuel
pump failure . . . . a bit of a loss of confidence in the reliability of the bullet proof 6600 Durmax here.
. .”18 The truck owner went on to note the following diagnosis from his GM service advisor:
“CONTAMINATED FUEL SYSTEM CAUSED BY HIGH PRESSURE PUMP
FAILURE[.] CRANK NO START-SCAN PCM, NO FAILURE CODES. CHECK
CRANK SENSOR OPERATION AND CRANKING RPM'S-HAS NORMAL
CRANKING SPEED AND RPM'S. CHECK FUEL API RATING-API OF 40.
INSPECT FOR FUEL LEAKS AND AIR IN FUEL SYSTEM-NO AIR AND NO
FUEL LEAKS. CHECK FUEL PRESSURE WHILE CRANKING...INSTALL
PRESSURE GUAGE AT FUEL TEST PORT AND AND PUMP TO 10 PSI WITH
FUEL PRIMER PUMP-CRANK ENGINE FUEL PRESSURE DOES NOT DROP.
CALL TAC. INSPECT FUEL PRESSURE REGULATOR AND SENSORS FOR
METAL DEBRIS. FOUND FUEL SYSTEM CONTAMINATED WITH METAL
FROM HIGH PRESSURE FUEL PUMP. SEE PIP5133, PIP5151, PIP4949C. . . .”19
87.
Similarly, on July 2, 2014, the following customer complaint involving a 2012 GMC
Sierra 3500 HD was filed with NHTSA:
“DRIVING FROM GM DEALER FOR TWO MILES CHANGE FUEL FILTER
MESSAGE APPEARED AND ENGINE DIED. TOWED TO A DEALER
DIAGNOSED AS A HIGH PRESSURE INJECTOR PUMP FAILURE WITH
METAL CONTAMINATION TO FUEL SYSTEM. I HAVE FOUND A BULLETIN
17 Oct. 5, 2010, DuramaxForum.com thread post entitled, “2011 Injector Pump failure,” available
at https://www.duramaxforum.com/forum/11-16-lml-duramax-powertrain/72500-2011-injector-
pump-failure.html (last accessed Nov. 16, 2018).
18 Oct. 30, 2013, TheDieselPageForums.com thread post entitled, “High Pressure Fuel Pump
Failure at 50K,” available at https://www.thedieselpageforums.com/tdpforum/archive/index.php/t-
42676.html (last accessed Nov. 17, 2018).
19 Id. (emphasis added).
DATED
2009
FROM
EQUIPMENT
MANUFACTURERS.
THIS
JOINT
STATEMENT HAS INFORMATION ABOUT THE FUEL USED IN THE USA
THAT I WAS NOT AWARE OF AND MAY HAVE AVOIDED THIS FAILURE.
THIS IS A VERY EXPENSIVE REPAIR AS I USE MY TRUCK FOR WORK.
*TR”20
88.
Likewise, on August 5, 2014, the owner of a 2012 Chevrolet Silverado 2500 filed a
complaint with NHTSA about the following incident which occurred on July 11, 2014, in Chualar,
California:
VEHICLE WOULD NOT START. WHEN THEY PUT IT ON SCOPE THEY
FOUND THAT THE FUEL RAIL PRESSURE WAS TO LOW. THEY FOUND
METAL SHAVINGS THROUGHOUT THE FUEL SYSTEM AS IF A PART
WAS COMING APART FROM THE INSIDE. THEY HAD TO REPLACE
ENTIRE FUEL SYSTEM FROM PUMP TO INJECTORS PLUS ALL THE LINES
AND INJECTION PUMP. THIS VEHICLE IS 2 YEARS OLD. *TR21
89.
On February 7, 2015, the following “catastrophic failure” caused by the CP4 pump in
a 2012 GMC Sierra Duramax truck was reported to NHTSA:
“THE FUEL INJECTION PUMP CP4 HAD A CATASTROPHIC FAILURE AS
I WAS DRIVING ON A HEAVILY TRAVELED FOUR LANE HIGHWAY, US
RT.20. I LOST POWER STEERING AND BRAKES. I FELT FORTUNATE THAT I
WAS NOT TOWING A 16,000 LB. FIFTH WHEEL CAMPER DOWN A
MOUNTAIN ROAD.I SAY THIS BECAUSE IT WAS EXTREMELY DIFFICULT
TO MAINTAIN CONTROL OVER THE TRUCK STEERING IT AND BRINGING
IT TO A CONTROLLED STOP. I HAVE READ ABOUT THESE PUMPS FAILING
ON NUMEROUS DIESEL FORD AND GM TRUCKS. I ALSO FEEL IF A WOMAN
OR SMALL PERSON HAD THIS HAPPEN TO THEM THE OUTCOME COULD
END IN LOSS OF CONTROL RESULTING IN INJURIES EVEN DEATHS. THE
ONLY ONE THAT KNOWS THE ACTUAL NUMBER OF PUMPS THAT HAVE
FAILED IS THE MANUFACTURERS, WHO WILL NOT SHARE THAT
INFORMATION WILLINGLY. *JS”22
90.
On May 4, 2015, the following report regarding a 2011 GMC Sierra Duramax HD
was filed with NHTSA:
“VEHICLE WAS TRAVELING DOWN ACCESS ROAD COMING UP TO
INTERSTATE OFFRAMP. RIGHT BEFORE YIELD SIGN BOSCH CP4 PUMP
FAILED STOPPING MOTOR. BRAKES AND STEERING AFFECTED. JUST
20 NHTSA ID No. 10607796.
21 NHTSA ID No. 10619113 (emphasis added).
22 NHTSA ID No. 10681960 (emphasis added).
ENOUGH MOMENTUM TO FIGHT TRUCK INTO ADJACENT PARKING LOT
RIGHT AFTER RAMP. *TR”23
91.
Similarly, on June 13, 2016, the owner of a 2012 Chevrolet Silverado submitted the
following complaint to NHTSA regarding the defective condition:
“I WAS DRIVING DOWN A HIGHWAY ROAD WHEN MY VEHICLE
ABRUPTLY LOST POWER, I RECEIVED A WARNING FROM MY
DASHBOARD
SAYING
FUEL
FILTER
NEEDS
REPLACING
AND
SUBSEQUENTLY LOST ENGINE POWER WHICH RESULTED IN NO POWER
STEERING AND NO BRAKES. I WAS ABLE TO KEEP THE VEHICLE UNDER
CONTROL AND GOT IT TO THE SIDE OF THE ROAD BEFORE IT BECAME
DEAD. AFTER GETTING THE VEHICLE TOWED TO A GARAGE IT WAS
DETERMINED THAT THE CP4 FUEL INJECTION PUMP HAD FAILED
RESULTING IN FUEL BEING STARVED FROM THE ENGINE AND THE
RESULT WAS THE ENGINE SHUTTING OFF. THE REPAIRS ALONE FOR
THIS SINGLE FAILURE ARE $8550 BECAUSE THIS PUMP HAS FOULED ALL
THE FUEL INJECTORS AND REGULATORS IN THE FUEL SYSTEM. MOST
IMPORTANTLY THOUGH, I WAS FORTUNATE ENOUGH TO BE IN A
POSITION ON HIGHWAY WHERE I HAD NO TRAFFIC BEHIND ME, AND ON
A RELATIVELY STRAIGHT ROAD WHERE I WAS ABLE TO GET TO THE
CURB BEFORE IT BECOME A BIGGER PROBLEM. FROM WHAT I HAVE
FOUND THIS IS BECOMING A COMMON PROBLEM ON ALL OF THE
DURAMAX 6.6L LML ENGINES UTILIZING THIS TYPE OF FUEL INJECTION
PUMP AND GM NEEDS TO RECALL THESE SYSTEMS AND REPAIR THEM. I
DO NOT HAVE THE REPAIR INVOICE YET BECAUSE THE VEHICLE IS STILL
BEING REPAIRED BUT WILL BE HAPPY TO SUPPLY IT WHEN I RECEIVE
IT.”24
92.
On December 19, 2016, the owner of a 2012 Chevrolet Silverado 2500 reported the
following failure to NHTSA:
“TL* THE CONTACT OWNS A 2012 CHEVROLET SILVERADO 2500. WHILE
DRIVING 10 MPH, THE VEHICLE STALLED WITHOUT WARNING. THE
VEHICLE WAS TOWED TO THE DEALER TO BE DIAGNOSED. THE CONTACT
WAS INFORMED THAT THERE WAS METAL CONTAMINATION IN THE
FUEL SYSTEM DUE TO A FUEL PUMP FRACTURING IN THE FUEL TANK.
THE VEHICLE WAS NOT REPAIRED. THE MANUFACTURER WAS NOT
NOTIFIED OF THE FAILURE. THE APPROXIMATE FAILURE MILEAGE WAS
130,000.”25
23 NHTSA ID No. 10714457 (emphasis added).
24 NHTSA ID No. 10873931 (emphasis added).
25 NHTSA ID No. 10936256.
93.
On December 28, 2016, the owner of a 2016 GMC Sierra 2500 reported the following
to NHTSA regarding an incident that occurred on November 27, 2016:
“TL* THE CONTACT OWNS A 2016 GMC SIERRA 2500. WHILE DRIVING
APPROXIMATELY 15 MPH, THE ENGINE STALLED WITHOUT WARNING.
THE VEHICLE WAS TOWED TO A DEALER WHERE IT WAS DIAGNOSED
THAT THE FUEL INJECTOR PUMP FAILED AND NEEDED TO BE REPLACED.
THE VEHICLE WAS REPAIRED. THE MANUFACTURER WAS INFORMED OF
THE FAILURE. THE VIN WAS UNKNOWN. THE APPROXIMATE FAILURE
MILEAGE WAS 11,000.”26
94.
Likewise, on January 9, 2017, the owner of a 2013 GMC Sierra 2500 submitted the
following complaint to NHTSA regarding the defective condition:
“BOSCH CP4 FUEL PUMP FAILURE. PLEASE REFERENCE EA11-003 AND
FIND THE SAME FUEL PUMPS THAT WERE FOUND TO FAIL ON AUDI/VW
VEHICLES ARE ALSO USED ON GM, FORD, AND DODGE VEHICLES. SAID
PUMP FAILED DURING DRIVING
WITHOUT
WARNING
CAUSING
COMPLETE ENGINE SHUTDOWN AND LOSS OF POWER. CERAMIC AND
METAL INTERNALS OF THE PUMP DISINTEGRATED AND TRAVELED
THROUGH THE FUEL SYSTEM, SUBSEQUENTLY CAUSING THE INJECTORS
TO FAIL. SIMILAR TO THE FINDINGS IN EA11-003, PAGE 16 PARAGRAPH 2,
THE REPAIR IS TO COST APPROXIMATELY $10,000 TO FIX THE ENTIRE
FUEL SYSTEM. *TR”27
95.
Similarly, on March 15, 2017, the owner of a 2012 Chevrolet Silverado 3500
submitted the following complaint to NHTSA regarding the defective condition:
“WHILE DRIVING ON A FOUR-LANE HIGHWAY TOWING OUR 15,500 LB
FIFTH WHEEL, SUDDENLY, WITHOUT ANY WARNING, WE HEARD
RATTLING, LOST POWER, AND THE ENGINE SHUT DOWN. THE NOISE AND
LOSS OF PROPULSION, POWER STEERING AND POWER BRAKES ALL
OCCURRED WITHIN ABOUT 2-3 SECONDS. GRATEFULLY, THE DRIVER
HAD THE FORTITUDE TO IMMEDIATELY BEGIN PULLING ONTO THE
SHOULDER OF THE SLIGHT DOWNWARD SLOPE ON WHICH WERE [SIC]
DRIVING. LUCKILY, WE WERE ON A STRETCH OF ROAD THAT WAS NOT
INCLINED, NOT IN A CONSTRUCTION ZONE WITH BARRIERS, NOT IN A
SNOWY MOUNTAIN PASS OR IN OTHER INCLEMENT WEATHER, NOT IN
THE LEFT LANE PASSING, ETC. HAD ANY OF THESE FACTORS PREVENTED
US FROM SIMPLY PULLING ONTO THE SHOULDER OF THE ROAD, THE
POTENTIAL FOR A LIFE THREATENING ACCIDENT WOULD HAVE BEEN
26 NHTSA ID No. 10937972.
27 NHTSA ID No. 10943828 (emphasis added).
SIGNIFICANT. THE CHEVROLET/GM SERVICE CENTER CONFIRMED
THE BOSCH CP4 HPFP SUFFERED A CATASTROPHIC FAILURE,
DESTROYING THE ENTIRE FUEL SYSTEM OF THE TRUCK. GM IS
COVERING PART OF THE REPAIR COSTS (TRUCK IS AT 119,705 MILES), BUT
OUR BILL WILL REMAIN SUBSTANTIAL. RESEARCH OF DIESEL, TDI, AND
OTHER FORUMS DOCUMENT THIS PROBLEM AS WELL-KNOWN AND
BROADER THAN THE EXISTING 9 COMPLAINTS IN THE NHSTA PUBLIC
DATABASE AND THE INVESTIGATION OF VW/AUDI. SOME PEOPLE ARE
EVEN
REPORTING
MULTIPLE
FAILURES.
THE
MOST
COMMON
BELIEVABLE CAUSE OF THE FAILURES SEEMS TO BE A MISMATCH OF
LUBRICITY SPECS BETWEEN THE BOSCH CP4 AND THE DIESEL FUEL IN
THE U.S. PLEASE OPEN AN INVESTIGATION, AND ORDER GM, FORD, VW,
BOSCH AND OTHERS TO RECALL THESE VEHICLES TO PROVIDE THE
NECESSARY REPAIRS. ALSO PLEASE MANDATE, TO THE EXTENT YOU'RE
ABLE, REIMBURSEMENT TO THOSE OF US PAYING FOR REPAIRS TODAY.
I HAVE READ, BUT HAVE NOT BEEN ABLE TO CONFIRM, THAT VW
EXTENDED THE WARRANTY TO 120K MILES. THIS SEEMS LIKE A
MINIMUM (MORE IS BETTER) STEP, AND IT SHOULD BE RETROACTIVE.”28
96.
On May 26, 2017, the owner of a 2012 GMC Denali Duramax Sierra 2500 posted the
following on DuramaxForum.com:
“So I have a 2012 GMC Denali Duramax with 116k on the odometer. A couple of
weeks it just stopped working while driving. We had it towed to the dealer and they
took a look at it and stated the fuel pump ‘blew’ up and contaminated the entire
fuel delivery system. They want to replace the entire fuel system as well as put in an
‘upgraded’ GM pump for about $7100.”29
97.
In the same vein, diesel truck owners in the online forum DieselPlace.com lamented
their woes in the following conversation thread entitled, “Have they fixed the CP4 issue yet?”
“[My 2015 GMC LML] just blew up at 68k. Sent metal through the whole
fuel system. [$]10.5K to fix.”
“There is nothing NORMAL about a +$10k repair bill. . . . If CP4s failed
like CP3[’]s nobody would be talking about it. But the fact they puke with
28 NHTSA ID No. 10966092 (emphasis added).
29 May 26, 2017, DuramaxForum.com thread entitled, “Injection CP4 pump failure,” available at
https://www.duramaxforum.com/forum/11-16-lml-duramax-powertrain/909393-injection-cp4-
pump-failure.html (last accessed Nov. 7, 2018).
no [failsafe] is the real issue. When people are having to take out 2nd
mortgages to get their truck repaired there's a problem with that.”30
98.
Along these same lines, in January 2015, the owner of a 2015 GMC Sierra 3500
began a thread on the DuramaxForum.com stating as follows:
“I have a new 2015 GMC 3500 with 14k miles that the injection pump crapped out on
me. Dealer has had it for 3 1/2 weeks. Was told if they find any metal they would have
to tear the engine down. Well they found metal but didn’t tear it all the way down. Has
anyone else had an issue [with] the injection pump on the 2015 Duramax[?]”31
99.
Shortly thereafter, the following response comes in from a fellow
DuramaxForum.com user: “[L]ots of LML's have had injector pump issues in the states[,] go down
to the LML [forum] and read, it[’]s caused by the new cp4.2 pump that needs better fuel then what
you can buy.”32
100.
Notably, the initial complainant then explained how he finally got his truck back after
a series of fuel line/tank line/chassis line flushes and replacements by the dealership, including a fuel
pump injector replacement: “[I]t was around [an $]8000.00 job and that was warranty price.”33 One
DuramaxForum.com user aptly responded, “To[o] bad the dealers won[’]t just install a cp3 instead of
the crappy cp4 when these go out in the lml[]s. It only makes sense!!!”34
101.
Along the same lines, on August 3, 2017, the owner of a 2012 Chevrolet Silverado
2500 submitted the following complaint to NHTSA regarding the defective condition:
“BOSCH CP4.2 FUEL PUMP MALFUNCTIONED AND CONTAMINATED
THE ENTIRE FUEL AND INJECTION SYSTEM WITH METAL SHAVINGS.
THE TRUCK ENGINE STOPPED WHILE TRAVELING AT 50 MPH ON A CITY
STREET AND LEFT ME WITH NO POWER STEERING. THE ENTIRE FUEL
30 https://www.dieselplace.com/forum/63-gm-diesel-engines/365-duramax-fifth-generation-
2011-2016-lml/794162-have-they-fixed-cp4-issue-yet.html (last accessed Nov. 3, 2018).
31 See https://www.duramaxforum.com/forum/general-discussion/560786-2015-duramax-
injection-pump-troubles.html (last accessed Nov. 3, 2018).
32 See id.
33 Id.
34 Id.
SYSTEM NEEDS TO NOW BE REPLACED AND NOT COVERED BY THE
MANUFACTURER. REPAIR BILL OF OVER $7,000.”35
102.
On November 13, 2017, the following incident involving a 2014 GMC Sierra
2500HD Duramax truck was filed with NHTSA:
“MY FUEL PUMP AND INJECTORS FAILED WHILE I WAS DRIVING,
STRANDING MY TRUCK IN THE MIDDLE OF TRAFFIC RIGHT WHERE A
CITY STREET WAS CHANGING TO A COUNTRY ROAD. THE GMC
DEALERSHIP FALSELY CLAIMED THAT THIS WAS CAUSED BY USING
UNAPPROVED FUEL. THE FUEL I USED WAS B20 BIODIESEL, WITH 80%
RENEWABLE DIESEL, WHICH MEETS DIESEL SPECIFICATIONS AND IS A
LEGAL ROAD FUEL IN CALIFORNIA. THEY ALSO CLAIMED THAT A
CASCADE OF OTHER PROBLEMS WERE ALL CAUSED BY MY FUEL AND
REFUSED TO APPLY MY WARRANTY.”36
103.
On April 10, 2018, the following customer complaint involving a 2016 Chevrolet
Silverado 3500 diesel truck was filed with NHTSA:
“TL* THE CONTACT OWNS A 2016 CHEVROLET SILVERADO 3500. WHILE
DRIVING 40-45 MPH, THE REDUCED ENGINE SPEED WARNING INDICATOR
ILLUMINATED AND THE VEHICLE STALLED. THE CONTACT WAS UNABLE
TO RESTART THE VEHICLE. THE VEHICLE WAS TOWED TO HERB EASLEY
MOTORS (1125 CENTRAL E FWY, WICHITA FALLS, TX 76306, (940) 723-6631)
WHERE IT WAS DIAGNOSED THAT THE FAILURE WAS DUE TO
CONTAMINATION OF METAL SHAVINGS IN THE FUEL PUMP AND FUEL
RAILS. IN ADDITION, THE FAN CLUTCH FAILED AND NEEDED TO BE
REPLACED, INCLUDING THE ENTIRE FUEL SYSTEM. THE VEHICLE WAS
REPAIRED, BUT THE FAILURE RECURRED SEVERAL MONTHS LATER. THE
VEHICLE WAS TAKEN BACK TO THE DEALER WHERE IT WAS DIAGNOSED
THAT THE FUEL SYSTEM NEEDED TO BE REPLACED AGAIN. THE VEHICLE
WAS NOT REPAIRED DUE TO COST. THE MANUFACTURER WAS NOTIFIED
OF THE FAILURES AND CASE NUMBER: 8-4064184145 WAS OPENED. THE
APPROXIMATE FAILURE MILEAGE WAS 38,000.”37
104.
On April 17, 2018, the following report was submitted to NHTSA on behalf of the
owner of a 2013 GMC Sierra 3500:
“TL* THE CONTACT OWNS A 2013 GMC SIERRA 3500. THE CONTACT
STATED THAT THE VEHICLE FAILED TO START. THE VEHICLE WAS
TOWED TO KUHIO CHEVROLET CADILLAC HYUNDAI NISSAN (3033
35 NHTSA ID No. 11012551 (emphasis added).
36 NHTSA ID No. 11045708.
37 NHTSA ID No. 11084287.
AUKELE ST, LIHUE, HI 96766, (808) 245-6731) WHERE IT WAS DIAGNOSED
THAT THE FUEL PUMP AND INJECTORS FAILED AND NEEDED TO BE
REPLACED. THE VEHICLE WAS NOT REPAIRED. THE MANUFACTURER
WAS CONTACTED AND DID NOT ASSIST. THE APPROXIMATE FAILURE
MILEAGE WAS 34,500. THE VIN WAS NOT AVAILABLE.”38
105.
On November 12, 2018, the owner of a 2011 Chevrolet Silverado 2500 submitted the
following complaint to NHTSA regarding the defective condition:
“I WAS TRAVELING TO WORK IN THE FAST LANE OF THE FREEWAY
WHEN I HEARD A FAINT SQUEALING NOISE AND THE TRUCK
SUDDENLY STARTED RUNNING ROUGH. I BEGAN CROSSING ALL 4
LANES AND BY THE TIME I MADE IT TO THE [SIC] SLOW LANE THE
TRUCK COMPLETELY DIED. I WAS ABLE TO SAFELY COAST OFF OF
THE FREEWAY DUE TO MY QUICK REACTION AND LACK OF TRAFFIC
AT THE TIME, BUT THE SITUATION WAS VERY DANGEROUS AND
COULD HAVE BEEN MUCH MORE SO WITH HEAVIER TRAFFIC OR A
LESS AWARE DRIVER. LATER DIAGNOSIS AT THE CHEVROLET
DEALERSHIP
TOLD
ME
THAT
THE
CP4
FUEL
PUMP
DISINTEGRATED INSIDE. AFTER SPEAKING WITH THE DIESEL
TECHNICIAN AT THE DEALER I LEARNED THAT IT IS A VERY
COMMON PROBLEM AND THE REPAIR COMES WITH A $10,000
PRICE TAG. I WAS ALSO VERY SURPRISED THAT THERE HAS NEVER
BEEN A RECALL FOR THIS PROBLEM AND GM CONTINUED TO USE
THEM UNTIL 2017...7 YEARS! MY TRUCK IS A 2011 WITH ONLY 54K
MILES, AND THEY JUST FIXED A 2017 WITH ONLY 7K MILES! I HAVE
SINCE DONE A LOT OF RESEARCH FINDING HUNDREDS OF LOW
MILEAGE GM DURAMAX DIESEL BETWEEN 2011-2017 WITH THE
EXACT SAME FAILURE. I WAS ABLE TO GET THE BOTTOM OF THE
FAILURE ITSELF AND I FOUND THE FOLLOWING...THE BOSCH CP4
FUEL PUMPS THAT WERE USED IN THESE TRUCKS (ALSO FOUND IN
LATE FORD AND VW DIESELS) ARE MADE IN EUROPE TO DIFFERENT
SPECIFICATIONS. THE PUMPS RELY ON LUBRICANT FOUND IN DIESEL
#1 TO OPERATE SMOOTHLY AND LAST A LONG TIME. HERE IN THE U.S.
WE ONLY HAVE DIESEL #2 WHICH LACKS THAT LUBRICANT AND
CAUSES THE INTERNAL PARTS OF THE PUMP TO DISINTEGRATE
SENDING METAL SHAVINGS THROUGHOUT THE ENTIRE FUEL
SYSTEM. THIS IS WHY THE REPAIR AVERAGES $10,000 ACROSS THE
COUNTRY, THE ENTIRE FUEL SYSTEM BECOMES CONTAMINATED
AND HAS TO BE REPLACED. I CONTACTED GM AND THEY DON'T
BELIEVE THIS IS A SAFETY ISSUE. A VEHICLE SUDDENLY DIEING
WITH SECONDS NOTICE ON THE FREEWAY IS CERTAINLY A SAFETY
38 NHTSA ID No. 11088735.
ISSUE IN MY EYES. ESPECIALLY WHEN IT'S A COMMON FAILURE THAT
CAN BE PREVENTED.”39
106.
Notably, in August 2014, GM issued an internal “Preliminary Information” service
bulletin to dealers—but not consumers—regarding the following vehicles equipped with the 6.6L
Duramax Diesel RPO codes LGH and LML: 2010-15 Chevrolet Express van, 2010-15 Chevrolet
Silverado, 2010-15 GMC Savana van, and the 2010-15 GMC Sierra.40 The bulletin’s subject was,
“Duramax Diesel Hard Start No Start P0087 P0088 P0191 P128E Or Injection Pump Replacement,”
and stated that if a customer with one of the aforementioned vehicles came into a dealership with “a
hard start or a no start” problem, and the normal diagnostic procedure led the dealer to conclude that
fuel injection pump replacement was necessary, “Fuel Pressure Regulator 1 must be inspected for
magnetic metal debris” as well.41 In other words, simply replacing the fuel injection pump would not
completely solve the problem because metal shavings would have contaminated the entire fuel
injection system. The bulletin directed dealers to remove the fuel injection pump and pressure
regulator and “inspect[] for magnetic metal debris,” and if metal debris was found, GM required its
dealers to retain the affected fuel system components which “will be requested back for an
engineering inspection.”42 The following photographs of a contaminated fuel pressure regulator
were provided as examples of the condition having manifested – and metal shavings can be seen
throughout:43
107.
Rather than issue a recall, in March 2017 GM went on to reissue the Preliminary
Information as Technical Service Bulletin #16-NA-102, expanding the affected model years to
include the 2016 model year.44
39 NHTSA ID No. 11150932 (emphasis added).
40 See Aug. 2014 GM Service Bulletin PIP4949D, Preliminary Information regarding “Duramax
Diesel Hard Start No Start P0087 P0088 P0191 P128E Or Injection Pump Replacement,” available at
https://static.nhtsa.gov/odi/tsbs/2014/SB-10044240-3551.pdf (last accessed Nov. 18, 2018).
41 Id. at 1.
42 Id. at 1, 3.
43 Id. at 2-3.
44 Mar. 2, 2017, GM Technical Service Bulletin #16-NA-102: Duramax Diesel Hard Start, No
Start, DTCs P0087, P0088, P0191, P128E or Injection Pump Replacement, Document ID: 4474673,
108.
Tellingly, GM stopped equipping the Class Vehicles with the CP4 pump after the
2016 model year, opting instead for the Denso HP4 fuel injection pump45 – a design that has been
available for medium and large-sized trucks since at least the 2004 model year.46
available at https://f01.justanswer.com/Bluegorilla/53288260-1d95-4c61-94ef-
9cbd4868f4c1_My_Boot_Camp_printed_document.pdf (last accessed Nov. 18, 2018).
45 See, e.g., Nov. 1, 2017, “Everything You Need to Know About the 2017 Silverado HDS,”
Ultimate Diesel Builder’s Guide, available at https://www.pressreader.com/usa/ultimate-diesel-
builders-guide/20171101/281535111145444 (last accessed Nov. 18, 2018) (“Breaking away from
Bosch for the first time, the [2017] L5P Duramax makes use of a high-pressure common-rail fuel
system from Denso. At the heart of the system rests a Denso HP4 injection pump. . .”).
46 See, e.g., Sept. 2007 Denso Diesel Injection Pump Service Manual for Common Rail System
(CRS) Operation, Sec. 1.5 (“Common Rail System And Supply Pump Transitions”), available at
http://steldiesel.ru/files/crdensoservismanual.pdf (last accessed Nov. 18, 2018) (“In 2004, the three-
cylinder HP4 based on the HP3 was introduced”); Dec. 2013 Denso Diesel Systems & Diagnostics,
Technical News Bulletin, Issue 1, at 1, available at
http://www.denso.ro/media/151806/2013_technical-service-bulletin_no-01.pdf (last accessed Nov.
18, 2018) (showing different types of Denso high-pressure pumps and their range of applications,
including the HP4, beginning in the 2004 2nd Generation Common Rail System).
E.
Supposed “Remedies” are Insufficient and Costly.
109.
Because of its incompatibility with U.S. diesel fuel, CP4 pumps and corresponding
fuel injection systems, even when replaced or “fixed,” will continue to fail in the Class Vehicles.
Indeed, in a June 2010 email chain between Bosch and representatives of Audi and Volkswagen
regarding the failure of a CP4 pump in a 2010 Audi A3 TDI, Audi asked Bosch, “[W]hy are the
defects mentioned below still present after replacing the high-pressure pump and the injector? What
could the [dealer] have done wrong by way of incorrect repair so that such defects are appearing?”
Bosch responded that “In this case the complete fuel system (HPP, rail, injectors, all lines) need to be
changed. . . . I assume that because of the ‘cruncher,’ the entire system is contaminated with chips,
which are then pumped in circulation and can soon lead to the next failure! The rough running can be
explained by the fact that a chip is already present before or in the injector and is impairing its
function.”47
110.
The Bosch CP4 Pump problem is so prevalent that several automotive manufacturers
now provide kits to mitigate the inevitable harm. “Disaster Preventer Kits” or “bypass kits” usually
47 Mar. 7, 2011 Bosch submission to NHTSA in response to Inquiry No. INRD-EA11003,
document entitled, “INRD-EA11003-59347P.pdf,” at 79-80 (Jun. 7-9, 2010 email chain between
Bosch, Audi, and Volkswagen representatives regarding CP4 fuel pump failure falsely attributed to
“misfuel”).
refer to a fuel bypass system that does not prevent the failure, the loss of the expensive injection
pump, or the need to clean metal shavings from the fuel system. But these kits are designed to
redirect the lubricating fuel for the CP4 back to the fuel tank, so that it will be filtered before it
returns to the engine. The bypass kit directs the fuel contaminated with metal shavings into the gas
tank, which is less expensive to clean than the engine and high-pressure fuel system – in other words,
a “Band-Aid” solution. These bypass kits are also less expensive than more complete remedies,
requiring only $300-$400 in parts, and are marketed as having the ability to “[p]revent CP4 failures
from contaminating the high pressure fuel system.”48 Many consumers have turned to this sort of
remedy preemptively due to the known impending failures their vehicles are facing.
111.
Another method of addressing the Bosch CP4 Pump failure is to modify the Class
Vehicles to return to the older, more reliable technology of simply using more fuel. With Duramax
engines, the strategy may be simply to buy a predecessor CP3 pump from an independent automotive
parts vendor and install it in place of the Bosch CP4 Pump. Indeed, the CP4 pump is so substandard
that many Class Vehicle owners have opted to replace their CP4 pumps with CP3 pumps at a cost of
at least $3,000 per vehicle for the replacement parts alone.49 Resorting to this “remedy” fails to make
consumers whole because they are not getting the fuel efficiency promised with the Bosch CP4
Pump, and for which they paid a premium. Further, consumers are having to pay thousands of
48 Online sales listing for “2011-2016 LML CP4 Fuel Bypass Kit,” PerformanceFueled.com,
available at http://performancefueled.com/cp4-fuel-bypass-kit/ (last accessed Nov. 16, 2018).
49 See, e.g., http://www.engineered-diesel.com/lml-duramax-cp3-conversion-kit-with-re-
calibrated-pump-50-state-carb-certified (selling “LML Duramax CP3 Conversion Kit with re-
calibrated Pump[s]” for $3,000.00 and noting that the “[k]it is designed to replace the less reliable
CP4 that comes stock on the LML”); https://www.dieselpowerproducts.com/p-15627-industrial-
injection-436403-cp4-to-cp3-injection-pump-conversion-kit-tuning-required-11-16-66l-gm-
duramax-lml.aspx (selling an “Industrial Injection CP4 to CP3 Injection Pump Conversion Kit” for
2011-2016 6.6L GM Duramax LML and noting, “With the release of the LML Duramax in 2011,
GM made the switch from the reputable CP3 injection pump to the lower output CP4 pump, simply
because they deemed it was ‘good enough.’ Is ‘good enough’ good enough for you and your truck?
We’ve seen numerous failures on the CP4 on stock trucks, let alone even slightly modified trucks
that chew them up and spit them out. Industrial Injection has this complete conversion kit that
delivers everything you need to swap out your failure prone CP4 to a dependable CP3”).
dollars out of pocket to essentially redesign a design flaw that was implemented by GM in the Class
Vehicles.
112.
Another potential “remedy” is to leave the CP4 in place on the Class Vehicle, but
install a lift pump, a second pump to assist the Bosch CP4 Pump and increase the fuel pressure. But,
again, this “remedy” deprives consumers of the fuel-efficiency for which they paid a premium.
113.
The lift pump and CP3 pump options remedy part of the problem by pumping and
burning more fuel. So, in addition to the expense of buying a new fuel injection pump, the
“remedies” would require owners to purchase more fuel.
114.
A fourth way to mitigate the damage is to spend money for fuel additives to increase
the lubricity of the fuel. This approach may work best in conjunction with the previously discussed
modifications, but even by itself, it can be expensive.
115.
In short, there is no known way to remedy or mitigate CP4 pump failure without
decreasing the fuel efficiency promised to Plaintiffs and other Class members and without significant
expense to Plaintiffs and other Class members.
F.
GM Knew Durability and Superiority Were Material to Consumers and Made Hollow
Promises of Durability and Superiority.
116.
When it first came on the scene in 2010, GM announced that its new 6.6 liter
Duramax V-8 diesel engine for 2011 model year Chevrolet Silverado and GMC Sierra heavy duty
trucks would be 11 percent more fuel efficient than its previous Duramax diesel engines, with “a
mind-blowing 765 pounds-feet of torque.”50 In a press release, GM’s chief Duramax engineer, Gary
Arvan, proclaimed, “[W]e’ve enhanced the Duramax to make it one of the most competitive engines
in the segment – one that takes performance and fuel economy to the next level. Whether it’s a new
Sierra Denali HD or an ambulance based on a Sierra chassis cab, customers will find the Duramax is
the power behind the greater capability these trucks offer.”51
50 Mar. 9, 2010, “GM Announces Best-in-Class Power Figures for 2011 6.6-liter Duramax V-8
Diesel,” PickupTrucks.com, available at https://news.pickuptrucks.com/2010/03/gm-announces-best-
in-class-power-figures-for-2011-duramax-v8-diesel.html (last accessed Nov. 17, 2018).
51 Mar. 10, 2010, “GMC’s 2011 Heavy-Duty Trucks Build on Proven Heritage with New
Duramax 6.6L Turbo Diesel Engines,” GM Pressroom, available at
117.
GM’s 2011 Chevrolet Silverado HD truck brochure boasted of an eleven-percent
increase in fuel efficiency while claiming the durability of its predecessors, “PROVEN
DURABILITY[:] The Duramax-Allison combination continues to build on its proven reliability.”
118.
GM’s 2011 Chevrolet Silverado HD brochure further emphasized that GM had
“engineered the new 2011 Silverado HD with durable, advanced technology that makes this
[their] most powerful heavy-duty ever.” GM also provided an express “100,000 mile/5-year
Powertrain Warranty to guarantee the quality.” The brochure further stated “[t]he new Silverado HD.
From Chevrolet – the most dependable, longest-lasting full-size pickups on the road.”
119.
Moreover, this brochure expressly stated that the Duramax diesel engine in the 2011
Silverado could run on “B20 biodiesel. . . which is composed of 20% biodiesel mixed with regular
diesel:”52
https://media.gm.com/media/us/en/gmc/vehicles/sierra_hd/2011.detail.html/content/Pages/news/us/e
n/2010/Mar/0310_gmc_sierra_hd/0310_duramax.html (last accessed Nov. 17, 2018).
52 2011 Chevrolet Silverado HD Vehicle Brochure, at 5, available at http://www.auto-
brochures.com/makes/Chevrolet/Silverado/Chevrolet_US%20SilveradoHD_2011.pdf (last visited
Nov. 16, 2018).
120.
Likewise, for the 2012 GMC Sierra HD, GM actively touted the Duramax diesel
engine’s “advanced” high-pressure diesel direct injection system “that helps it start in as little as 3.0
seconds . . . [and] can give you a maximum highway range of up to 680 miles on a single fill-up,
thanks to its extra-large 36-gallon fuel tank:”53
53 2012 GMC Sierra Vehicle Brochure, at 28, available at
https://cdn.dealereprocess.net/cdn/brochures/gmc/2012-sierra.pdf (last accessed Nov. 16, 2018).
121.
GM’s 2012 Chevrolet Silverado HD brochure highlights the “dependable, long-lasting
workhorse of a truck that comes with the best coverage of any size pickup –a 100,000 MILE/5-
YEAR POWERTRAIN WARRANTY. Because [they know] it’s one thing to talk quality and quite
another to back it up:”54
54 2012 Chevrolet Silverado Vehicle Brochure, at 3, available at
https://cdn.dealereprocess.net/cdn/brochures/chevrolet/2012-silveradohd.pdf (last accessed Nov. 16,
2018).
122.
GM’s 2013 Chevrolet Silverado HD brochure underlined the depth of their heritage
and passion for what they do at Chevrolet. Chevrolet’s brochure indicated that it is “ingrained in the
bold design, spirited performance, proven durability, and exceptional value [their] drivers enjoy.”55
Moreover, GM touted its 2013 1500 HD trucks as the “most dependable[,] longest-lasting full-size
pickups on the road:”56
55 2013 Chevrolet Silverado Vehicle Brochure, at 2, available at
https://cdn.dealereprocess.net/cdn/brochures/chevrolet/2013-silverado1500.pdf (last accessed Nov.
16, 2018).
56 Id. at 4 (last accessed Nov. 16, 2018).
123.
GM’s 2014 Chevrolet Silverado HD brochure emphasized that consumers could
“EXPECT THE BEST” and guaranteed that, “every Silverado 2500HD and 3500HD is backed by
the Best Pickup Coverage in America, including a 100,000-mile/5-year Powertrain Limited Warranty
and 24,000-mile/2-year scheduled maintenance. That’s long-lasting dependability you can believe
in:”57
57 2014 Chevrolet Silverado HD Vehicle Brochure, at 2, available at
https://cdn.dealereprocess.net/cdn/brochures/chevrolet/2014-silverado2500hd.pdf (last accessed Nov.
16, 2018).
124.
For the 2015 Chevrolet Silverado HD, which GM touted as “our most advanced
heavy-duty pick-up ever,” GM’s vehicle brochure proclaimed, “You don’t get to be part of the most
dependable, longest-lasting full-size pickups on the road by tampering with what works. You build
on proven success. You make your best even better:”58
58 2015 Chevrolet Silverado HD Vehicle Brochure, at 3, available at
https://www.gmcertified.com/PDFs/ModelLibrary/Chevrolet/Silverado%20HD/2015-Chevrolet-
Silverado-HD.pdf (last accessed Nov. 16, 2018).
125.
Likewise, GM touted the longevity and reliability of the Duramax 6.6L Turbo-Diesel
engines in 2016 Chevrolet Silverado HD 2500 and 3500 vehicles by proclaiming that, “There are
over 1 million Duramax diesels with Allison transmissions on the road today with over 100 billion
miles of experience. . . . [The] Duramax Turbo-Diesel engine lets Silverado HD offer you best-in-
class maximum conventional towing capability. That’s power you can trust to go the distance:”59
126.
GM similarly touted the capability of the 2011 Chevrolet Express van by noting that
its new 6.6L Duramax diesel engine had “up to 11-percent greater fuel economy” than previous
59 2016 Chevrolet Silverado HD Vehicle Brochure, at 9, available at
https://www.gmcertified.com/PDFs/ModelLibrary/Chevrolet/Silverado%20HD/2016-Chevrolet-
Silverado-HD.pdf (last accessed Nov. 17, 2018).
models, along with a “new 30,000-psi (2,000 bar) piezo-actuated fuel injection system – capable of
operating on ASTM grade B20 biodiesel – ensur[ing] more precise fuel delivery, improving emission
performance.”60
127.
Likewise, GM advertised the 2011 GMC Savana van as having a “new Duramax 6.6L
turbo diesel” engine that was “more fuel-efficient – up to 11-percent greater fuel economy than the
outgoing model,” as well as having a “new 30,000-psi (2,000 bar) piezo-actuated fuel injection
system – capable of operating on ASTM grade B20 biodiesel – ensur[ing] more precise fuel delivery,
improving emission performance.”61
128.
GM also provided an express 60-month, 100,000-mile written warranty with the Class
Vehicles it manufactured.
129.
GM has repeatedly refused to honor its warranties, deviously claiming that the metal
shavings caused by the failures of their pump design voided the warranty because they also caused
fuel contamination.
130.
Despite the clear mismatch between the Bosch CP4 Pump and American diesel fuel,
GM has cleverly passed the $8,000.00–$20,000.00 cost of failure along to the consumer. GM’s
agents, specifically its dealerships, is oftentimes determining that CP4 pump failures are not under
warranty. The logic is that when a European-designed CP4 pump mists internal diesel engine
components, its innate incompatibility with less American diesel produces damaging levels of metal-
on-metal friction, launching metal debris into the high-pressure fuel system and the engine.
Warranties do not cover the use of contaminated fuel. Because the fuel is now contaminated with
metal from the pump, the repairs are for fuel contamination and are not covered by the warranties.
60 “2011 Chevrolet Express Offers Powerful Duramax Diesel in 3500 Passenger Vans, Greater
Connectivity,” GM Pressroom, available at
https://media.gm.com/media/us/en/chevrolet/vehicles/express-psgr/2011.html (last accessed Nov. 17,
2018).
61 “2011 GMC Savana Offers Powerful Duramax Diesel in 3500 Passenger Vans, Greater
Connectivity,” GM Pressroom, available at
https://media.gmc.com/media/us/en/gmc/vehicles/savana/2011.html (last accessed Nov. 17, 2018).
131.
GM induced Plaintiffs and other Class members to pay a premium for increased
durability, performance and fuel efficiency, with a design GM has long known would cause fuel
contamination—a condition GM now uses to absolve itself of the catastrophic and costly
consequences to Plaintiffs and other Class members.
VI.
TOLLING OF THE STATUTE OF LIMITATIONS
132.
As of the date of this Complaint, GM continues to market the Class Vehicles based on
superior durability, performance, and fuel efficiency, despite its knowledge that the Class Vehicles
are defective and have failed or will fail—in fact, GM still has not disclosed and continues to conceal
that the Class Vehicles are defective, incompatible with American diesel fuel, and will experience
catastrophic and costly failure.
133.
Until shortly before the filing of this Complaint, Plaintiffs and other Class members
had no way of knowing about GM’s wrongful and deceptive conduct with respect to their defective
Class Vehicles.
134.
With respect to Class Vehicles that have not experienced CP4 pump failure, Plaintiffs
and other Class members did not discover and could not reasonably have discovered that their Class
Vehicles are defective, that their Class Vehicles are out of specification and incompatible with
American diesel fuel, that this incompatibility has resulted in the breakdown of fuel components and
contamination of fuel caused by the defective CP4 fuel pump, that their CP4 fuel pumps will fail,
that the durability and performance of their Class Vehicles is impaired by this defect and
incompatibility and that such durability and performance is far less than GM promised, or that, as a
result of the foregoing, they overpaid for their vehicles, the value of their vehicles is diminished,
and/or their vehicles will require costly modification to avoid a catastrophic, even more costly
failure, and that any such modifications will impair other qualities of the Class Vehicles that formed
a material part of the bargain between the parties in the purchase of the Class Vehicles by Plaintiffs
and other Class members.
135.
With respect to Class Vehicles that have experienced CP4 pump failure prior to the
filing of this Complaint, Plaintiffs and other Class members did not discover and could not
reasonably have discovered that their CP4 pump failure was due to a defect known to GM or that
such failure was due to an incompatibility between the Class Vehicle and the fuel intended by GM to
be used in the Class Vehicles.
136.
Within the period of any applicable statutes of limitation or repose, Plaintiffs and
members of the proposed classes could not have discovered through the exercise of reasonable
diligence that GM was concealing the conduct complained of herein and misrepresenting the
defective nature of the Class Vehicles.
137.
Plaintiffs and other Class members did not discover, and did not know of, facts that
would have caused a reasonable person to suspect that GM did not report information within their
knowledge to consumers, dealerships, or relevant authorities; nor would a reasonable and diligent
investigation have disclosed that GM was aware of the non-conforming and defective nature of the
CP4 fuel pump and the Class Vehicles in which it was incorporated. Plaintiffs only learned of the
defective nature of the CP4 fuel injection pump and their vehicles, and of GM’s scheme to design
and sell such non-conforming and defective fuel pumps and vehicles, shortly before this action was
filed.
138.
All applicable statutes of limitation and repose have also been tolled by GM’s
knowing, active, and fraudulent concealment, and denial of the facts alleged herein throughout the
period relevant to this action.
139.
Instead of disclosing the defective nature of the CP4 fuel pumps to consumers, GM
falsely represented that CP4 pump failure in the Class Vehicles was caused by Plaintiffs’ or other
Class members’ conduct or by the use of contaminated fuel.
140.
In reality, GM’s conduct in designing, manufacturing, marketing, or selling Class
Vehicles for use with American diesel fuel, with which GM knew the Class Vehicles were
incompatible, causes the “fuel contamination” that ultimately leads to CP4 pump failure.
141.
GM, with the purpose and intent of inducing Plaintiffs and other Class members to
refrain from filing suit, pursuing warranty remedies, or taking other action with respect to GM’s
conduct or the Class Vehicles, fraudulently concealed the true cause of CP4 pump failure by blaming
Plaintiffs, Class members, and/or contaminated fuel when GM, even before the design, manufacture,
or sale of the Class Vehicles, knew that the defective nature of the Bosch CP4 Pump would and has
caused fuel contamination and resulting CP4 pump failure.
142.
GM was under a continuous duty to disclose to Plaintiffs and other Class members the
true character, quality, and nature of the durability and performance of Class Vehicles, the ongoing
process of fuel contamination in Class Vehicles, CP4 pump failure, and the true cause of CP4 pump
failure. Instead, GM knowingly, affirmatively, and actively concealed or recklessly disregarded the
foregoing facts. As a result, GM is estopped from relying on any statutes of limitation or repose as a
defense in this action.
143.
For the foregoing reasons, all applicable statutes of limitation and repose have been
tolled by operation of the discovery rule and by GM’s fraudulent concealment with respect to all
claims against GM; and, GM is estopped from asserting any such defenses in this action.
VII.
CLASS ACTION ALLEGATIONS
144.
Throughout this Complaint, “Class Vehicle” is defined as any GM-brand vehicle
fitted at any time with a Bosch CP4 fuel pump.
145.
This is a class action brought pursuant to Federal Rule of Civil Procedure 23 on
behalf of the following Class:
All persons or entities in the state of California who are current owners and/or
lessees, and/or former owners and/or lessees who incurred expenses related to
engine or fuel pump repair, of the following vehicles:
o 2011–2016 2500HD Silverado 6.6L V8 Duramax Diesel Trucks with
LML engines;
o 2011–2016 3500HD Silverado 6.6L V8 Duramax Diesel Trucks with
LML engines;
o 2011–2016 2500HD Sierra 6.6L V8 Duramax Diesel Trucks with LML
engines;
o 2011–2016 3500HD Sierra 6.6L V8 Duramax Diesel Trucks with LML
engines;
o 2010–2011 Chevrolet Express van with Duramax LGH engines;
o 2010–2011 GMC Savana van with Duramax LGH engines;
o 2010–2011 GMC Sierra trucks with RPO ZW9 (chassis cabs or trucks
with pickup box delete) with Duramax LGH engines;
o 2011–2012 2500HD 3500 Silverado 6.6L V8 Duramax Diesel Trucks
with LGH engines; and
o 2011–2012 2500HD 3500 Sierra 6.6L V8 Duramax Diesel Trucks
with LGH engines.
146.
Excluded from the Class are individuals who have personal injury claims resulting
from a CP4 fuel injection pump failure. Also excluded from the Class are GM and its officers,
directors, affiliates, legal representatives, employees, co-conspirators, successors, subsidiaries, and
assigns, as well as any entity in which GM has a controlling interest. In addition, Governmental
entities and any judge, justice, or judicial officer presiding over this matter and the members of their
immediate families and judicial staff are excluded from the Class. Plaintiffs reserve the right to
revise the Class definition based upon information learned through discovery.
147.
Certification of Plaintiffs’ claims for class-wide treatment is appropriate because
Plaintiffs can prove the elements of their claims on a class-wide basis using the same evidence as
would be used to prove those elements in individual actions alleging the same claim.
148.
The Class Representatives are asserting claims that are typical of claims of the Class,
and they will fairly and adequately represent and protect the interests of the Class in that they have
no interests antagonistic to those of the putative Class members.
149.
The amount of damages suffered by each individual member of the Class, in light of
the expense and burden of individual litigation, would make it difficult or impossible for individual
Class members to redress the wrongs done to them. Plaintiffs and other members of the Class have
all suffered harm and damages as a result of GM’s unlawful and wrongful conduct. Absent a class
action, GM will likely not have to compensate victims for GM’s wrongdoings and unlawful acts or
omissions, and will continue to commit the same kinds of wrongful and unlawful acts or omissions
in the future.
150.
Numerosity under Federal Rule of Civil Procedure 23(a)(1): The Class is so
numerous that individual joinder of all of its members is impracticable. Due to the nature of the
trade and commerce involved, Plaintiffs believe that the total number of Class Plaintiffs is at least in
the thousands, and are numerous and geographically dispersed across California. While the exact
number and identities of the Class members are unknown at this time, such information can be
ascertained through appropriate investigation and discovery, as well as by the notice Class members
will receive by virtue of this litigation so that they may self-identify. The disposition of the claims of
Class members in a single class action will provide substantial benefits to all Parties and the Court.
Members of the Class may be notified of the pendency of this action by recognized, Court-approved
notice dissemination methods, which may include U.S. Mail, electronic mail, Internet postings,
and/or published notice. The number of persons for whom this action is filed who are citizens of
California effectively exhausts the membership of the class, with the potential exception of some
few, but unknown, transients in California or residents of California who happen to be citizens of
other states.
151.
Commonality and Predominance under Federal Rule of Civil Procedure 23(a)(2)
and 23(b)(3): This action involves common questions of law and fact which predominate over any
questions affecting individual Class members, including, without limitation:
a.
Whether GM engaged in the conduct alleged herein;
b.
Whether GM knew about the CP4 defect and the inherent problems related
thereto when said component part is used with American diesel fuel, and if so, how long GM
knew or should have known as much;
c.
Whether GM designed, advertised, marketed, distributed, leased, sold, or
otherwise placed the defective Class Vehicles into the stream of commerce in the United
States;
d.
Whether the GM diesel engine systems that are the subject of this complaint
are defective such that they are not fit for ordinary consumer use;
e.
Whether GM omitted material facts about the quality, durability, fuel
economy, and vehicle longevity of the Class Vehicles;
f.
Whether GM designed, manufactured, marketed, and distributed Class
Vehicles with defective or otherwise inadequate fuel injection systems;
g.
Whether GM’s conduct violates California consumer protection statutes, and
constitutes breach of contract or warranty and fraudulent concealment, as asserted herein;
h.
Whether Plaintiffs and the other Class members overpaid for their vehicles at
the point of sale; and
i.
Whether Plaintiffs and the other Class members are entitled to damages and
other monetary relief and, if so, what amount.
152.
Typicality under Federal Rule of Civil Procedure 23(a)(3): Plaintiffs’ claims are
typical of the other Class members’ claims because all have been comparably injured through GM’s
wrongful conduct as described above.
153.
Adequacy of Representation under Federal Rule of Civil Procedure 23(a)(3):
Plaintiffs are adequate Class representatives because their interests do not conflict with the interests
of the other Class members they seek to represent. Additionally, Plaintiffs have retained counsel
with substantial experience in handling complex class action and multi-district litigation. Plaintiffs
and their counsel are committed to prosecuting this action vigorously on behalf of the Class and have
the financial resources to do so. The interests of the Class will be fairly and adequately protected by
Plaintiffs and their counsel.
154.
Superiority of Class Action under Federal Rule of Civil Procedure 23(b)(3): A
class action is superior to any other available means for the fair and efficient adjudication of this
controversy, and no unusual difficulties are likely to be encountered in the management of this class
action. The financial detriment suffered by Plaintiffs and the other members of the Class are
relatively small compared to the burden and expense that would be required to individually litigate
their claims against GM’s wrongful conduct. Even if members of the Class could afford individual
litigation, the court system could not. Individualized litigation creates a potential for inconsistent or
contradictory judgments and increases the delay and expense to all parties and the court system. By
contrast, the class action device presents far fewer management difficulties and provides the benefits
of single adjudication, economy of scale, and comprehensive supervision by a single court.
VIII. CAUSES OF ACTION
CLAIMS BROUGHT ON BEHALF OF THE CLASS
AND ON BEHALF OF THE NAMED PLAINTIFFS
COUNT I
FRAUD BY CONCEALMENT
155.
Plaintiffs re-allege and incorporate the preceding paragraphs as though fully set forth
herein.
156.
Plaintiffs bring this Count individually and on behalf of the Class against GM.
157.
As set forth above, Plaintiffs and other Class members have suffered from a defect
that existed in the Class Vehicles which began damaging the Class Vehicles and their fuel delivery
systems upon the first use of the Class Vehicles. Plaintiffs and other Class members are seeking
recovery for this manifested defect and any and all consequential damages stemming therefrom.
158.
As alleged above, GM intentionally concealed and suppressed material facts
concerning the durability and performance of the Bosch CP4 Pump and (more importantly) facts
concerning the durability and performance of the Class Vehicles and their engines, in order to
defraud and mislead the Class about the true nature of the Class Vehicles.
159.
As alleged above, GM knew at least by 2002 that its fuel injection systems required
heightened lubricity, which was not met by American diesel fuel specifications.
160.
As alleged above, GM had specific knowledge by at least 2002 that their fuel
injection systems were incompatible with American diesel fuel specifications.
161.
As alleged above, prior to the design, manufacture, and sale of the Class Vehicles,
GM knew that the Bosch CP4 Pumps were expected to quickly fail in the Class Vehicles and that
such failure would result in contamination of the fuel system components and require repair and
replacement of those components, the repairs or replacements of which GM would refuse to cover
under their warranties.
162.
The foregoing omitted facts and representations were material because they directly
impacted the value of the Class Vehicles purchased or leased by Plaintiffs and other Class members,
because those facts directly impacted the decision regarding whether or not Plaintiffs and other Class
members would purchase a Class Vehicle, and because they induced and were intended to induce
Plaintiffs and other Class members to purchase a Class Vehicle.
163.
Despite this knowledge, GM marketed the Class Vehicles, touting the increased
durability and performance of the Class Vehicles.
164.
Due to their specific and superior knowledge that the Bosch CP4 Pumps in the Class
Vehicles will fail, and due to their false representations regarding the increased durability of the
Class vehicles, GM had a duty to disclose to Class members that their vehicles were incompatible
with the use of U.S. fuel, that the Bosch CP4 Pumps will fail in Class Vehicles, that Class Vehicles
do not have the expected durability over other diesel vehicles or of their namesake predecessor
engines, that failure of the Bosch CP4 Pumps will cause damage to Class Vehicle engines and engine
systems, and that Class members would be required to bear the cost of the damage to their vehicles.
165.
GM knew that Plaintiffs and other Class members reasonably relied upon GM’s false
representations and omissions. Plaintiffs and other Class members had no way of knowing that
GM’s representations and omissions were false and misleading, that the Class Vehicles were
incompatible with the fuel GM knew would be used to operate the Class Vehicles, that the normal
and intended use of the Class Vehicles will cause the Bosch CP4 Pumps to fail, or that GM would
refuse to repair, replace, or compensate Plaintiffs and other Class members for the failure of the
Bosch CP4 Pumps and the known consequences of that failure to the Class Vehicle engines.
166.
Plaintiffs and other Class members could not have known that the Class Vehicles,
which were touted by GM for their durability and performance, will fail when used as intended by
GM.
167.
GM knew that Plaintiffs and other Class members could not have known that Class
Vehicles will fail when used as intended by GM.
168.
GM falsely represented the durability of the Class Vehicles and omitted material facts
regarding the lack of durability of the Class Vehicles, the incompatibility of the Class Vehicles with
the fuel intended by GM to be used in the Class Vehicles, and the consequences of that
incompatibility, for the purpose of inducing Plaintiffs and other Class members to purchase Class
Vehicles, and to increase their revenue and profits.
169.
GM’s devious scheme to design, market, and sell Class Vehicles with defective CP4
pumps, knowing that U.S. fuel was certain to be used in the Class Vehicles and the consequence of
using U.S. diesel fuel in those vehicles, then concealing their fraudulent scheme from the public and
consumers over numerous model years, reveals a corporate culture that emphasized sales and profits
over integrity and an intent to deceive Plaintiffs, other Class members and the American public
regarding the durability and performance of the Class Vehicles and their fuel delivery systems.
170.
GM had a duty to disclose the incompatibility of Class Vehicles with U.S. diesel fuel,
including the consequences of that incompatibility, to Plaintiffs and Class members.
171.
Had Plaintiffs and other Class members known that the Class Vehicles did not have
increased durability over other diesel vehicles, the Class Vehicles were incompatible with the fuel
intended by Plaintiffs, the other Class members, and GM to be used in the Class Vehicles (without
which the Class Vehicles would serve no purpose to Plaintiffs and other Class members), or that the
Class Vehicles will fail when used as intended, Plaintiffs and other Class members would not have
purchased a Class Vehicle, or would have paid substantially less for their Class Vehicle based on
GM’s false representations and omissions, or, in the case of Plaintiffs and other Class members
whose vehicles experienced CP4 pump failure, would have taken affirmative steps to mediate the
impact of or prevent failure.
172.
Because of GM’s false representations and omissions, Plaintiffs and other Class
members have sustained damages because they own vehicles that are diminished in value as a result
of GM’s concealment of the true nature and quality of the Bosch CP4 Pump and the Class Vehicles.
173.
GM’s failure to disclose the incompatibility of the Class Vehicles with U.S. diesel
fuel was intended to cause and did cause Plaintiffs and other Class members to operate Class
Vehicles with U.S. fuel; and, as a result, certain Plaintiffs and other Class members have been
damaged by the failure of the Bosch CP4 Pumps and the resulting failure of Class Vehicle engines,
resulting in damages to Class members and Plaintiffs including but not limited to the cost of repair or
replacement of the CP4 fuel pump, the cost of damage caused to the Class Vehicles by the failure of
the CP4 fuel pump, loss of use of the Class Vehicles, loss of earnings, and other damages.
174.
Accordingly, GM is liable to Plaintiffs and other Class members for damages in an
amount to be proved at trial.
175.
GM’s acts were done wantonly, maliciously, oppressively, deliberately, with intent to
defraud, and in reckless disregard of Plaintiffs’ and other Class members’ rights, and the
representations made by GM to them were made in order to enrich GM. GM’s conduct warrants an
assessment of punitive damages in an amount sufficient to deter such conduct in the future, which
amount is to be determined according to proof.
COUNT II
VIOLATIONS OF THE CALIFORNIA UNFAIR COMPETITION LAW
(CAL. BUS. & PROF. CODE § 17200, ET SEQ.)
176.
Plaintiffs re-allege and incorporate the preceding paragraphs as though fully set forth
herein.
177.
Plaintiffs assert this Count individually and on behalf of the Class against GM.
178.
Plaintiffs have Article III standing to bring these claims for economic losses ensuing
from the defects in the Class Vehicles because, among other things and as alleged herein, the CP4
fuel pump defect involves a safety defect which presents an actual and/or imminent risk to vehicle
occupant safety; specifically, the risk of a moving stall, which is a known consequence of the CP4
fuel pump defect, presents a risk to occupant safety which GM has admittedly recognized through,
inter alia, its 2014 Ignition Switch Defect recalls in which GM recalled millions of vehicles for that
very risk. Put simply, defective cars are just not worth as much.62 Further, even without a safety
62 See, e.g., In re Toyota Motor Corp., 790 F. Supp. 2d 1152, 1163 (C.D. Cal. 2011) (“[O]nce the
safety defect is sufficiently and plausibly pled by all Plaintiffs, the economic losses resulting from
the defect are readily established: defective cars are simply not worth as much”).
issue, Plaintiffs overpaid at the point of sale as these vehicles have impaired performance due to the
defect.
179.
As set forth above, Plaintiffs and other Class members have suffered from a defect
that existed in the Class Vehicles which began damaging the Class Vehicles and their fuel delivery
systems upon the first use of the Class Vehicles. In this Count, Plaintiffs and other Class members
are seeking any and all relief available under Cal. Bus. & Prof. Code § 17200 et seq. for this
manifested defect and the consequences stemming therefrom, including restitution and injunctive
relief.
180.
California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq.,
proscribes acts of unfair competition, including “any unlawful, unfair or fraudulent business act or
practice and unfair, deceptive, untrue or misleading advertising.”
181.
GM’s conduct, as described herein, was and is in violation of the UCL. GM’s
conduct violates the UCL in at least the following ways:
a.
By failing to disclose that the CP4 high-pressure fuel injection pump is out of
specification for use with diesel fuel in the United States; that the fuel injection
system on the Class Vehicles destroys the reliability and durability of the
engine and its high-pressure fuel system, because the fuel injection pump will
run dry on the thinner, cleaner, less lubricating higher water content diesel used
in the United States; that the CP4 pump will emit shavings of metal that travel
throughout the engine and fuel injection system; and that eventually, the CP4
pump will fail catastrophically, requiring extensive repairs;
b.
By selling and leasing Class Vehicles that suffer from a defective Bosch CP4
fuel injection pump;
c.
By knowingly and intentionally concealing from Plaintiffs and the other Class
members that the Bosch CP4 Pumps would fail in the Class Vehicles when
used with American diesel fuel;
d.
By marketing Class Vehicles for their durability, reliability, and performance
when GM knew the Class Vehicles were incompatible with American fuel,
causing the “fuel contamination” that ultimately leads to CP4 pump failure;
and
e.
By violating other California laws, including California consumer protection
laws.
182.
GM intentionally and knowingly misrepresented material facts regarding the Class
Vehicles with an intent to mislead Plaintiffs and Class members.
183.
In purchasing or leasing the Class Vehicles, Plaintiffs and the other Class members
were deceived by GM’s failure to disclose the incompatibility of Class Vehicles with U.S. diesel fuel
and the fact that the Bosch CP4 fuel injection pumps were defective and have failed or will fail,
requiring extensive repairs.
184.
Plaintiffs and Class members were also deceived by GM’s portrayal of the Class
Vehicles as reliable, durable, containing the fuel efficiency and power expected of a diesel vehicle,
and compatible with American diesel fuel, even though GM knew: (1) the Class Vehicles were
incompatible with the use of U.S. fuel; (2) the Bosch CP4 pumps will fail in Class Vehicles; (3)
Class Vehicles do not have the expected durability over other diesel vehicles or of their namesake
predecessor engines; (4) failure of the Bosch CP4 Pumps will cause catastrophic damage to Class
Vehicle engines; and (5) that GM would require Plaintiffs and Class members to bear the cost of the
damage to their vehicles.
185.
Plaintiffs and Class members reasonably relied upon GM’s false misrepresentations in
making their decision to purchase their Class Vehicles. They had no way of knowing that GM’s
representations were false and gravely misleading. As alleged herein, GM engaged in extremely
sophisticated methods of deception. Plaintiffs and Class members did not, and could not, unravel
GM’s deception on their own.
186.
GM knew or should have known that its conduct violated the UCL.
187.
GM owed Plaintiffs and the Class a duty to disclose the incompatibility of Class
Vehicles with U.S. diesel fuel, including the consequences of that incompatibility, to Plaintiffs and
other Class members. Specifically, GM:
a.
Possessed exclusive knowledge that that the lower lubricity of American diesel
could cause catastrophic failure in Class Vehicles’ CP4 fuel injection system
components that are made to European diesel specifications;
b.
Intentionally concealed the foregoing from Plaintiffs and other Class members;
and/or
c.
Made incomplete representations that consumers’ improper use of
contaminated or substandard fuels damaged Class Vehicles’ fuel systems,
while purposefully withholding material facts from Plaintiffs and other Class
members that contradicted these representations.
188.
Plaintiffs and the other Class members relied on GM’s material representations and/or
omissions that the Class Vehicles they were purchasing were durable and reliable vehicles that were
compatible with American diesel fuel and free from defects.
189.
GM’s conduct proximately caused injuries to Plaintiffs and the other Class members.
190.
Plaintiffs and the other Class members were injured and suffered ascertainable loss,
injury-in-fact, and/or actual damage as a proximate result of GM’s conduct in that Plaintiffs and the
other Class members overpaid for their vehicles, and/or their vehicles have suffered a diminution in
value, and/or their vehicles will require costly modification to avoid a catastrophic, even more costly
failure, and that any such modifications will impair other qualities of the Class Vehicles that formed
a material part of the bargain between the parties in the purchase of the Class Vehicles by Plaintiffs
and other Class members. These injuries are the direct and natural consequence of GM’s
misrepresentations and omissions.
191.
GM’s misrepresentations and omissions alleged herein caused Plaintiffs and the other
Class members to purchase or lease the Class Vehicles. Absent those misrepresentations and
omissions, Plaintiffs and the other Class members would not have purchased or leased Class
Vehicles, would not have purchased or leased Class Vehicles at the prices they paid, and/or would
have purchased or leased less expensive alternative vehicles that did not contain a defective Bosch
CP4 fuel injection pump that was incompatible with American diesel fuel. Accordingly, Plaintiffs
and the other Class members have suffered injuries in fact, including lost money or property, as a
result of GM’s misrepresentations and omissions.
192.
Plaintiffs seek to enjoin further unlawful, unfair, and/or fraudulent acts or practices by
GM under Cal. Bus. & Prof. Code § 17200.
193.
Plaintiffs request that this Court enter such orders or judgments as may be necessary
to restore to Plaintiffs and members of the Class any money GM and/or its affiliates, subsidiaries,
agents, et al., acquired by unfair competition, including restitution and/or restitutionary
disgorgement, as provided in Cal. Bus. & Prof. Code § 17203 and Cal. Civ. Code § 3345; and for
such other as may be appropriate.
COUNT III
VIOLATIONS OF THE CONSUMER LEGAL REMEDIES ACT (“CLRA”)
(CAL. CIV. CODE § 1750, ET SEQ.)
194.
Plaintiffs re-allege and incorporate the preceding paragraphs as though fully set forth
herein.
195.
Plaintiffs intend to bring this Count individually and on behalf of the Class against
GM.
196.
Plaintiffs intend to assert a claim under the Consumer Legal Remedies Act, Cal. Civ.
Code § 1750, et seq. (“CLRA”), which prohibits “unfair or deceptive acts or practices undertaken by
any person in a transaction intended to result or which results in the sale or lease of goods or services
to any consumer[.]” Cal. Civ. Code § 1770(a). Plaintiffs will make a demand in satisfaction of the
Act and may amend this Complaint to Assert claims under the Act once thirty (30) days have elapsed
from the time the demand is made. Plaintiffs and other Class members have suffered from a defect
that existed in the Class Vehicles which began damaging the Class Vehicles and their fuel delivery
systems upon the first use of the Class Vehicles. Plaintiffs and other Class members intend to seek
appropriate relief under the CLRA for this manifested defect and any and all consequential damages
stemming therefrom. This paragraph is included for purposes of notice only and is not intended to
actually assert a claim under the CLRA.
COUNT IV
UNJUST ENRICHMENT
197.
Plaintiffs re-allege and incorporate the preceding paragraphs as though fully set forth
herein.
198.
Plaintiffs bring this Count individually and on behalf of the Class against GM.
199.
As set forth above, Plaintiffs and other Class members have suffered from a defect
that existed in the Class Vehicles which began damaging the Class Vehicles and their fuel delivery
systems upon the first use of the Class Vehicles. Plaintiffs and other Class members are seeking
recovery for this manifested defect and any and all consequential damages stemming therefrom.
200.
As a result of its wrongful and fraudulent acts and omissions, as set forth herein,
pertaining to the defects in the Bosch CP4 Pump and the Class Vehicles and the concealment thereof,
GM charged a higher price for the Class Vehicles than the Vehicles’ true value and GM, therefore,
obtained monies that rightfully belong to Plaintiffs and other Class members.
201.
GM has benefitted from manufacturing, selling, and leasing at an unjust profit
defective Class Vehicles whose value was artificially inflated by GM’s concealment of the defective
nature of the CP4 fuel pump and of the Class Vehicles, and false representations related thereto.
202.
GM enjoyed the benefit of increased financial gains, to the detriment of Plaintiffs and
other Class members, who paid a higher price for their vehicles that actually had lower values.
203.
GM has received and retained unjust benefits from the Plaintiffs and other Class
members, and inequity has resulted.
204.
It would be inequitable and unconscionable for GM to retain these wrongfully
obtained benefits.
205.
Because GM concealed its fraud and deception, Plaintiffs and other Class members
were not aware of the true facts concerning the Class Vehicles and did not benefit from GM’s
misconduct.
206.
GM knowingly accepted and retained the unjust benefits of its fraudulent conduct.
207.
As a result of GM’s misconduct, the amount of its unjust enrichment should be
disgorged and returned to Plaintiffs and other Class members, in an amount to be proven at trial.
208.
Plaintiffs and other Class members, therefore, seek an order establishing GM as a
constructive trustee of the profits unjustly obtained, plus interest.
COUNT V
BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY
(CAL. COM. CODE §§ 2314 AND 10212)
209.
Plaintiffs re-allege and incorporate the preceding paragraphs as though fully set forth
herein.
210.
Plaintiffs bring this Count individually and on behalf of the Class against GM.
211.
As set forth above, Plaintiffs and other Class members have suffered from a defect
that existed in the Class Vehicles which began damaging the Class Vehicles and their fuel delivery
systems upon the first use of the Class Vehicles. Plaintiffs and other Class members are seeking
recovery for this manifested defect and any and all consequential damages stemming therefrom.
212.
A warranty that the Class Vehicles were in merchantable condition and fit for the
ordinary purpose for which the vehicles are used is implied by law pursuant to Cal. Com. Code
§§ 2314 and 10212. “The core test of merchantability is fitness for the ordinary purpose for which
such goods are used. Such fitness is shown if the product is in safe condition and substantially free
from defects.” Isip v. Mercedes-Benz, USA, LLC, 155 Cal. App. 4th 19, 26 (2007); see also Mexia v.
Rinker Coat Co., Inc., 174 Cal. App. 4th 1291 (2009). Thus, “where a car can provide safe, reliable
transportation, it is generally considered merchantable.” Am. Suzuki Motor Corp. v. Superior Court,
37 Cal. App. 4th 1291 (1995). As demonstrated herein, the Class Vehicles are not substantially free
from defects; the Class Vehicles contain an existing, manifested defect which is certain to continue
to destroy the engines and other fuel system components and which renders the Class Vehicles
unreliable.
213.
GM is and was at all times a “merchant” with respect to motor vehicles under Cal.
Com. Code §§ 2104(1) and 10103(c), and a “seller” of motor vehicles under § 2103(1)(d).
214.
With respect to leases, GM is and was at all relevant times a “lessor” of motor
vehicles under Cal. Com. Code § 10103(a)(16).
215.
The Class Vehicles are and were at all relevant times “goods” within the meaning of
Cal. Com. Code §§ 2105(1) and 10103(a)(8).
216.
A warranty that the Class Vehicles were in merchantable condition and fit for the
ordinary purpose for which the vehicles are used is implied by law pursuant to Cal. Com. Code
§§ 2314 and 10212.
217.
The Class Vehicles, when sold or leased and at all times thereafter, were not in
merchantable condition and are not fit for the ordinary purpose for which vehicles are used.
Specifically, the Class Vehicles are incompatible with the use of American diesel fuel (the fuel GM
intended and expected Plaintiffs and other Class members to use) in that use of American diesel fuel
(the only fuel reasonably available to Plaintiffs and other Class members) causes a breakdown of the
CP4 fuel pump (a condition that GM knew would occur prior to its design and sale of the Class
Vehicles), resulting in fuel contamination, ultimate and catastrophic failure of the Bosch CP4 Pump,
and contamination and failure of other components in the Class Vehicle fuel delivery system.
218.
It was reasonable to expect that Plaintiffs may use, consume, or be affected by the
defective vehicles, regardless of contractual privity with GM.
219.
The Class Vehicles contained an inherent defect that was substantially certain to result
in malfunction during the useful life of the product.
220.
Plaintiffs were and are third-party beneficiaries to the defendant manufacturer’s
contracts with GM-certified/authorized retailers who sold the Class Vehicles to Plaintiffs.63
63 See In re Nexus 6P Prod. Liab. Litig., 293 F. Supp. 3d 888, 922 (N.D. Cal. 2018) (“[California
law] allow[s] plaintiffs to bring implied warranty claims in the absence of privity if the plaintiff
shows that he was a beneficiary to a contract between the defendant and a third party.”); id. (internal
221.
In addition, or in the alternative, Plaintiffs directly relied upon Defendant GM’s
advertising, as alleged above.64
222.
GM was provided notice of these issues within a reasonable time of Plaintiffs’
knowledge of the non-conforming or defective nature of the Class Vehicles, by letters from
Plaintiffs’ counsel, on behalf of Plaintiffs, to GM, complaints by Plaintiffs or Class members to GM
either orally or in writing, complaints to GM dealerships, intermediate sellers, or repair facilities
either orally or in writing, presentation of the vehicles for repair to dealerships or to intermediate
sellers or repair facilities, countless consumer complaints to NHTSA regarding the defect that is the
subject of this Complaint, and/or by the allegations contained in this Complaint.
223.
As a direct and proximate result of GM’s breach of the implied warranty of
merchantability, Plaintiffs and other Class members have been damaged in an amount to be proven at
trial.
COUNT VI
VIOLATION OF THE MAGNUSON-MOSS WARRANTY ACT,
(15 U.S.C. § 2301, ET SEQ.)
224.
Plaintiffs re-allege and incorporate the preceding Paragraphs as though fully set forth
herein.
225.
Plaintiffs bring this Count individually and on behalf of the Class against GM.
226.
As set forth above, Plaintiffs and other Class members have suffered from a defect
that existed in the Class Vehicles which began damaging the Class Vehicles and their fuel delivery
citations omitted) (“Because third party beneficiary status is a matter of contract interpretation, a
person seeking to enforce a contract as a third party beneficiary must plead a contract which was
made expressly for his [or her] benefit and one in which it clearly appears that he [or she] was a
beneficiary.”); In re MyFord Touch Consumer Litig., 46 F. Supp. 3d 936, 983 (N.D. Cal. 2014)
(internal citations omitted) (“[T]here is an exception to the privity requirement that applies when a
plaintiff is the intended beneficiary of implied warranties in agreements linking a retailer and a
manufacturer”).
64 See Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1023 (9th Cir. 2008) (holding that, for
purposes of a breach of implied warranty claim, a Plaintiff need not stand in vertical contractual
privity with the defendant when the plaintiff relies on written labels or advertisements of a
manufacturer).
systems upon the first use of the Class Vehicles. Plaintiffs and other Class members are seeking
recovery for this manifested defect and any and all consequential damages stemming therefrom.
227.
This Court has jurisdiction to decide claims brought under 15 U.S.C. § 2301 by virtue
of 28 U.S.C. § 1332(a)–(d).
228.
The Class Vehicles manufactured and sold by GM are “consumer products” within
the meaning of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(1).
229.
Plaintiffs and other Class members are “consumers” within the meaning of the
Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(3). They are consumers because they are persons
entitled under applicable state law to enforce against the warrantors the obligations of their implied
warranties.
230.
GM was a “supplier” and “warrantor” within the meaning of the Magnuson-Moss
Warranty Act, 15 U.S.C. § 2301(4)–(5).
231.
GM provided Plaintiffs and other Class members with an implied warranty of
merchantability in connection with the purchase or lease of the Class Vehicles, that is an “implied
warranty” within the meaning of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(7). As a part
of the implied warranty of merchantability, GM warranted that the Class Vehicles were fit for their
ordinary purpose as motor vehicles, would pass without objection in the trade as designed,
manufactured, and marketed, and were adequately contained, packaged, and labeled.
232.
GM breached its implied warranties, as described in more detail above, and is
therefore liable to Plaintiffs and other Class members pursuant to 15 U.S.C. § 2310(d)(1). Without
limitation, the Class Vehicles were equipped with defective CP4 fuel pumps that are incompatible
with American diesel fuel (which fuel is intended by GM to be used in the Class Vehicles, expected
by Plaintiffs and other Class members to be used in Class Vehicles, and is the only fuel reasonably
available in order for Plaintiffs and other Class members to use the Class Vehicles for their intended
or ordinary purpose), which, when used with the intended American diesel fuel, break down,
resulting in fuel contamination, complete and catastrophic failure of the Bosch CP4 Pump, and
contamination and catastrophic and costly failure of the Class Vehicles’ fuel delivery systems.
233.
In its capacity as a warrantor, GM had knowledge of the inherent defects in the Class
Vehicles. Any effort by GM to limit the implied warranties in a manner that would exclude coverage
of the Class Vehicles is unconscionable, and any such effort to disclaim, or otherwise limit, liability
for the Class Vehicles is null and void.
234.
Any limitations GM might seek to impose on their warranties are procedurally
unconscionable. There was unequal bargaining power between GM and Plaintiffs and the other
Class members, as, at the time of purchase and lease, Plaintiffs and the other Class members had no
other options for purchasing warranty coverage other than directly from GM.
235.
Any limitations GM might seek to impose on its warranties are substantively
unconscionable. GM knew that the Class Vehicles were defective and would continue to fail during
and after any purported expiration of warranties.
236.
Despite knowing that failure was expected to occur with the intended use of American
diesel fuel, GM failed to disclose these defects to Plaintiffs and the other Class members. Therefore,
any enforcement of the durational limitations on those warranties is harsh and shocks the conscience,
and moreover violates public policy.
237.
Plaintiffs and each of the other Class members have had sufficient direct dealings
with either GM or its agents (i.e., dealerships) to establish privity of contract between GM, on the
one hand, and Plaintiffs and each of the Class members, on the other hand. Nevertheless, privity is
not required here because Plaintiffs and each of the other Class members are intended third-party
beneficiaries of contracts between GM and its dealers, and specifically, of GM’s implied warranties.
The dealers were not intended to be the ultimate consumers of the Class Vehicles and have no rights
under the warranty agreements provided with the Class Vehicles; the warranty agreements were
designed for and intended to benefit consumers.
238.
Pursuant to 15 U.S.C. § 2310(e), Plaintiffs are entitled to bring this class action and
are not required to give GM notice and an opportunity to cure until such time as the Court determines
the representative capacity of Plaintiffs pursuant to Rule 23 of the Federal Rules of Civil Procedure.
239.
Nonetheless, GM was provided notice of the defective and non-conforming nature of
the Class Vehicles, as described herein, within a reasonable time of Plaintiffs’ knowledge of the non-
conforming and defective nature of the Class Vehicles, by letters from Plaintiffs’ counsel, on behalf
of Plaintiffs, to GM, complaints by Plaintiffs or Class members to GM either orally or in writing,
complaints to dealerships, intermediate sellers, or repair facilities either orally or in writing,
presentation of the vehicles for repair to dealerships, intermediate sellers or repair facilities, and by
the allegations contained in this Complaint.
240.
The amount in controversy of Plaintiffs’ individual claims meets or exceeds the sum
of $25.00. The amount in controversy of this action exceeds the sum of $50,000.00 exclusive of
interest and costs, computed on the basis of all claims to be determined in this lawsuit. Plaintiffs,
individually and on behalf of other Class members, seek all damages permitted by law, including
diminution in value of their vehicles, in an amount to be proven at trial. In addition, pursuant to 15
U.S.C. § 2310(d)(2), Plaintiffs and the other Class members are entitled to recover a sum equal to the
aggregate amount of costs and expenses (including attorneys’ fees based on actual time expended)
determined by the Court to have reasonably been incurred by Plaintiffs and the other Class members
in connection with the commencement and prosecution of this action.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of members of the Class, respectfully
request that the Court enter judgment in their favor and against GM as follows:
A.
Certification of the proposed Class, including appointment of Plaintiffs’ counsel as
Class Counsel;
B.
An order temporarily and permanently enjoining GM from continuing unlawful,
deceptive, fraudulent, and unfair business practices alleged in this Complaint;
C.
Injunctive relief in the form of a recall, free replacement, or buy-back program;
D.
An order establishing GM as a constructive trustee over profits wrongfully obtained,
plus interest;
E.
Costs, restitution, damages, including punitive damages, exemplary damages and
treble damages, and disgorgement in an amount to be determined at trial;
F.
An order requiring GM to pay both pre- and post-judgment interest on any amounts
awarded;
G.
An award of costs and attorney’s fees; and
H.
Such other or further relief as may be appropriate.
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a jury trial for all claims so triable.
Dated: November 20, 2018
Respectfully submitted,
HAGENS BERMAN SOBOL SHAPIRO LLP
By /s/ Jeff D. Friedman
Jeff D. Friedman (SBN 173886)
715 Hearst Avenue, Suite 202
Berkeley, CA 94710
Telephone: (510) 725-3000
Facsimile: (510) 725-3001
jefff@hbsslaw.com
Steve W. Berman (pro hac vice to be filed)
Sean R. Matt (pro hac vice to be filed)
HAGENS BERMAN SOBOL SHAPIRO LLP
1301 Second Avenue, Suite 2000
Seattle, WA 98101
Telephone: (206) 623-7292
Facsimile: (206) 623-0594
steve@hbsslaw.com
sean@hbsslaw.com
-and-
Robert C. Hilliard, Esq.
Texas State Bar No. 09677700
Federal I.D. No. 5912
HILLIARD, MARTINEZ, GONZALES LLP65
E-mail: bobh@hmglawfirm.com
719 S. Shoreline Blvd.
Corpus Christi, Texas 78401
Telephone: (361) 882-1612
Facsimile: (361) 882-3015
(pro hac vice motion forthcoming)
Rudy Gonzales, Jr.
Texas State Bar No. 08121700
Federal I.D. No. 1896
Email: rudy@hmglawfirm.com
John B. Martinez
Texas State Bar No. 24010212
Federal I.D. No. 25316
Email: john@hmglawfirm.com
65 Following the filing of this Complaint, Robert C. Hilliard, Esq., of the law firm of Hilliard
Martinez Gonzales LLP, 719 S. Shoreline Boulevard, Corpus Christi, Texas 78401, 361-882-1612,
Texas State Bar No. 09677700, Federal I.D. No. 5912, bobh@hmglawfirm.com, together with other
attorneys from such law firm, intends to seek admission pro hac vice in this action.
Marion Reilly
Texas State Bar No. 24079195
Federal I.D. No. 1357491
Email: marion@hmglawfirm.com
Bradford P. Klager
State Bar No. 24012969
Federal I.D. No. 24435
Email: brad@hmglawfirm.com
719 S. Shoreline Blvd.
Corpus Christi, Texas 78401
Phone: (361) 882-1612
Fax: (361) 882-3015
-and-
T. Michael Morgan, Esq.
FBN: 0062229
E-Mail: mmorgan@forthepeople.com
Secondary Email: plarue@forthepeople.com
MORGAN & MORGAN, P.A.
20 North Orange Ave., Ste. 1600
P.O. Box 4979
Orlando, FL 32801
Tel.: (407) 418-2081
Fax: (407) 245-3392
Attorneys for Plaintiffs
| products liability and mass tort |
vcDhDIcBD5gMZwczOFXS | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
MICHAEL BAHNMAIER, individually and
on behalf of all others similarly situated,
Plaintiff,
Case No.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
v.
WICHITA STATE UNIVERSITY,
Defendant.
COMPLAINT
Plaintiff Michael Bahnmaier (“Plaintiff”), individually and on behalf of all other similarly
situated persons, by and through their undersigned attorneys, files this Class Action Complaint
against Wichita State University (“WSU” or “Defendant”), and alleges the following based on
personal knowledge, the investigation of counsel, and information and belief:
NATURE OF THE ACTION
1.
With this action, Plaintiff seeks to hold WSU responsible for the harm it caused
him and the thousands of similarly situated persons in the massive (and preventable) data breach
WSU announced in March 2020.
2.
WSU is one of the largest public research universities in the state of Kansas. WSU
offers more than 60 undergraduate degree programs in more than 200 areas of study in six colleges.
The Graduate School offers 44 master’s degrees in more than 100 areas and also offers several
doctoral degrees. WSU operates a network of campuses throughout Kansas, including a main
campus in Wichita, six satellite campuses, and a multitude of online degree programs.
1
3.
Plaintiff and the other members of the Class (as defined below) are current and
former students and employees of WSU who were required to provide Defendant with certain
personal information with the understanding that WSU would keep this information confidential
and secure. Plaintiff and the Class trusted WSU to protect their personal information. Yet this trust
was misplaced.
4.
Defendant announced that in December 2019, it learned that “an unauthorized
person gained access” to a “computer server that WSU used to operate various student and
employee web portals” between December 3, 2019 and December 5, 2019 (the “Data Breach” or
the “Breach”). Defendant explained that by January 13, 2020, WSU determined that in the Data
Breach, the hacker gained unauthorized access to confidential personally identifiable information
of Plaintiff and the Class, including their names, email addresses, dates of birth, and Social
Security numbers (collectively, the “PII” or the “Personal Information”). Defendant waited until
March 6, 2020 to advise Plaintiff and the Class of this Breach.
5.
This class action seeks to redress WSU’s negligence that caused cyber criminals
and identity thieves to access Plaintiff’s and the Class’s Personal Information. Because of the
Breach, Plaintiff and the Class have suffered damages and are at imminent risk of serious and
crippling identity theft. Plaintiff and Class members have incurred and will continue to incur
damages in the form of, among other things, lost time and expenses related to mitigating the harms
caused by the Data Breach, increased risk of harm, diminished value of their PII, loss of privacy,
and/or additional damages as described below.
6.
Accordingly, Plaintiff brings this action individually and on behalf of the Class,
seeking compensatory damages, restitution, and injunctive and declaratory relief, along with the
reasonable attorney fees, costs, and expenses incurred in bringing this action.
2
THE PARTIES
7.
Plaintiff Michael Bahnmaier is a citizen of Kansas and is a former student of WSU.
8.
Defendant Wichita State University is a public research university based in
Wichita, Kansas. WSU had more than 16,000 students enrolled for the fall 2019 semester.
JURISDICTION AND VENUE
9.
This Court has subject matter jurisdiction under 28 U.S.C. §1332(d)(2), because
the Class defined herein contains more than 100 persons, the aggregate amount in controversy
exceeds $5,000,000, and many members of the Class are citizens of states different from
Defendant.1
10.
This Court has personal jurisdiction over Defendant because Defendant has
transacted business in this District and certain transactions and occurrences alleged occurred in
this District.
FACTUAL ALLEGATIONS
11.
Plaintiff incorporates by reference all allegations of the foregoing as though fully
alleged here.
A. The Data Breach
12.
On March 6, 2020, WSU began mailing letters to current and former students and
employees informing them that their information may have been compromised in a data breach of
WSU’s computer server, which the company had discovered in December 2019.
1 Indeed, WSU has notified the attorney generals of several states that the PII of citizens of those
states was compromised in the Data Breach. For example, in WSU’s letter to the Office of the
Attorney General of Iowa, it explained that the Breach implicated the PII of 1,762 Iowans. See
https://www.iowaattorneygeneral.gov/media/cms/3102020_Wichita_State_University_79C1A33
9D590C.pdf.
3
13.
The letter that Plaintiff Bahnmaier received, attached as Exhibit A, stated the
following:
The investigation determined that an unauthorized person gained access to this
computer server between December 3, 2019 and December 5, 2019. WSU
performed a comprehensive review of the server and, on January 13, 2020,
determined that information stored in a historical database on the server contained
your name, email address, date of birth, and Social Security number.
14.
The letter acknowledged that this would cause inconvenience to affected
individuals and that financial harm would likely occur, stating:
We encourage you to remain vigilant against incidents of identity theft and fraud,
to review your account statements, and to monitor your credit reports for suspicious
activity.
(Emphasis added).
15.
The letter further acknowledged that WSU needed to improve its security protocols,
And, to help prevent a similar incident in the future, we are taking steps to enhance
our existing security protocols and re-educating our staff for awareness on these
types of incidents.
16.
While the letter emphasized that WSU would be “taking steps to enhance our
existing security protocols and re-educating our staff for awareness on these types of incidents,”
WSU’s inadequate security protocols and ill-prepared staff had already caused a data breach earlier
that same year. Indeed, in January 2019, cybercriminals spoofed the university’s payroll system
by sending phishing emails to WSU employees, which allowed the scammers to access bank
account numbers, student records and other personal information, according to university
officials.2 It wasn’t until a number of employees did not receive their paychecks that WSU
2 See Suzanne Perez Thomas, WSU Employees Fall Victim to Phishing Scam, Lose Paychecks,
THE
WICHITA
EAGLE
(Jan.
3,
2019),
https://www.kansas.com/new/local/crime/
article223873805.html.
4
discovered the data breach.3 WSU was therefore put on a heightened notice that its data systems
were both being targeted for attack as well as vulnerable to attack.
17.
In light of WSU’s data breach just months earlier, and in light of the fact that WSU
maintained unencrypted PII on its unsecured server, it is obvious that WSU negligently failed to
take the necessary precautions required to safeguard and protect Plaintiff’s and the other Class
members’ PII from unauthorized disclosure. Defendant’s actions represent a flagrant disregard of
its employees’ and students’ rights, both as to privacy and property.
18.
Had WSU taken the well-known risk of cyber intrusion seriously and adequately
tested, audited, and invested in its systems and adequately trained its staff to vigilantly detect
vulnerabilities and intrusions, the Data Breach would not have occurred.
19.
After all, data breaches are preventable.4
B. Cyber Criminals Will Use Plaintiff’s and Class Members’ Personal
Information to Defraud Them
20.
Personal information is of great value to hackers and cyber criminals, and the PII
stolen in the Data Breach can and will be used in a variety of sordid ways for criminals to exploit
Plaintiff and the Class members and to profit off their misfortune.
21.
Each year, identity theft causes tens of billions of dollars of losses to victims in the
United States.5 For example, with the PII stolen in the Data Breach, including Social Security
numbers, identity thieves can open financial accounts, apply for credit, file fraudulent tax returns,
3 See Stu Sjouwerman, Wichita State University Employees Get Fooled into Losing their
Paychecks, CYBERHEIST NEWS (Jan. 19, 2019), https://blog.knowbe4.com/cyberheistnews-vol-9-
4-it-only-takes-1-phish-wichita-state-university-employees-get-fooled-into-losing-their-
paychecks.
4 See Lucy L. Thomson, “Despite the Alarming Trends, Data Breaches Are Preventable,” in DATA
BREACH AND ENCRYPTION HANDBOOK (Lucy Thompson, ed., 2012).
5 “Facts + Statistics: Identity Theft and Cybercrime,” Insurance Info. Inst., https://www.iii.org/fact-
statistic/facts-statistics-identity-theft-and-cybercrime (discussing Javelin Strategy & Research’s
report “2018 Identity Fraud: Fraud Enters a New Era of Complexity”).
5
commit crimes, create false identification and sell it to other criminals or undocumented
immigrants, steal government benefits, give breach victims’ names to police during arrests, and as
many other harmful uses as there are identity thieves.6 It hardly needs to be mentioned, but these
criminal activities will result in devastating financial and personal losses to Plaintiff and the Class
members.
22.
This is not just speculative. As the FTC has reported, if hackers get access to PII,
they will use it.7
23.
Hackers may not use the information right away. According to the U.S.
Government Accountability Office, which conducted a study regarding data breaches:
[I]n some cases, stolen data may be held for up to a year or more before being used
to commit identity theft. Further, once stolen data have been sold or posted on the
Web, fraudulent use of that information may continue for years. As a result, studies
that attempt to measure the harm resulting from data breaches cannot necessarily
rule out all future harm.8
24.
PII is such a valuable commodity to identity thieves that once it has been
compromised, criminals often trade the information on the cyber black-market for years.
25.
Identity theft victims like Plaintiff and other Class members must spend countless
hours and large amounts of money repairing the impact to their credit.9
26.
Defendant’s offer of one year of identity monitoring to Plaintiff and the Class,
although a concession that the Data Breach placed Plaintiff and the Class at great risk of future
6 See, e.g., Christine DiGangi, 5 Ways an Identity Thief Can Use Your Social Security Number,
Nov. 2, 2017, https://blog.credit.com/2017/11/5-things-an-identity-thief-can-do-with-your-social-
security-number-108597/.
7 Ari Lazarus, How fast will identity thieves use stolen info?, FED. TRADE COMM’N (May 24, 2017),
https://www.consumer.ftc.gov/blog/2017/05/how-fast-will-identity-thieves-use-stolen-info.
8 Data Breaches Are Frequent, but Evidence of Resulting Identity Theft Is Limited; However, the
Full Extent Is Unknown, GAO, July 5, 2007, https://www.gao.gov/assets/270/262904.html
(emphasis added).
9 “Guide for Assisting Identity Theft Victims,” Federal Trade Commission, 4 (Sept. 2013),
http://www.consumer.ftc.gov/articles/pdf-0119-guide-assisting-id-theft-victims.pdf.
6
harm and that Defendant’s systems were inadequate and breached, is woefully inadequate. The
full scope of the harm has yet to be realized. There may be a time lag between when harm occurs
versus when it is discovered, and also between when PII is stolen and when it is used. Indeed, the
type of personal information taken in this Breach has a long timeframe for use. For instance, the
person who wrongfully obtained a victim’s Social Security number, full legal name, and date of
birth has information that is either permanent or not easily changed. Furthermore, identity
monitoring only alerts someone to the fact that they have already been the victim of identity theft
(i.e., fraudulent acquisition and use of another person’s PII)—it does not prevent identity theft.10
27.
As a direct and proximate result of the Data Breach, Plaintiff and the Class have
been placed at an imminent, immediate, and continuing increased risk of harm from continued
fraud and identity theft. Plaintiff and the Class must now take the time and effort to mitigate the
impact of the Data Breach on their everyday lives, including placing “freezes” and “alerts” with
credit reporting agencies, contacting their financial institutions, alerting tax authorities to the
potential for fraud, closing or modifying financial accounts, and closely reviewing and monitoring
bank accounts, and credit reports for unauthorized activity for years to come.
28.
Plaintiff and the Class have suffered, and continue to suffer, actual harms for which
they are entitled to compensation, including:
a. Trespass, damage to, and theft of their personal property including PII;
b. Improper disclosure of their PII;
10 See, e.g., Kayleigh Kulp, Credit Monitoring Services May Not Be Worth the Cost, Nov. 30,
2017,
https://www.cnbc.com/2017/11/29/credit-monitoring-services-may-not-be-worth-the-
cost.html.
7
c. The imminent and certainly impending injury flowing from potential fraud and
identity theft posed by their PII being placed in the hands of criminals and having
been already misused;
d. Damages flowing from Defendant untimely and inadequate notification of the data
breach, including lost opportunity to take steps to protect themselves;
e. Loss of privacy suffered as a result of the Data Breach;
f. Ascertainable losses in the form of out-of-pocket expenses and the value of their
time reasonably expended to remedy or mitigate the effects of the data breach; and
g. Ascertainable losses in the form of deprivation of the value of customers’ personal
information for which there is a well-established and quantifiable national and
international market.
29.
Below is a chart that shows the kinds of expenses and disruptions that victims of
identity theft experience11:
11 Jason Steele, Credit Card and ID Theft Statistics, CREDITCARDS.COM (Oct. 24, 2017),
https://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-
1276.php.
8
30.
Moreover, Plaintiff and the Class have an interest in ensuring that their information,
which remains in the possession of Defendant, is protected from further breaches by the
implementation of security measures and safeguards.
31.
Defendant itself acknowledged the harm caused by the Data Breach because it
offered Plaintiff and Class members twelve months of identity theft repair and monitoring services.
Twelve months of identity theft and repair and monitoring is, however, woefully inadequate to
protect Plaintiff and Class members from a lifetime of identity theft risk and does nothing to
reimburse Plaintiff and Class members for the injuries they have already suffered.
9
C. Defendant was Aware of the Risk of Cyber-Attacks and Could Have Prevented
the Data Breach
32.
Data security breaches have dominated the headlines for the last two decades, and
it doesn’t take an IT industry expert to know that major institutions like WSU are at risk.
33.
Universities in particular, with their troves of confidential information from young
people, have been targeted by hackers for years.12 Schools large and small have been targeted
with increasing frequency. UC Berkeley,13 Oberlin College, Grinnell College, Hamilton College,
Washington State University, Oregon State University, University of Connecticut,14 Pennsylvania
State University, University of Virginia, Johns Hopkins University,15 Georgia Institute of
Technology,16 and more have been victims of high-profile and extremely damaging data breaches
in just the last four years.
34.
WSU acknowledges that it is a likely target for a data breach given the amount of
personal and confidential information it collects. WSU’s Security Awareness page states, in
relevant part:
PURPOSE
You’ve seen it on TV and heard it on the news. While there are many processes and
applications in the background regarding security at WSU, it is vital that you are
aware of those things that can assist Wichita State University in keeping data,
information, and privacy intact.
***
12Henry Gass, UC Berkeley Breach: Universities Increasingly Targeted in Cyberattacks,
CHRISTIAN SCI. MONITOR (Feb. 29, 2016), https://www.csmonitor.com/USA/Education
/2016/0229/UC-Berkeley-breach-Universities-increasingly-targeted-in-cyberattacks.
13Id.
14PULSEWAY, University Data Breaches in 2019 That Are Hard To Ignore (June 28, 2019),
https://www.pulseway.com/blog/university-data-breaches-in-2019-that-are-hard-to-ignore.
15Kieth Wagstaff & Chiara A. Sottile, Cyberattack 101: Why Hackers Are Going After
Universities, NBCNEWS (Sept. 20, 2015), https://www.nbcnews.com/tech/security/universities-
become-targets-hackers-n429821.
16Bruce Sussman, ‘Tech’ in the Name, But Breached Twice in a Year, SECUREWORLDEXPO.COM
(Apr. 3, 2019), https://www.secureworldexpo.com/industry-news/georgia-tech-data-breach.
10
INFORMATION SECURITY EXPLAINED
Information security involves the preservation of:
Confidentiality - Ensuring information is disclosed to, and reviewed exclusively
by intended recipients and/or authorized individuals
Integrity - Ensuring the accuracy and completeness of information and
processing methods
Availability - Ensuring that information and associated assets are accessible,
whenever necessary, by authorized individuals
LAWS AND ACTS TO FOLLOW
In many cases, the responsibility of data security is the LAW. WSU must consider
many Federal and State laws which are intended to make certain that certain data
does not fall into the wrong hands.
Health Insurance Portability and Accountability Act (HIPAA)
USA Patriot Act
Controlling the Assault of Non-Solicited Pornography and Marketing Act
(CAN-SPAM)
Higher Education Opportunity Act of 2008
Family Educational Rights and Privacy Act of 1974 (FERPA or the Buckley
Amendment)
Digital Millennium Copyright Act (DMCA)
CONSEQUENCES OF A BREACH OF SECURITY
Should there be a breach of security, WSU could be subject to many costly
consequences. Because we are a state educational institution of Kansas, these
consequences can be very costly. The possible consequences of insufficient
security are:
Loss of productivity
Identity theft
Equipment theft
Service interruption (e.g., email and Enterprise Resource Planning applications)
Embarrassing media coverage
Compromised confidence
Legal penalties
VITAL INFORMATION
Your effectiveness in securing Wichita State University’s information begins with
an understanding of what is vitally important. Here are some examples of data that
needs to be protected:
Credit Card Information
Social Security Numbers
11
Addresses
Private Documents
Payroll Information
Intellectual Property
Academic Transcripts
***
UNAUTHORIZED SYSTEMS ACCESS
Unauthorized systems access occurs when individuals maliciously obtain
unauthorized access to computers, applications, confidential information, and other
valuable assets. Not all guilty parties are unknown…….some can be your co-
workers. Unauthorized systems access can result in theft and damage of vital
information
[Emphasis added.]17
35.
In fact, WSU had specific knowledge that it was at risk of a data breach due to its
inadequate security measures. Indeed, as discussed infra, WSU’s sub-par security protocols and
ill-prepared staff had already caused a data breach just months before the Data Breach that
compromised Plaintiff’s PII. Specifically, in January 2019, cybercriminals spoofed the
university’s payroll system by sending phishing emails to WSU employees, which allowed the
scammers to access bank account numbers, student records and other personal information,
according to university officials.18
36.
Among other things, WSU failed to meet the minimum standards of any of the
following frameworks: the NIST Cybersecurity Framework, NIST Special Publications 800-53,
53A, or 800-171; the Federal Risk and Authorization Management Program (FEDRAMP); or the
Center for Internet Security’s Critical Security Controls (CIS CSC), which are well known
standards in reasonable cybersecurity readiness.
17 See https://www.wichita.edu/services/its/security_awareness.php (last visited May 1, 2020).
18 See Suzanne Perez Thomas, WSU Employees Fall Victim to Phishing Scam, Lose Paychecks,
THE WICHITA EAGLE (Jan. 3, 2019), https://www.kansas.com/new/local/crime/article223873805.
html.
12
37.
In addition, WSU failed to comply with Kan. Stat. § 50-6139b(b) (the “Kansas
Information Security Statute”), which requires that holders of personal information must:
(1) Implement and maintain reasonable procedures and practices appropriate to the
nature of the information, and exercise reasonable care to protect the personal
information from unauthorized access, use, modification or disclosure. If federal or
state law or regulation governs the procedures and practices of the holder of
personal information for such protection of personal information, then compliance
with such federal or state law or regulation shall be deemed compliance with this
paragraph and failure to comply with such federal or state law or regulation shall
be prima facie evidence of a violation of this paragraph; and
(2) unless otherwise required by federal law or regulation, take reasonable steps to
destroy or arrange for the destruction of any records within such holder’s custody
or control containing any person’s personal information when such holder no longer
intends to maintain or possess such records. Such destruction shall be by shredding,
erasing or otherwise modifying the personal identifying information in the records
to make it unreadable or undecipherable through any means.19
38.
WSU failed to implement reasonable industry standards necessary to prevent a data
breach, including failing to adhere to the Kansas Information Security Statute. Among other
things, if unauthorized users were able to access people’s names, email addresses, dates of birth,
and Social Security numbers from WSU’s servers, it is clear that WSU was not maintaining such
information in an encrypted format. Such industry standard encryption would have made
Plaintiff’s and Class members’ personal information indecipherable.
39.
Because of its failure to create, maintain, and/or comply with an adequate
cybersecurity program that incorporated physical, technical, and administrative safeguards for the
protection of personal information and reasonably conformed to an industry recognized
cybersecurity framework, WSU was unable to ensure the protection of information, protect against
19 Kan. Stat. § 50-6139b(d) provides that: “Each violation of this section shall be an
unconscionable act or practice in violation of K.S.A. 50-627, and amendments thereto. Each record
that is not destroyed in compliance with subsection (b)(2) shall constitute a separate
unconscionable act within the meaning of K.S.A. 50-627, and amendments thereto.”
13
obvious and readily foreseeable threats to information security and confidentiality, or protect
against unauthorized access of the PII.
40.
In requesting that Plaintiff and the Class provide WSU with their most sensitive
Personal Information, WSU both explicitly and implicitly represented to Plaintiff and the Class
that it understood the importance of protecting their Personal Information and that it would do so
as a part of their agreement. WSU represented to Plaintiff and the Class through its stated privacy
policies, records retention policies, and its security practices that it maintained robust procedures
designed to carefully protect the PII with which it was entrusted.
41.
WSU’s Release of Student Information Policy (Privacy Law) provides the
following, in relevant part:
The Family Educational Rights and Privacy Act of 1974 (FERPA), as amended, is
a federal law that sets forth requirements pertaining to the disclosure of, and access
to, education records maintained by Wichita State University.
Wichita State University accords all rights under the law to students. Those rights
are:
1. The right to inspect and review the student’s education records;
2. The right to request amendment of the student’s education records to ensure
that they are not inaccurate, misleading or otherwise in violation of the
student’s privacy or other rights;
3. The right to consent to disclosures of personally identifiable information
contained in the student’s education records, except to the extent that
FERPA authorizes disclosure without consent; and
4. The right to file with the U.S. Department of Education a complaint
concerning alleged failures by Wichita State University to comply with the
requirements of FERPA.
No one outside the institution shall have access to, nor will the institution disclose
any information from, students’ education records without the prior written consent
of the student with the exception of disclosure to:
1. Personnel within the institution who have a legitimate educational interest,
2. Persons or organizations providing students financial aid,
3. Accrediting agencies carrying out an accreditation function,
4. Persons in compliance with a judicial order,
14
5. Persons in an emergency in order to protect the health or safety of the
student or other persons, or
6. Other persons or entities to whom disclosure is permitted under FERPA.
***
Disclosure of “Personally Identifiable” and “Directory Information”
The university shall obtain the written consent of the student before disclosing
personally identifiable information from education records, other than directory
information, except as otherwise provided in this policy.
[Emphasis added]20
42.
WSU’s Policies and Procedures and Retention of University Records provides the
following, in relevant part:
Preamble
It is necessary and appropriate that Wichita State University requires that different
types of records be retained for specific periods of time and that it designate official
repositories for maintenance and retention of records. University records must be
managed in accordance with this policy.
Policy
The University is committed to effective record retention to meet legal standards,
optimize the use of space, ensure security of confidential information, minimize the
cost of record retention, preserve institutional history and ensure that outdated and
useless records are destroyed.
***
Procedures
Responsibilities for Managing Official University Records
Departments that maintain any University Records are the Official Repository of
such records and each department head or designee must:
1. Implement the department's record management practices consistent with
this policy.
2. Educate staff within the department in understanding sound record
management practices, including a system for efficient retrieval of Active
Records.
3. Transfer Inactive Records that may have historic value to the University
Archives.
20 See http://catalog.wichita.edu/undergraduate/university-policies-procedures/release-student-
information-policy-privacy-law/ (last visited April 27, 2020).
15
4. Ensure that access to confidential files is restricted. Long-term restrictions
on access to selected Archival Records should be negotiated at the time of
their transfer to the University Archives.
5. Destroy Inactive Records that have no historic value upon passage of the
applicable retention period. If in doubt as to the potential historic value,
consult with the Curator of Special Collections and University Archivist
(hereinafter University Archivist) before destroying the Inactive Records.
***
Inactive Records
If it has been determined that University Records are Inactive Records, and
therefore, not of permanent historic value, they, consistent with K.S.A. 45-403,
should be destroyed in one of the following ways:
1. Recycle non-confidential paper records; or
2. Shred or otherwise render unreadable confidential records; or
3. Erase or destroy Electronic Records (periodically review records generated
and maintained in University information systems or equipment to ensure
that these requirements are met).
[Emphasis added.]21
43.
WSU’s Privacy of Financial Information policy further provides, in relevant part:
Preamble
The “Safeguards Rule” promulgated by the Federal Trade Commission (FTC)
under the Gramm-Leach-Bliley Act (“GLBA”) imposes specific standards and
obligations regarding the privacy of certain personally identifiable financial
information. Wichita State University recognizes its obligation to protect the
security, confidentiality and integrity of such information and this policy is
intended to implement FTC requirements in this regard.
Policy
1. Wichita State University will make all reasonable efforts to achieve and
maintain compliance with FTC standards and obligations regarding the
privacy of personally identifiable financial information of its customers.
2. Wichita State University will develop, implement and maintain a
comprehensive information security program.
3. Wichita State University's comprehensive information security program
shall provide for the appointment of an information security plan
coordinator; risk assessments; training programs for employees; oversight
of service providers; and periodic adjustments of the program.
21 See https://www.wichita.edu/about/policy/ch_20/ch20_23.php (last visited April 27, 2020).
16
[Emphasis added.]22
44.
In addition, WSU’s Website Privacy Policy states, in relevant part:
Security
We take precautions to protect your information. When you submit sensitive
information via the website, your information is protected both online and offline.
Wherever we collect sensitive information (such as credit card data), that
information is encrypted and transmitted to us in a secure way. You can verify this
by looking for a lock icon in the address bar and looking for "https" at the beginning
of the address of the Web page.
While we use encryption to protect sensitive information transmitted online, we also
protect your information offline. Only employees who need the information to
perform a specific job (for example, billing or customer service) are granted access
to personally identifiable information. The computers/servers in which we store
personally identifiable information are kept in a secure environment.
[Emphasis added.]23
45.
Contrary to WSU’s stated policies and procedures regarding securing the sensitive
information it collects, WSU failed to protect the confidential information of Plaintiff and the Class
and instead allowed unauthorized hackers to access the unencrypted and insufficiently secured PII
of Plaintiff and Class members.
46.
It was possible for WSU to keep the Personal Information of Plaintiff and the Class
confidential.
47.
Data breaches are preventable.24 As Lucy Thompson wrote in the DATA BREACH
AND ENCRYPTION HANDBOOK, “In almost all cases, the data breaches that occurred could have
been prevented by proper planning and the correct design and implementation of appropriate
22 See https://www.wichita.edu/about/policy/ch_20/ch20_18.php (last visited April 23, 2020).
23 See https://www.wichita.edu/about/privacy.php (last visited April 27, 2020).
24 Lucy L. Thomson, “Despite the Alarming Trends, Data Breaches Are Preventable,” in DATA
BREACH AND ENCRYPTION HANDBOOK (Lucy Thompson, ed., 2012).
17
security solutions.”25 She added that “[o]rganizations that collect, use, store, and share sensitive
personal data must accept responsibility for protecting the information and ensuring that it is not
compromised . . . .”26
48.
“Most of the reported data breaches are a result of lax security and the failure to
create or enforce appropriate security policies, rules, and procedures. . . . Appropriate information
security controls, including encryption, must be implemented and enforced in a rigorous and
disciplined manner so that a data breach never occurs.”27
49.
In a Data Breach like this, many failures committed by WSU laid the groundwork
for the success (from the cyber criminal’s view) of the Breach.
50.
For example, the information on WSU’s systems and servers lacked the necessary
encryption to maintain the confidentiality of the sensitive Personal Information Plaintiff and the
Class entrusted to WSU.
51.
WSU also failed to adequately test and audit its systems and servers, failed to
adequately supervise and monitor its systems and servers, failed to adequately train WSU staff and
personnel, and failed to design and enforce appropriate industry-standard security policies, rules,
and procedures.
52.
WSU additionally had far too much information held in unencrypted documents
and/or accounts. No sophisticated business or institution in the 21st century should permit the—
unencrypted—PII of hundreds of thousands of current and former students and employees to be
stored on an inadequately secured server. Had WSU exercised reasonable care, it would have (at
25Id. at 17.
26Id. at 28.
27 Id.
18
minimum) disposed of all former students’ and employee’s information as soon as it was no longer
needed, and until then it should have stored such PII in an encrypted system.
53.
To the extent the Breach was caused by phishing attacks, these are readily
preventable through industry standard email filtering software and regular awareness training for
staff, and the harm from phishing-related breaches can be minimized through proper network
segmentation and encryption of all confidential information.
54.
Had WSU exercised reasonable care, the Data Breach would not have happened
and Plaintiff and the Class would not have suffered the injuries they are continuing to face.
D. WSU’S Response to the Data Breach is Inadequate to Protect Plaintiff and the
Class
55.
Had WSU exercised reasonable care, the Data Breach would not have happened
and Plaintiff and the Class would not have suffered the injuries they are continuing to face.
56.
WSU failed to inform Plaintiff and Class members of the Data Breach in time for
them to protect themselves from identity theft.
57.
The notice letters sent to Plaintiff and Class members stated that WSU discovered
the Data Breach in December 2019. Yet, WSU did not start notifying affected former and current
students and employees until March 2020—three months after learning of the Data Breach.
58.
If WSU had investigated the Data Breach more diligently and reported it sooner,
the damage could have been mitigated.
59.
Further, the 12-months of identity theft monitoring is seriously inadequate for the
risks to which WSU has exposed its former and current students and employees. WSU has also
not offered to compensate breach victims for their lost time devoted to responding to the Breach,
nor has WSU offered to provide paid time-off for its employees who are using their personal time
to respond to the Data Breach.
19
E. Plaintiff’s Experience
60.
To participate in classes as a student at WSU, Plaintiff was required to provide his
PII to Defendant.
61.
Plaintiff received a letter from WSU, dated March 6, 2020, informing him that his
name, email address, date of birth, and Social Security number were compromised in the Data
Breach. See Exhibit A.
62.
Because of the Data Breach, Plaintiff’s PII is now in the hands of cyber criminals.
He, and all Breach Victims like him, are now imminently at risk of crippling identity theft and
63.
Since the Breach period, Plaintiff has experienced a notable increase in
spam/phishing emails that he believes are related to the Data Breach.
64.
This has been distressing to him and has caused him anxiety. He feels that any day
his identity may be stolen and has spent time investigating and responding to the Data Breach.
65.
In the weeks following the March 6 letter from WSU, Plaintiff has spent
considerable time monitoring his credit and reviewing his account statements.
66.
Because the Data Breach was an intentional hack by cyber criminals seeking
information of value that they could exploit, Plaintiff is at imminent risk of severe identity theft
and exploitation.
67.
Plaintiff has also suffered injury directly and proximately caused by the Data
Breach, including: (a) theft of Plaintiff’s valuable PII; (b) costs associated with time spent and the
loss of productivity from taking time to address and attempt to ameliorate and mitigate the actual
and future consequences of the Data Breach, including (without limitation) monitoring their
personal accounts for unauthorized activity, dealing with increased solicitations and spam emails,
20
and the stress, nuisance and annoyance of dealing with all issues resulting from the Data Breach;
(c) the imminent and certain impending injury flowing from fraud and identity theft posed by
Plaintiff’s PII being placed in the hands of cyber criminals; (d) damages to and diminution in value
of Plaintiff’s PII that was entrusted to Defendant for the sole purpose of obtaining educational
classes with the understanding that Defendant would safeguard this information against disclosure;
(e) loss of the benefit of the bargain with Defendant to provide adequate and reasonable data
security—i.e., the difference in value between what Plaintiff should have received from Defendant
(including the understanding that Plaintiff’s PII would be protected by reasonable data security
and the understanding that Plaintiff would receive timely notification in the event of a data breach)
and Defendant’s defective and deficient performance of that obligation by failing to provide
reasonable and adequate data security and failing to protect Plaintiff’s PII; (f) overpayment of
money for educational services at WSU in that the money paid by Plaintiff and Class members
included costs of WSU providing reasonable and adequate safeguards and security measures to
protect their personal data, which WSU failed to do and, as a result, Plaintiff and Class members
did not receive what they paid for and were overcharged by WSU; and (g) continued risk to
Plaintiff’s PII, which remains in the possession of Defendant and which is subject to further
breaches so long as Defendant fails to undertake appropriate and adequate measures to protect the
PII that was entrusted to Defendant.
68.
WSU should be held responsible for the damages it has caused Plaintiff and the
Class through the Data Breach.
CLASS ACTION ALLEGATIONS
69.
Plaintiff incorporates by reference the allegations from the preceding paragraphs as
if fully restated here.
21
70.
Plaintiff brings this action against WSU individually and on behalf all others
similarly situated under Kan. Stat. § 60-223. Plaintiff asserts all claims on behalf of a nationwide
Class defined as follows:
All persons whose sensitive personal information was compromised as a result
of the Data Breach at Wichita State University announced in March 2020.
71.
Plaintiff also brings this suit as a class action on behalf of the following subclass
(“Kansas Student Subclass”):
All residents of the State of Kansas who are former or current students of
Wichita State University whose sensitive personal information was
compromised as a result of the Data Breach at Wichita State University
announced in March 2020.
72.
Unless otherwise indicated, the Class and the Kansas Student Subclass are referred
to herein jointly as the “Class.”
73.
Excluded from the Class are Defendant and Defendant’s officers, directors, legal
representatives, successors, subsidiaries, and assigns. Also excluded from the Class is any judge,
justice, or judicial officer presiding over this matter and members of their immediate families and
judicial staff.
74.
Plaintiff reserves the right to amend the above definition or to propose other or
additional subclasses in subsequent pleadings and motions for class certification.
a. Class Certification is Appropriate
75.
The proposed Class and any additional subclasses meet the requirements of Fed. R.
Civ. P. 23(a), (b)(1), (b)(2), (b)(3), and (c)(4).
76.
Numerosity: The proposed Class is so numerous that joinder of all members is
impracticable. Defendant has not publicly disclosed the total number of individuals affected, but
22
based on publicly available information the Class appears to include hundreds of thousands of
members.
77.
Typicality: Plaintiff’s claims are typical of the claims of the Class. Plaintiff and all
members of the Class were injured through WSU’s uniform misconduct. The same event and
conduct that gave rise to Plaintiff’s claims are identical to those that give rise to the claims of every
other Class member because Plaintiff and each member of the Class had their Personal Information
compromised in the same way by the same conduct of WSU.
78.
Adequacy: Plaintiff is an adequate representative of the Class because Plaintiff’s
interests do not conflict with the interests of the Class that he seeks to represent; Plaintiff has
retained counsel competent and highly experienced in data breach class action litigation; and
Plaintiff and Plaintiff’s counsel intend to prosecute this action vigorously. The interests of the
Class will be fairly and adequately protected by Plaintiff and his counsel.
79.
Superiority: A class action is superior to other available means of fair and efficient
adjudication of the claims of Plaintiff and the Class. The injury suffered by each individual Class
member is relatively small in comparison to the burden and expense of individual prosecution of
complex and expensive litigation. It would be very difficult if not impossible for members of the
Class individually to effectively redress WSU’s wrongdoing. Even if Class members could afford
such individual litigation, the court system could not. Individualized litigation presents a potential
for inconsistent or contradictory judgments. Individualized litigation increases the delay and
expense to all parties, and to the court system, presented by the complex legal and factual issues
of the case. By contrast, the class action device presents far fewer management difficulties and
provides benefits of single adjudication, economy of scale, and comprehensive supervision by a
single court.
23
80.
Commonality and Predominance: There are many questions of law and fact
common to the claims of Plaintiff and the other members of the Class, and those questions
predominate over any questions that may affect individual members of the Class. Common
questions for the Class include:
a. Whether Defendant engaged in the wrongful conduct alleged herein;
b. Whether Defendant failed to adequately safeguard Plaintiff’s and the Class’s PII;
c. Whether Defendant owed a duty to Plaintiff and the Class to adequately protect
their PII, and whether it breached this duty;
d. Whether Defendant’s conduct, including its failure to act, resulted in or was the
proximate cause of the Breach of its IT systems;
e. Whether Plaintiff and the Class were injured as a proximate and foreseeable result
of Defendant’s breach of its duties to Plaintiff and the Class;
f. Whether Defendant violated state and federal laws, thereby breaching its duties to
Plaintiff and the Class as a result of the Data Breach;
g. Whether WSU was negligent in permitting the unencrypted PII of vast numbers of
individuals to be stored within its servers;
h. Whether WSU was negligent in failing to adhere to reasonable retention policies,
thereby greatly increasing the size of the Data Breach to include former students;
i. Whether WSU breached contractual duties to Plaintiff and the Class to use
reasonable care in protecting their PII;
j. Whether WSU failed to adequately respond to the Data Breach, including failing to
investigate it diligently and notify affected individuals in the most expedient time
24
possible and without unreasonable delay, and whether this caused damages to
Plaintiff and the Class;
k. Whether WSU continues to breach duties to Plaintiff and the Class;
l. Whether Plaintiff and the Class suffered injury as a proximate result of WSU’s
negligent actions or failures to act;
m. Whether Defendant was unjustly enriched by its failure to adequately invest in
minimum data security measures necessary to protect the PII; and
n. Whether Plaintiff and the Class are entitled to recover damages, restitution,
declaratory, injunctive and other equitable relief, and attorney fees, costs, and
expenses.
CAUSES OF ACTION
FIRST CAUSE OF ACTION
NEGLIGENCE
(On Behalf of the Class)
81.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
82.
Defendant WSU solicited, gathered, and stored the PII of Plaintiff and the Class.
83.
Defendant had full knowledge of the sensitivity of the PII and the types of harm
that Plaintiff and the Class could and would suffer if the PII were wrongfully disclosed.
84.
Defendant had a duty to Plaintiff and each Class member to exercise reasonable
care in holding, safeguarding, and protecting that information.
85.
Plaintiff and the Class members were the foreseeable victims of any inadequate
safety and security practices.
25
86.
Plaintiff and the Class members had no ability to protect their PII that was in WSU’s
possession.
87.
Defendant was well aware of the fact that cyber criminals routinely target large
institutions, such as universities, through software vulnerabilities and phishing attacks and other
cyberattacks in an attempt to steal PII.
88.
Defendant owed Plaintiff and the Class members a common law duty to use
reasonable care to avoid causing foreseeable risk of harm to Plaintiff and the Class when obtaining,
storing, using, and managing personal information, including taking action to reasonably safeguard
such data and providing notification to Plaintiff and the Class members of any breach in a timely
manner so that appropriate action could be taken to minimize losses.
89.
Defendant’s duty extended to protecting Plaintiff and the Class from the risk of
foreseeable criminal conduct of third parties, which has been recognized in situations where the
actor’s own conduct or misconduct exposes another to the risk or defeats protections put in place
to guard against the risk, or where the parties are in a special relationship. See Restatement
(Second) of Torts § 302B.
90.
Defendant knew or should have known the risk of collecting and storing the PII and
the importance of maintaining secure systems.
91.
Defendant had duties to protect and safeguard the PII from unauthorized disclosure.
Defendant had a duty to use reasonable, industry standard information security measures when
dealing with sensitive Personal Information. Specific duties that WSU owed Plaintiff and the Class
include:
a. To create, maintain, and comply with a written cybersecurity program that
incorporated physical, technical, and administrative safeguards for the protection
26
of personal information and reasonably conforms to an industry recognized
cybersecurity framework;
b. To exercise reasonable care in obtaining, retaining, securing, safeguarding, deleting
and protecting the Personal Information in its possession;
c. To protect the Personal Information in its possession using reasonable and adequate
security procedures and systems, including firewalls and encryption;
d. To adequately and properly audit, scan, monitor, and test its IT systems for
vulnerabilities and intrusions;
e. To adequately and properly audit, test, and train its employees regarding how to
properly and securely transmit and store Personal Information;
f. To implement processes to quickly detect a data breach, security incident, or
intrusion; and
g. To promptly notify Plaintiff and Class members of any data breach, security
incident, or intrusion that affected or may have affected their Personal Information.
92.
Defendant owed these duties to Plaintiff and the Class because they are a well-
defined, foreseeable, and probable class of persons whom Defendant was aware (or should have
been) would be injured by Defendant’s breach of these duties.
93.
Defendant also had a heightened duty to implement an adequate cyber security
program and safeguards to protect the Plaintiff and Class members’ PII due to the prior breach
WSU experienced in January 2019.
94.
Plaintiff and the Class were the intended beneficiaries of Defendant’s duties.
Plaintiff and the Class lacked the ability to protect the information they had entrusted to Defendant
and relied entirely on Defendant to keep it safe and secure. A special relationship therefore existed
27
between the Class and WSU. Defendant was in a position to ensure that its systems were sufficient
to protect the PII that Plaintiff and the Class had entrusted to it.
95.
There is a close causal connection between WSU’s failure to implement reasonable
security measures to protect its current and former student and employees’ PII and the harm
suffered by Plaintiff and members of the Class.
96.
The public policy of preventing future harm supports finding a special relationship
between WSU and its students and employees. It was foreseeable to WSU that collecting large
amounts of student and employee personal information without adequate data security practices
and policies would lead to improper disclosure of such information and cause injuries to students
and employees. Indeed, WSU had experienced a data breach just months before the Data Breach
at issue in this Complaint.
97.
There is a very close connection between WSU’s negligence and the injuries that
Plaintiff and the Class suffer. If institutions are not held accountable for such negligence, they will
not take needed steps to protect the PII they collect from individuals.
98.
Defendant breached its duties of care by failing to adequately protect Plaintiff’s and
the Class’s Personal Information. Defendant breached its duties by, among other things:
a. Failing to exercise reasonable care in obtaining, retaining securing, safeguarding,
deleting, and protecting the Personal Information in its possession;
b. Failing to protect the Personal Information in its possession using reasonable and
adequate security procedures and systems;
c. Failing to adequately and properly audit, scan, monitor, and test its IT systems to
identify and correct vulnerabilities;
28
d. Failing to implement and enforce adequate security policies, systems, protocols and
practices sufficient to protect the Personal Information, and thereby creating a
foreseeable, unreasonable risk of harm;
e. Failing to adequately and properly audit, test, and train its employees regarding
how to properly and securely protect Personal Information;
f. Failing to comply with the minimum industry data security standards, including the
guidelines issued by the FTC, to protect the Personal Information it solicited and
retained;
g. Failing to consistently enforce security policies aimed at protecting Plaintiff and
the Class’s Personal Information;
h. Failing to implement processes to quickly detect data breaches, security incidents,
or intrusions;
i. Failing to abide by reasonable retention and destruction policies for the Personal
Information of former students and employees; and
j. Failing to promptly notify Plaintiff and Class members of the Data Breach that
affected their Personal Information.
99.
Defendant’s willful failure to abide by these duties was wrongful, reckless, and
grossly negligent in light of the foreseeable risks and known threats.
100.
As a proximate and foreseeable result of Defendant’s grossly negligent conduct,
Plaintiff and the Class have suffered actual damages, as described above, and are at imminent risk
of additional harms and damages.
101.
The damages Plaintiff and the Class have suffered were and are reasonably
foreseeable.
29
102.
The damages Plaintiff and the Class have and will suffer were and are the direct
and proximate result of Defendant’s grossly negligent conduct.
103.
Plaintiff and the Class have suffered injury and are entitled to actual and punitive
damages in an amount to be proven at trial.
SECOND CAUSE OF ACTION
NEGLIGENCE PER SE
(On Behalf of the Class, or alternatively, a Kansas Student Subclass)
104.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
105.
Pursuant to the Kansas Consumer Protection Act and the Kansas Information
Security Statute, Defendant has additional duties to implement safeguards to protect Plaintiff’s and
the Class’s PII.
106.
Defendant breached its duties to Plaintiff and the Class under the Kansas Consumer
Protection Act and the Kansas Information Security Statute by failing to provide fair, reasonable,
or adequate computer systems and data security practices to safeguard the PII of Plaintiff and the
107.
Defendant further breached its duties to Plaintiff and the Class under the Kansas
Protection of Consumer Information Notification Statute by failing to provide prompt notice of
the Breach without reasonable delay.
108.
Defendant’s failure to comply with applicable laws and regulations constitutes
negligence per se.
109.
Plaintiff and the Class are within the class of persons that the Kansas Consumer
Protection Act the Kansas Information Security Statute, and the Kansas Protection of Consumer
Information Notification Statute were intended to protect.
30
110.
The harm that occurred as a result of the Data Breach is the type of harm the Kansas
Consumer Protection Act the Kansas Information Security Statute, and the Kansas Protection of
Consumer Information Notification Statute were intended to guard against.
111.
Plaintiff and the Class have suffered damages as a result of Defendant’s breaches
of its duties, and the damages were foreseeable.
112.
Defendant’s violations of these duties are the proximate cause of Plaintiff’s and the
Class members’ damages.
113.
Plaintiff and the Class are entitled to actual and punitive damages for Defendant’s
negligence per se in an amount to be proven at trial.
THIRD CAUSE OF ACTION
BREACH OF IMPLIED CONTRACT
(On Behalf of the Class)
114.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
115.
Plaintiff and Class members who are or were students of WSU were required, as a
condition of their enrollment, to provide Defendant with their PII, including their Social Security
numbers.
116.
Plaintiff and Class members who are or were employees of WSU were required, as
a condition of their employment, to provide Defendant with their PII, including their Social
Security numbers.
117.
WSU was obligated, as outlined in WSU’s privacy policies, records retention
policies, and security policies, to maintain the confidentiality of Plaintiff and Class members’ PII,
particularly the PII of WSU’s current and former students.
31
118.
Further, implicit in WSU’s collection of Plaintiff and Class members’ PII, as part
of student enrollment and employee hiring, was the obligation that the information provided to
WSU would be maintained confidentially and securely.
119.
WSU has an implied duty of good faith to reasonably safeguard and protect the PII
of Plaintiff and Class members from unauthorized disclosure or uses.
120.
Additionally, Defendant implicitly promised to retain this PII only under conditions
that kept such information secure and confidential.
121.
Based on the implicit understanding and also on Defendant’s representations (as
described above), Plaintiff and the Class accepted Defendant’s offers and provided Defendant with
their Personal Information.
122.
Plaintiff and Class members would not have provided their Personal Information to
Defendant had they known that WSU would not safeguard their Personal Information as promised
or provide timely notice of a data breach.
123.
Plaintiff and Class members fully performed their obligations under the implied
contracts with Defendant.
124.
Defendant breached the implied contracts by failing to safeguard Plaintiff’s and
Class members’ PII and failing to provide them with timely and accurate notice of the Data Breach.
125.
Based on Defendant’s representations and acceptance of Plaintiff’s and the Class
members’ PII, Defendant had an express and/or implied duty to safeguard their PII through the use
of reasonable industry standards.
126.
Defendant’s failure to protect the PII of Plaintiff and Class members who are
employees constitutes a material breach of the terms of the agreement by Defendant.
32
127.
As a direct and proximate result of Defendant’s breach of implied contract, Plaintiff
and the Class members have suffered damages, including foreseeable consequential damages that
Defendant knew about when it requested Plaintiff’s and the Class members’ PII.
128.
As a result of WSU’s breach of contract or implied contract, by failing to adequately
secure Plaintiff and Class members’ PII, Plaintiff and Class members did not receive the full
benefit of the bargain, and instead received services that were less valuable than described and
bargained for. Plaintiff and Class members, therefore, were damaged in an amount at least equal
to the difference in value between what was bargained for and what WSU provided.
129.
Also as a result of WSU’s breach of contract or implied contract, Plaintiff and Class
members have suffered actual damages resulting from the theft of their PII, and they remain at
imminent risk of suffering additional breaches in the future.
130.
Accordingly, Plaintiff and the Class are entitled to compensatory damages,
including restitution and unjust enrichment, injunctive relief requiring WSU to more securely
maintain the PII of Plaintiff and the Class, and attorney fees, costs, and expenses.
FOURTH CAUSE OF ACTION
VIOLATION OF THE KANSAS CONSUMER PROTECTION ACT
KAN. STAT. §§ 50-626(A), (B)(1)(A)(D) AND (B)(3), AND KAN. STAT. §50-627, ET SEQ.
(ON BEHALF OF THE KANSAS STUDENT SUBCLASS)
131.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
132.
Plaintiff and members of the Kansas Student Subclass constitute consumers
pursuant to the Kansas Consumer Protection Act.
133.
WSU engaged in the conduct alleged in this Complaint in transactions intended to
result, and which did result, in the sale of services to consumers, including Plaintiff and the Kansas
Student Subclass.
33
134.
WSU’s acts, practices and omissions were done in the course of WSU’s business
of marketing, offering for sale, and selling services throughout the United States, including in
Kansas.
135.
WSU’s conduct as alleged in this Complaint, including without limitation, WSU’s
failure to maintain adequate computer systems and data security practices to safeguard students’
and employees’ personal information, WSU’s failure to disclose the material fact that its computer
systems and data security practices were inadequate to safeguard the personal information it was
collecting and maintaining from theft, and WSU’s failure to disclose in a timely and accurate
manner to Plaintiff and members of the Kansas Student Subclass the material fact of the WSU’s
Data Breach constitutes unfair methods of competition and unfair, deceptive, fraudulent,
unconscionable and/or unlawful acts or practices.
136.
By engaging in such conduct and omissions of material facts, WSU has violated
Kansas consumer laws prohibiting representing that “property or services have sponsorship,
approval, accessories, characteristics, ingredients, uses, benefits or quantities that they do not
have,” representing that “property or services are of particular standard, quality, grade, style or
model, if they are of another which differs materially from the representation,” and/or “willful[ly]
fail[ing] to state a material fact, or the willful concealment, suppression or omission of a material
fact.” Kan. Stat. §§ 50-626(b)(1)(A), (b)(1)(D) and (b)(3). WSU has also violated Kansas
consumer laws by engaging in a “deceptive act or practice in connection with a consumer
transaction.” Kan. Stat. § 50-626(a).
137.
In addition, WSU has violated Kan. Stat. § 50-627 by “engag[ing] in any
unconscionable act or practice in connection with a consumer transaction.” A violation of the
Kansas Information Security Statute “shall be an unconscionable act or practice in violation of
34
K.S.A. 50-627, and amendments thereto.” Kan. Stat. § 50-6139b(d). The Kansas Information
Security Statute requires that holders of personal information, including social security numbers,
must (among others) “implement and maintain reasonable procedures and practices” and “exercise
reasonable care to protect the personal information from unauthorized access, use, modification or
disclosure.” Kan. Stat. § 50-6139b(b)(1). The Kansas Information Security Statute further requires
that holders of personal information must “take reasonable steps to destroy or arrange for the
destruction of any records within such holder’s custody or control containing any person’s personal
information.” Kan. Stat. § 50-6139b(b)(2). WSU failed to comply with the Kansas Information
Security Statute, by failing to reasonably protect Plaintiff and Class members’ PII, including their
social security numbers, and by failing to take reasonable steps to destroy such information once
it was no longer needed. As a result, WSU has engaged in an unconscionable act or practice in
violation of Kan. Stat. § 50-627. See Kan. Stat. § 50-6139b(d).
138.
Plaintiff and the Kansas Student Subclass have suffered damages as a result of
Defendant’s breaches of its duties and violations of the Kansas Consumer Protection Act, and such
damages were foreseeable.
139.
Defendant’s violations of these duties are the proximate cause of Plaintiff’s and the
Kansas Student Subclass members’ damages.
140.
Plaintiff seeks all available relief, including (without limitation) restitution to the
Class of money or property that the Defendant acquired by means of Defendant’s deceptive,
unlawful, unfair, and unconscionable business practices, declaratory relief, attorney fees, costs and
expenses, and injunctive or other equitable relief.
35
FIFTH CAUSE OF ACTION
VIOLATION OF THE KANSAS PROTECTION OF
CONSUMER INFORMATION NOTIFICATION STATUTE,
KAN. STAT. §§ 50-7a02(a), ET SEQ.
(ON BEHALF OF THE KANSAS STUDENT SUBCLASS)
141.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
142.
Plaintiff and members of the Kansas Student Subclass constitute consumers
pursuant to the Kansas Consumer Protection Act.
143.
WSU engaged in the conduct alleged in this Complaint in transactions intended to
result, and which did result, in the sale of services to consumers, including Plaintiff and the Kansas
Student Subclass.
144.
The Data Breach constituted a breach of the security system of WSU within the
meaning of the Kansas Protection of Consumer Information Notification Statute (“KPCI”), Kan.
Stat. §§ 50-7a02(a), et seq.
145.
The KPCI requires institutions that collect and maintain computerized personal
information to “give notice to the affected Kansas resident without unreasonable delay and as soon
as possible.”
146.
Plaintiff’s and Class members’ names, email addresses, dates of birth, and Social
Security numbers were compromised as part of the Data Breach. Such information, particularly
the Social Security numbers combined with the individuals’ names, constitute personal
information under KPCI.
147.
WSU unreasonably delayed in informing the public, including Plaintiff and
members of the Kansas Student Subclass about the Breach that of security that left their highly
sensitive personal information exposed.
36
148.
While WSU learned of the Data Breach in December 2019, and determined that
Plaintiff’s and the Class members’ personal information was exposed as part of the Breach by
January 13, 2020, WSU inexplicably waited until March 6, 2020 before beginning to notify the
affected victims of the Breach.
149.
WSU failed to disclose to Plaintiff and the Kansas Student Subclass members
without unreasonable delay and in the most expedient time possible, the breach of security of their
PII when WSU knew, or reasonably believed, such information had been compromised.
150.
Plaintiff and members of the Kansas Student Subclass suffered harm directly
resulting from WSU’s failure to provide and the delay in providing Plaintiff and the Kansas
Student Subclass members with timely and accurate notice as required by the KPCI. Plaintiff and
the Kansas Student Subclass suffered damages as a direct result of WSU’s delay in providing
timely and accurate notice of the data breach.
151.
Had WSU provided timely and accurate notice of the Data breach, Plaintiff and
Kansas Student Subclass members would have been able to avoid and/or attempt to ameliorate or
mitigate the damages and harm resulting from the unreasonable delay by WSU in providing notice.
152.
As a result of Defendant’s violation of the KPCI, Plaintiff and the Class were
deprived of prompt notice of the Data Breach and were thus prevented from taking appropriate
protective measures, such as securing identity theft protection or requesting a credit freeze. These
measures could have prevented some of the damages suffered by Plaintiff and Class members
because their stolen information would have had less value to identity thieves.
153.
As a result of Defendant’s violation of the KPCI, Plaintiff and the Class suffered
incrementally increased damages separate and distinct from those simply caused by the Data
Breach itself.
37
154.
Plaintiff and the Class seek all available remedies, including, but not limited to the
damages suffered by Plaintiff and the other Class members as alleged above and equitable relief.
SIXTH CAUSE OF ACTION
UNJUST ENRICHMENT
(On Behalf of the Class)
155.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
156.
Plaintiff and the Class bring this claim in the alternative to all other claims and
remedies at law.
157.
By way of its affirmative actions and omissions, including its knowing violations
of its express or implied contracts with Plaintiff and the Class, its violation of Kansas law, and its
violation of its common law duties of care, Defendant knowingly and deliberately enriched itself
by saving the costs it reasonably and contractually should have expended on data security measures
to secure Plaintiff’s and Class members’ PII.
158.
Instead of providing for a reasonable level of security that would have prevented
the Data Breach, as described above and as is common industry practice among entities entrusted
with similar PII (including WSU itself, which had experienced a data breach just months before
the Breach at issue here), Defendant instead consciously and opportunistically calculated to
increase its own profits at the expense of Plaintiff and Class members.
159.
While it cut costs on security, Defendant continued to obtain the benefits conferred
on it by Plaintiff and the Class, including the benefits of tuition and other fees and the benefit of
continued employment from its faculty and staff.
160.
Plaintiff and Class members, on the other hand, suffered as a direct and proximate
result. As a result of Defendant’s decision to profit rather than provide requisite security and the
38
resulting disclosure of students’ and employees’ PII, Plaintiff and Class members suffered and
continue to suffer considerable injuries as alleged in detail above.
161.
Defendant, therefore, was unjustly enriched when it profited from Plaintiff and the
Class by promising to protect their PII but failing to invest the necessary resources into doing so.
As such, it would be inequitable, unconscionable, and unlawful to permit Defendant to retain the
benefits it derived as a consequence of this failure.
162.
Accordingly, Plaintiff on behalf of himself and the Class members, is entitled to
relief in the form of restitution and/or compensatory damages.
SEVENTH CAUSE OF ACTION
INJUNCTIVE AND DECLARATORY RELIEF
(On Behalf of the Class)
163.
Plaintiff incorporates by reference all preceding factual allegations as though fully
alleged here.
164.
Plaintiff and the Class bring this claim in addition to all other claims and remedies.
165.
As previously alleged and pleaded, Defendant owes duties of care to Plaintiff and
the Class that require it to adequately secure their Personal Information.
166.
Defendant still possesses the PII of Plaintiff and the Class.
167.
Defendant has not satisfied its contractual obligations and legal duties to Plaintiff
and the Class.
168.
Defendant has claimed that it is taking some steps to increase its data security, but
there is nothing to indicate that these changes will be sufficient, and there is nothing to prevent
Defendant from reversing these changes once it has weathered the increased public attention
resulting from this Breach.
169.
Plaintiff, therefore, seeks a declaration (1) that Defendant’s existing security
measures do not comply with its contractual obligations and duties of care to provide adequate
39
security, and (2) that to comply with its contractual obligations and duties of care, Defendant must
implement and maintain reasonable security measures, including, but not limited to:
a. Ordering Defendant to engage third-party security auditors/penetration testers
as well as internal security personnel to conduct testing, including simulated
attacks, penetration tests, and audits on Defendant’s systems on a periodic basis,
and ordering Defendant to promptly correct any problems or issues detected by
such third-party security auditors;
b. Ordering Defendant to engage third-party security auditors and internal
personnel to run automated security monitoring;
c. Ordering that Defendant audit, test, and train their security personnel regarding
any new or modified procedures;
d. Ordering that Defendant segment student and employee data by, among other
things, creating firewalls and access controls so that if one area of Defendant’s
systems is compromised, hackers cannot gain access to other portions of
Defendant’s systems;
e. Ordering that Defendant implement encryption rules on all IT systems
containing Personal Information of students and employees;
f. Ordering that Defendant purge, delete, and destroy in a reasonably secure
manner Personal Information not necessary for its provisions of services;
g. Ordering that Defendant conduct regular database scanning, vulnerability, and
securing checks;
40
h. Ordering Defendant to routinely and continually conduct internal training and
education to inform internal security personnel how to identify and contain a
breach when it occurs and what to do in response to a breach;
i. Ordering Defendant to implement and enforce adequate retention policies for
Personal Information, including destroying student and employee Personal
Information as soon as it is no longer necessary for the purposes it was
originally acquired; and
j. Ordering Defendant to meaningfully educate its current, former, and
prospective employees about the threats they face as a result of the loss of their
personal information to third parties, as well as the steps they must take to
protect themselves.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff and the Class pray for judgment against Defendant as follows:
a. An order certifying this action as a class action, defining the Class as requested herein,
appointing the undersigned as Class counsel, and finding that Plaintiff is a proper
representative of the Class requested herein;
b. A judgment in favor of Plaintiff and the Class awarding them appropriate monetary
relief, including actual and statutory damages, punitive damages, attorney fees,
expenses, costs, and such other and further relief as is just and proper;
c. An order providing injunctive and other equitable relief as necessary to protect the
interests of the Class as requested herein;
d. An order requiring Defendant to pay the costs involved in notifying the Class about the
judgment and administering the claims process;
41
e. A judgment in favor of Plaintiff and the Class awarding them pre-judgment and post-
judgment interest, reasonable attorneys’ fees, costs and expenses as allowable by law;
and
f. An award of such other and further relief as this Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a trial by jury on all appropriate issues raised in this Complaint.
Dated: May 14, 2020
Respectfully submitted by:
BOULWARE LAW LLC
/s/ Brandon J.B. Boulware
Brandon J.B. Boulware
KS # 25840
1600 Genessee Street, Suite 416
Kansas City, MO 64102
Tel:
(816) 492-2826
Email: Brandon@boulware-law.com
William B. Federman
FEDERMAN & SHERWOOD
10205 N. Pennsylvania Ave.
Oklahoma City, Oklahoma 73120
(405) 235-1560
(405) 239-2112 (facsimile)
wbf@federmanlaw.com
Counsel for Plaintiff and the Putative Class
42
| securities |
MVKr_ogBF5pVm5zYVT3x | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
JOSEPH KINNEY on behalf of himself and all
others similarly situated,
22-cv-2458
CASE NO.
Plaintiff,
v.
PUBLIC CONSULTING GROUP, INC., and
STAFFING SOLUTIONS ORGANIZATION,
LLC,
Defendants,
CLASS ACTION COMPLAINT FOR
VIOLATION OF WARN ACT 29 U.S.C. § 2101, ET SEQ.
Plaintiff Joseph Kinney (“Plaintiff”) alleges on behalf of himself and a putative class of
similarly situated former employees, by way of his Class Action Complaint against Public
Consulting Group, Inc. and Staffing Solutions Organization, LLC (collectively, “Defendants”).
NATURE OF THE ACTION
1.
Beginning on or about February 25, 2022, and within 90 days of that date,
Defendants terminated hundreds of its employees.
2.
Plaintiff brings this action on behalf of himself, and other similarly situated former
employees who worked for Defendants and who were terminated without cause, as part of, or as
the foreseeable result of, a mass layoff or plant closing ordered by Defendants beginning on
February 25, 2022, and within 90 days of that date and who were not provided 60 days advance
written notice of their terminations by Defendants, as required by the Worker Adjustment and
Retraining Notification Act (“WARN Act”), 29 U.S.C. § 2101 et seq., and 90 days advance written
notice of their terminations by Defendants, as required by the New York Worker Adjustment and
Retraining Notification Act (“NY WARN Act”), New York Labor Law (“NYLL”) § 860 et seq.
3.
Plaintiff and all similarly situated employees seek to recover up to 60 days wages
and benefits, pursuant to 29 U.S.C. § 2104 and NYLL § 860-g (2), from Defendants.
JURISDICTION AND VENUE
4.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1334,
1367 and 29 U.S.C. § 2104(a)(5).
5.
Venue is proper in this District pursuant to 29 U.S.C. § 2104(a)(5).
THE PARTIES
Plaintiff
6.
Until he was terminated from his employment on or about February 25, 2022,
Plaintiff was employed by Defendants in their Virtual Call Center as a contact tracer/case
investigator in the NY Contact Tracing Initiative.
7.
Plaintiff was terminated without cause.
8.
Plaintiff did not receive 60 days’ notice of his termination.
Defendants
9.
Upon information and belief and at all relevant times, Defendant Public Consulting
Group, Inc.(“PCG”) maintained its corporate headquarters at 148 State Street, 10th Floor, Boston,
Massachusetts 02109.
10.
Upon information and belief and at all relevant times, PCG maintained an office
located at 80 Maiden Lane, Suite 1106, New York NY 10038 and conducted business in this
district.
11.
Staffing Solutions Organization, LLC (“SSO”), upon information and belief, and
at all relevant times, is a wholly-owned subsidiary of PCG.
12.
Upon information and belief and at all relevant times, both PCG and SSO
maintained offices at the same location, 99 Washington Avenue, Suite 1720, Albany, NY 12210
(the “Headquarters Facility”).
13.
Upon information and belief, PCG and SSO conducted business in this district.
14.
Upon information and belief, on or about May 2020, Defendants contracted with
New York State to carry out the operations of the New York (NY) Contact Tracing Initiative.
15.
Defendants’ role in the NY Contact Tracing Initiative was to establish and maintain
a Virtual Call Center in the state of New York as part of the state’s efforts to counter the spread of
COVID-19.
16.
Upon information and belief, Defendants managed their NY Contact Tracing
Initiative/Virtual Call Center workforce from the Headquarters Facility.
17.
Defendants’ involvement with the NY Contact Tracing Initiative included
recruiting, interviewing, hiring, training, and managing contact tracers and case investigators, their
managers, and other staff, and administering all human resources management functions for this
workforce.
18.
Defendants were responsible for managing the day-to-day operations and work
performed by this workforce.
19.
Defendants regularly issued directives to Plaintiff and the contact tracer/case
investigators regarding what they should and should not say in their calls, provided scripts,
established protocols, procedures, and workflows for the Virtual Call Center teams, and kept track
of their work hours, compliance with policies, and performance.
20.
Plaintiff and the similarly situated Virtual Call Center employees worked outside
of any of the Defendants’ regular employment sites, and they reported to, and they received
assignments or were managed from, Defendants’ Headquarters Facility.
21.
When performing case investigations, Virtual Call Center employees were
instructed to call patients, whose positive COVID test results had been reported to the New York
State Department of Health. Following a script, the investigator would interview the person about
their activities before and after the test. They would also provide guidance regarding isolation and
other steps to be taken. The interview, which could last more than an hour, would generate names
of contacts of the patient. A contact tracer would then call those contacts, in order to alert them
and provide guidance. Virtual Call Center employees also assisted individuals by making referrals
to social, medical, and financial services.
22.
Defendants employed about 4,000 NY Contact Tracing Initiative staff members by
the end of 2020.
23.
Upon information and belief, Defendants reduced the number of their full time NY
Contact Tracing Initiative employees to about 3,000, state-wide, by the end of 2021.
24.
Upon information and belief, prior to February 11, 2022, Defendants decided to
reduce the number of Virtual Call Center employees in the NY Contact Tracing Initiative and
began making plans to do so.
25.
On or about February 11, 2022, Defendants informed employees of their decision
to “right size” the Virtual Call Center. Defendants’ message did not state the extent of the
reduction or who would be affected. It said the affected employees would be notified of their
layoff on February 24, and be terminated the next day.
26.
On information and belief, on February 24, Defendants notified selected
employees, including Plaintiff, of their termination.
27.
The next day, on February 25, 2022, Defendants halved the number of Virtual Call
Center employees state-wide, including approximately half of the 375 employees in the Mohawk
Valley Region where Plaintiff worked.
28.
Upon information and belief, Plaintiff and the other similarly situated individuals
were terminated by Defendants without cause beginning on or about February 25, 2022, while
those who were not terminated continued to work for Defendants in the NY Contact Tracing
Initiative’s Virtual Call Center.
29.
Upon information and belief, on or about March 11, 2022, Defendants informed the
remaining Virtual Call Center employees that further terminations would occur on March 25.
30.
Upon information and belief, on March 24, Defendants disseminated notices of
termination to the hundreds the Virtual Call Center employees whom they had chosen to terminate
the next day.
31.
Upon information and belief, Defendants terminated those affected Virtual Call
Center workers on March 25, 2022.
32.
In their messages to Plaintiff and those similarly situated concerning their jobs,
Defendants, throughout their employment, identified themselves variously as PCG or SSO.
33.
Defendants made the decision to terminate the employment of Plaintiff and the
other similarly situated former employees without 60 days’ advance notice.
34.
Upon information and belief, Defendants, in their continuation of the NY Contact
Tracing Initiative, still employ hundreds of Virtual Call Center employees.
WARN CLASS ALLEGATIONS, 29 U.S.C. § 2104
35.
Plaintiff brings this Claim for Relief for violation of 29 U.S.C. § 2101 et seq., on
behalf of himself and on behalf of all other similarly situated former employees, pursuant to 29
U.S.C. § 2104(a)(5) and Fed. R. Civ P. 23(a), who worked at, reported to, or received assignments
from Defendants’ Headquarters Facility and were terminated without cause beginning on or about
February 25, 2022, and within 90 days of that date, or were terminated without cause as the
reasonably foreseeable consequence of the mass layoff and/or plant closing ordered by Defendants
beginning on or about February 25, 2022, and who are affected employees, within the meaning of
29 U.S.C. § 2101(a)(5) (the “WARN Class”).
36.
The persons in the WARN Class identified above (“WARN Class Members”) are
so numerous that joinder of all members is impracticable. Although the precise number of such
persons is unknown, the facts on which the calculation of that number can be based are presently
within the sole control of one or both Defendants.
37.
On information and belief, the identity of the members of the class and the recent
residence address of each of the WARN Class Members is contained in the books and records of
one or both Defendants.
38.
On information and belief, the rate of pay and benefits that were being paid by
Defendants to each WARN Class Member at the time of his/her termination is contained in the
books and records of one or both Defendants.
39.
Common questions of law and fact exist as to members of the WARN Class,
including, but not limited to, the following:
(a)
whether the members of the WARN Class were employees of the
Defendants who worked at, reported to, or received assignments from the
Headquarters Facility;
(b)
whether Defendants unlawfully terminated the employment of the members
of the WARN Class without cause on their part and without giving them 60
days advance written notice in violation of the WARN Act;
(c)
whether Defendants, as a single employer, violated the WARN Act; and
(d)
whether Defendants unlawfully failed to pay the WARN Class members 60
days wages and benefits as required by the WARN Act.
40.
Plaintiff’s claims are typical of those of the WARN Class. Plaintiff, like other
WARN Class members, worked at, reported to, or received assignments from the Headquarters
Facility, and were terminated without cause beginning on or about February 25, 2022, due to the
mass layoff and/or plant closing ordered by Defendants.
41.
Plaintiff will fairly and adequately protect the interests of the WARN Class.
Plaintiff has retained counsel competent and experienced in complex class actions, including the
WARN Act and employment litigation.
42.
On or about February 25, 2022, Defendants began terminating the employment of
Plaintiff and similarly situated employees, as part of a mass layoff or a plant closing as defined by
29 U.S.C. § 2101(a)(2), (3), for which the affected employees were entitled to receive 60 days
advance written notice under the WARN Act. Class certification of these claims is appropriate
under Fed. R. Civ. P. 23(b)(3) because questions of law and fact common to the WARN Class
predominate over any questions affecting only individual members of the WARN Class, and
because a class action superior to other available methods for the fair and efficient adjudication of
this litigation – particularly in the context of WARN Act litigation, where individual plaintiffs may
lack the financial resources to vigorously prosecute a lawsuit in federal court against a corporate
defendant, and damages suffered by individual WARN Class members are small compared to the
expense and burden of individual prosecution of this litigation.
43.
Concentrating all the potential litigation concerning the WARN Act rights of the
members of the Class in this Court will obviate the need for unduly duplicative litigation that might
result in inconsistent judgments, will conserve the judicial resources and the resources of the
parties and is the most efficient means of resolving the WARN Act rights of all the members of
the WARN Class.
44.
Plaintiff intends to send notice to all members of the WARN Class to the extent
required by Rule 23.
CLAIM FOR RELIEF
I.
Violation of the WARN Act, 29 U.S.C. § 2104
45.
Plaintiff realleges and incorporates by reference all allegations in all preceding
paragraphs.
46.
At all relevant times, Defendants employed more than 100 employees who in the
aggregate worked at least 4,000 hours per week, exclusive of hours of overtime, within the United
47.
At all relevant times, Defendants were an “employer,” as that term is defined in
29 U.S.C. § 2101 (a)(1) and 20 C.F.R. § 639(a) and continued to operate as a business as they
decided to order, and carried out, a mass layoff or plant closing.
48.
Because SSO was, on information and belief, inter alia, owned by PCG and its
subsidiaries, common issues of fact include whether Defendants were functionally independent of
one another in managing the NY Contact Tracing Initiative and Virtual Call Center, whether they
shared common directors and/or officers, whether SSO was under the de facto control of PCG, and
whether SSO’s operations were dependent on PCG so that Defendants, as a single employer, are
jointly and severally liable to Plaintiff and the similarly situated terminated employees during the
relevant time period for not providing them notice pursuant to the WARN Act.
49.
On or about February 25, 2022, Defendants ordered a mass layoff and/or plant
closing at the Headquarters Facility, as those terms are defined by 29 U.S.C. § 210l(a)(2).
50.
The mass layoff or plant closing at the Headquarters Facility resulted in
“employment losses,” as that term is defined by 29 U.S.C. §2101(a)(2) for at least 500 of
Defendants’ employees, or fifty or more employees comprising at least thirty-three percent (33%)
of Defendants’ workforce at, or reporting to, or receiving assignments from the Headquarters
Facility, excluding “part-time employees,” as that term is defined by 29 U.S.C. § 2l01(a)(8).
51.
Plaintiff and the WARN Class Members were terminated by Defendants without
cause on their part, as part of or as the reasonably foreseeable consequence of the mass layoff or
plant closing ordered by Defendants at the Headquarters Facility.
52.
Plaintiff and the WARN Class Members are “affected employees” of Defendants,
within the meaning of 29 U.S.C. § 210l(a)(5).
53.
Defendants were required by the WARN Act to give Plaintiff and the WARN Class
Members at least 60 days advance written notice of their terminations.
54.
Defendants failed to give Plaintiff and the WARN Class members written notice
that complied with the requirements of the WARN Act.
55.
Until Defendants sent Plaintiff and the WARN Class members the email of
February 11, informing them that some terminations would occur in February, they never told
them that they might be terminated in February 2022.
56.
At the time of Plaintiff’s and the WARN Class members’ terminations, the Virtual
Call Center work was ongoing, and the NY Contact Tracing Initiative was continuing.
57.
Plaintiff and each of the WARN Class Members, are “aggrieved employees” of
Defendants as that term is defined in 29 U.S.C. § 2104 (a)(7).
II.
New York WARN Act Class Allegations, NYLL § 860 et seq.
58.
Plaintiff brings this claim for relief for violation of NYLL § 860 et seq., on behalf
of himself and a class of similarly situated persons pursuant to NYLL § 860-g (7) and Federal
Rules of Civil Procedure, Rule 23(a) and (b), who worked at, reported to, or received assignments
from the Headquarters Facility and were terminated without cause beginning on or about February
25, 2022 and within 90 days of that date, or were terminated without cause as the reasonably
foreseeable consequence of the mass layoff and/or plant closing ordered by Defendants beginning
on or about February 25, 2022, and who are affected employees, within the meaning of NYLL §
860-a (1),(4) and(6).
59.
The persons in the Class identified above (“NY Class Members”) are so numerous
that joinder of all members is impracticable. Although the precise number of such persons is
unknown, the facts on which the calculation of that number can be based are presently within the
sole control of Defendants.
60.
On information and belief, Defendants employed 50 or more employees within
New York State as of the time notice was first required to be given. On information and belief,
Defendants terminated at least 250 full-time employees within 90 days of February 25, 2022, from
their Headquarters Facility in New York State, or at least 25 employees comprising one-third of
the employees there.
61.
On information and belief, the identity of the members of the class and the recent
residence address of each of the NY Class Members is contained in the books and records of
Defendants.
62.
On information and belief, the rate of pay and benefits that were being paid by
Defendants to each NY Class Member at the time of his/her termination is contained in the books
and records of the Defendants.
63.
Common questions of law and fact exist as to members of the NY Class, including,
but not limited to, the following:
a. whether the members of the NY Class were employees of Defendants who
worked at, reported to, or received assignments from a covered site of employment of
Defendants;
b. whether Defendants, unlawfully terminated the employment of the members of
the NY Class without cause on their part and without giving them 90 days advance
written notice in violation of the NY WARN Act;
c. whether Defendants unlawfully failed to pay the NY Class Members 60 days
wages and benefits as required by the NY WARN Act; and
d. whether Defendants as a single employer violated the NY WARN Act.
64.
Plaintiff’s claims are typical of those of the NY Class Members. Plaintiff, like other
NY Class Members, worked at, reported to, or received assignments from worked at or reported
to the Headquarters Facility and was terminated on February 25, 2022, or within 90 days of that
date, due to the terminations ordered by Defendants.
65.
Plaintiff will fairly and adequately protect the interests of the NY Class. Plaintiff
has retained counsel competent and experienced in complex class actions on behalf of employees,
including the NY WARN Act.
66.
Class certification of these claims is appropriate under Fed.R. Civ.P. 23(b)(3)
because questions of law and fact common to the NY Class predominate over any questions
affecting only individual members of the NY Class, and because a class action is superior to other
available methods for the fair and efficient adjudication of this litigation – particularly in the
context of NY WARN class action litigation, where individual plaintiff may lack the financial
resources to vigorously prosecute a lawsuit in federal court against a corporate defendant, and
damages suffered by individual NY Class Members are small compared to the expense and burden
of individual prosecution of this litigation.
67.
Concentrating all the potential litigation concerning the NY WARN Act rights of
the members of the NY Class in this Court will obviate the need for unduly duplicative litigation
that might result in inconsistent judgments, will conserve the judicial resources and the resources
of the parties and is the most efficient means of resolving the NY WARN Act rights of all the
members of the NY Class Members.
68.
Plaintiff intends to send notice to all the NY Class Members to the extent required
by Rule 23.
PRAYER FOR RELIEF
WHEREFORE, the Plaintiff, individually and on behalf of all other similarly situated
persons, pray for the following relief as against Defendants:
A.
Certification of this action as a class action;
B.
Designation of Plaintiff as the WARN Class and NY WARN Class Representative;
C.
Appointment of the undersigned attorneys as Class Counsel for all class members;
D.
A judgment against Defendants in favor of the Plaintiff and the other similarly
situated former employees equal to the sum of: their unpaid wages, as determined
in accordance with the WARN Act, 29 U.S.C. § 2104 (a)(1)(A) and NYLL § 860-
g (1)(a);
E.
Plaintiff’s reasonable attorneys’ fees and the costs and disbursements that the
Plaintiff incurred in prosecuting this action, as authorized by the WARN Act, 29
U.S.C. § 2104(a)(6) and NYLL § 860-g (7); and
F.
Such other and further relief as this Court may deem just and proper.
DATED: March 25, 2022
/s/ Jack. A. Raisner
Jack A. Raisner
René S. Roupinian
RAISNER ROUPINIAN LLP
270 Madison Avenue, Suite 1801
New York, New York 10016
Telephone: (212) 221-1747
Fax: (212) 221-1747
Email: rsr@raisnerroupinian.com
Email: jar@raisnerroupinian.com
Attorneys for the Plaintiff and the putative Class
| employment & labor |
bvxZFIcBD5gMZwcz8oGH |
John P. Kristensen (SBN 224132)
Jesenia A. Martinez (SBN 316969)
Jacob J. Ventura (SBN 315491)
KRISTENSEN LLP
12540 Beatrice Street, Suite 200
Los Angeles, California 90066
Telephone: 310-507-7924
Fax: 310-507-7906
john@kristensenlaw.com
jesenia@kristensenlaw.com
jacob@kristensenlaw.com
Jarrett Ellzey (pro hac vice pending)
HUGHES ELLZEY, L.L.P.
1105 Milford
Houston, Texas
Telephone: 888-350-3931
Fax: 888-995-3335
jarrett@hughesellzey.com
Attorneys for Plaintiff and all others
similarly situated
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA - OAKLAND DIVISION
REEVE SCHLEY, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
ONE PLANET OPS INC., a Delaware
Corporation; BUYERLINK LLC dba
CONTRACTORS.COM, a California limited
liability company; and DOES 1 through 50,
inclusive, and each of them,
Defendant.
Case No.:
CLASS ACTION
COMPLAINT FOR DAMAGES AND
INJUNCTIVE RELIEF
(1)
Violations of the TCPA, 47 U.S.C. §
227, et seq. (Cell Phone and Text);
(2)
Violations of the TCPA, 47 U.S.C. §
227, et seq. (Do Not Call);
(3)
Violations of the TCPA, 47 C.F.R. §
64.1200(d) (Internal Do Not Call);
DEMAND FOR JURY TRIAL
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other persons similarly situated, alleges the following upon information and belief based upon
personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action for himself and others similarly situated seeking
damages and any other available legal or equitable remedies resulting from the illegal actions of
defendants ONE PLANET OPS INC., (“Defendant” or “One Planet”) BUYERLINK LLC dba
CONTRACTORS.COM (“Defendant” or “BuyerLink”) and DOES 1 through 50 (collectively
referred to throughout portions of this Class Action Complaint as “Defendants”), in contacting
Plaintiff as well as knowingly, and/or willfully contacting Plaintiff via text and unsolicited
telemarketing calls on Plaintiff’s cellular telephone in violation of the Telephone Consumer
Protection Act, 47 U.S.C. § 227, et seq. (“TCPA”), and , 47 C.F.R. § 64.1200(D) thereby
invading Plaintiff’s privacy. Plaintiff, alleges as follows upon personal knowledge as to himself
and his own acts and experiences, and, as to all other matters, upon information and belief,
including investigation conducted by his attorney.
2.
Defendants own and operate a real-time lead service company in the online
marketing and advertising industry. In an effort to solicit potential customers, Defendants, or
employed agents use machines that had the capacity to store a list of phone numbers and send
out blast texts to cellular telephone calls, en masse, to consumers across the country. On
information and belief, Defendants and or its agents purchase “leads” containing consumers’
contact information and create electronic databases from which Defendants makes automated
calls.
3.
Defendants conducted wide-scale telemarketing campaigns and repeatedly made
contact with consumers’ telephones—whose numbers appear on the National Do Not Call
Registry—without consent, all in violation of the Telephone Consumer Protection Act, 47
U.S.C. § 227 (the “TCPA”).
4.
The Telephone Consumer Protection Act, 47 U.S.C. § 227 (the “TCPA”) was
enacted to protect consumers from unsolicited telephone contact exactly like those alleged in
seek an injunction requiring Defendants to cease all unsolicited telephone contacting activities
and an award of statutory damages to the members of the Class under the TCPA up to $500.00
per violation, together with court costs, reasonable attorneys’ fees, and up to three times actual
monetary loss damages (for knowing and/or willful violations).
5.
This case arises from the transmissions of text messages and telephone calls to
the cellular telephones of Plaintiff and members of the class for the purpose of promoting
Defendants’ services.
6.
By sending the illegal texts and making the telephone calls at issue in this
Complaint, Defendants caused Plaintiff and the members of a putative Class of consumers
(defined below) actual harm, including the aggravation, nuisance, and invasion of privacy that
necessarily accompanies the receipt of unsolicited and harassing text messages, as well as the
monies paid to their carriers for the receipt of such text messages and telephone calls.
7.
Plaintiff brings this class action against Defendants to secure redress because
Defendants willfully violated the TELEPHONE CONSUMER PROTECTION ACT (“TCPA”), 47
U.S.C § 227, et seq. by sending text messages and causing unsolicited automated calls to be
made to Plaintiff and other class members’ telephones.
8.
The TCPA was enacted to protect consumers from unsolicited text messages and
telephone calls exactly like those alleged in this case. In response to Defendants’ unlawful
conduct, Plaintiff files the instant lawsuit and seeks an injunction requiring Defendants to halt
their illegal conduct, including to cease all unsolicited text messaging and telephone activities,
which has resulted in the invasion of privacy, harassment, aggravation, and disruption of the
daily life of thousands of individuals nationwide. Plaintiff also seeks statutory damages on
behalf of himself and members of the class, and any other available legal or equitable remedies
resulting from the illegal actions of Defendants.
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9.
Plaintiff REEVE SCHLEY is a natural person and citizen in the state of
California.
10.
Defendant ONE PLANET OPS INC. (“Defendant” or “One Planet”) is Delaware
corporation with its principal place of business at 1820 Bonanza Street, Ste. 200, Walnut Creek,
California 94596. Defendant may be served with process by serving its registered agent,
Incorporating Services, Ltd. at 7801 Folsom Boulevard, Suite 202, Sacramento, California
95826.
11.
Defendant BUYERLINK LLC dba CONTRACTORS.COM (“Defendant” or
“BuyerLink”) is a California limited liability company with its principal place of business at
1820 Bonanza Street, Ste. 200, Walnut Creek, California 94596. Defendant may be served with
process by serving its registered agent, Incorporating Services, Ltd. at 7801 Folsom Boulevard,
Suite 202, Sacramento, California 95826.
12.
Plaintiff does not yet know the identity of Defendant’s employees/agents that
had direct, personal participation in or personally authorized the conduct found to have violated
the statute and were not merely tangentially involved. They will be named, as numerous District
Courts have found that individual officers/principals of corporate entities may be personally
liable (jointly and severally) under the TCPA if they had direct, personal participation in or
personally authorized the conduct found to have violated the statute, and were not merely
tangentially involved. Texas v. American Blastfax, Inc., 164 F.Supp.2d 892, 899 (W.D. Tex.
2001) (“American Blastfax”); Sandusky Wellness Center, LLC v. Wagner Wellness, Inc., 2014
WL 1333472, at * 3 (N.D. Ohio March 28, 2014); Maryland v. Universal Elections, 787
F.Supp.2d 408, 415-16 (D.Md. 2011) (“Universal Elections”); Baltimore-Washington Tel Co. v.
Hot Leads Co., 584 F.Supp.2d 736, 745 (D.Md. 2008); Covington & Burling v. Int’l Mktg. &
Research, Inc., 2003 WL 21384825, at *6 (D.C.Super Apr. 17, 2003); Chapman v. Wagener
Equities, Inc. 2014 WL 540250, at *16-17 (N.D.Ill. Feb. 11, 2014); Versteeg v. Bennett,
Deloney & Noyes, P.C., 775 F.Supp.2d 1316, 1321 (D.Wy.2011) (“Versteeg”). Upon learning
of the identities of said individuals, Plaintiff will move to amend to name the individuals as
to herein as “Defendants.”
13.
Whenever in this complaint it is alleged that Defendant(s) committed any act or
omission, it is meant that the Defendant’s officers, directors, vice-principals, agents, servants,
or employees, subsidiaries, or affiliates committed such act or omission and that at the time
such act or omission was committed, it was done with the full authorization, ratification or
approval of Defendant or was done in the routine normal course and scope of employment of
the Defendant’s officers, directors, vice-principals, agents, servants, or employees.
JURISDICTION, VENUE AND INTRADISTRICT ASSIGNMENT
14.
This action is brought under the Telephone Consumer Protection Act, 47 U.S.C.
§ 227, et seq. (“TCPA”), and 47 C.F.R. § 64.1200(D), which is a federal statute.
15.
Subject matter jurisdiction over this action is conferred by 28 U.S.C. § 1331
(federal question).
16.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because the
wrongful conduct giving rise to this case occurred in, was directed to, and/or emanated from
Contra Costa County, which is located in the Northern District of California. It is also the
district in which One Planet’s and BuyerLink’s principal place of business is located.
17.
Since the acts or omissions which give rise to Plaintiff’s claims occurred in
Contra Costa County, Pursuant to Local Rule 3.2(c), this action must be assigned to the
Oakland division of the Northern District Court.
LEGAL BASIS FOR THE CLAIMS
18.
In 1991, Congress enacted the TCPA to regulate the explosive growth of the
telemarketing industry. In doing so, Congress recognized that “[u]nrestricted
telemarketing…can be an intrusive invasion of privacy…” Telephone Consumer Protection
Act of 1991, Pub. L. No. 102-243 § 2(5) (1991) (codified at 47 U.S.C. § 227).
19.
Specifically, the TCPA restricts telephone solicitations (i.e., telemarketing) and
the use of automated telephone equipment. The TCPA limits the use of automatic dialing
systems, artificial or prerecorded voice messages, SMS text messages, and fax machines. It also
systems—principally with provisions requiring identification and contact information of the
entity using the device to be contained in the message.
20.
The TCPA and the Federal Communications Commission’s (“FCC”)
implemented rules prohibit: (1) making telemarketing calls using an artificial or prerecorded
voice to residential telephones without prior express consent; and (2) making any non-
emergency call using an automatic telephone dialing system (“ATDS”) or an artificial or
prerecorded voice to a wireless telephone number without prior express consent. If the call
includes or introduces an advertisement, or constitutes telemarketing, consent must be in
writing. The TCPA grants consumers a private right of action, with a provision for $500 or the
actual monetary loss in damages for each violation, whichever is greater, and treble damages
for each willful or knowing violation, as well as injunctive relief.
21.
In its initial implementation of the TCPA rules, the FCC included an exemption
to its consent requirement for prerecorded telemarketing calls. Where the caller could
demonstrate an “established business relationship” with a customer, the TCPA permitted the
caller to place pre-recorded telemarketing calls to residential lines. The new amendments to the
TCPA, effective October 16, 2013, eliminate this established business relationship exemption.
Therefore, all pre-recorded telemarketing calls to residential lines and wireless numbers violate
the TCPA if the calling party does not first obtain express written consent from the called party.
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consent,1 the TCPA and Federal Communications Commission (FCC) rules under the TCPA
generally:
Prohibits solicitors from calling residences before 8 a.m. or after 9 p.m.,
local time.
Requires solicitors provide their name, the name of the person or entity
on whose behalf the call is being made, and a telephone number or
address at which that person or entity may be contacted.
Prohibits solicitations to residences that use an artificial voice or a
recording.
Prohibits any call or text made using automated telephone equipment or
an artificial or prerecorded voice to a wireless device or telephone.
Prohibits any call made using automated telephone equipment or an
artificial or prerecorded voice to an emergency line (e.g., “911”), a
hospital emergency number, a physician’s office, a hospital/health care
facility/elderly room, a telephone, or any service for which the recipient
is charged for the call.
Prohibits autodialed calls that engage two or more lines of a multi-line
business.
Prohibits unsolicited advertising faxes.
Prohibits certain calls to members of the Do-Not-Call Registry
23.
The TCPA prohibits: (1) any person from calling a cellular telephone number;
(2) using an automatic telephone dialing system or prerecorded message; (3) without the
recipient’s prior express consent. 47 U.S.C. § 227(b)(1)(A).
24.
The TCPA defines an “automatic telephone dialing system” (“ATDS”) as
“equipment that has the capacity - (A) to store or produce telephone numbers to be called, using
1
Prior express written consent means “an agreement, in writing, bearing the signature of the person
called that clearly authorizes the seller to deliver or cause to be delivered to the person called
advertisements or telemarketing messages using an automatic telephone dialing system or an
artificial or prerecorded voice, and the telephone number to which the signatory authorizes such
advertisements or telemarketing messages to be delivered. 47 C.F.R. § 64.1200(f)(8).
25.
In an action under the TCPA, a plaintiff must only show that the defendant
“called a number assigned to a cellular telephone service using an automatic dialing system or
prerecorded voice.” Breslow v. Wells Fargo Bank, N.A., 857 F. Supp. 2d 1316, 1319 (S.D. Fla.
2012), aff'd, 755 F.3d 1265 (11th Cir. 2014).
26.
The Federal Communications Commission (“FCC”) is empowered to issue rules
and regulations implementing the TCPA. According to the FCC’s findings, calls in violation of
the TCPA are prohibited because, as Congress found, automated or prerecorded telephone calls
are a greater nuisance and invasion of privacy than live solicitation calls, and such calls can be
costly and inconvenient. The FCC also recognized that wireless customers are charged for
incoming calls whether they pay in advance or after the minutes are used. Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-
278, Report and Order, 18 FCC Rcd 14014 (2003).
27.
There are just a handful of elements need to be proven for violations of the Do
Not Call provision of the TCPA.
A.
DO NOT CALL VIOLATIONS OF THE TCPA
28.
More Than One Call within Any 12 Month Period. 47 U.S.C. § 227(c) provides
that any “person who has received more than one telephone call within any 12-month period by
or on behalf of the same entity in violation of the regulations prescribed under this subsection
may” bring a private action based on a violation of said regulations, which were promulgated to
protect telephone subscribers’ privacy rights to avoid receiving telephone solicitations to which
they object.
29.
Calls to Residential Lines on the Do Not Call List. The TCPA’s implementing
regulation—47 C.F.R. § 64.1200(c)—provides that “[n]o person or entity shall initiate any
telephone solicitation” to “[a] residential telephone subscriber who has registered his or her
telephone number on the national do-not-call registry of persons who do not wish to receive
telephone solicitations that is maintained by the federal government.” See 47 C.F.R. §
64.1200(c).
numbers (aka mobile or cellular phones) receive the same protections from the Do Not Call
provision as owners or subscribers of wireline (“landline”) phone numbers. 47 C.F.R. §
64.1200(e), provides that 47 C.F.R. §§ 64.1200(c) and (d) “are applicable to any person or
entity making telephone solicitations or telemarketing calls to wireless telephone numbers to
the extent described in the Commission’s Report and Order, CG Docket No. 02-278, FCC 03-
153, ‘Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991,’”
which the Report and Order, in turn, provides as follows:
The Commission’s rules provide that companies making telephone solicitations
to residential telephone subscribers must comply with time of day restrictions
and must institute procedures for maintaining do-not-call lists. For the reasons
described above, we conclude that these rules apply to calls made to wireless
telephone numbers. We believe that wireless subscribers should be afforded the
same protections as wireline subscribers.
31.
The Affirmative Defense of Prior Express Consent. The Ninth Circuit has
defined “express consent” to mean “clearly and unmistakably stated.” Satterfield v. Simon &
Schuster, Inc., 569 F.3d 946, 955 (9th Cir. 2009) (“Satterfield”)). “Prior express consent is an
affirmative defense for which the defendant bears the burden of proof.” See Grant v. Capital
Management Services, L.P., 2011 WL 3874877, at *1, n.1. (9th Cir. Sept. 2, 2011) (“express
consent is not an element of a TCPA plaintiff’s prima facie case, but rather is an affirmative
defense for which the defendant bears the burden of proof”); see also Robbins v. Coca-Cola
Company, No. 13-cv-132, 2013 WL 2252646, at *2 (S.D. Cal. May 22, 2013).
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47 C.F.R. § 64.1200(d) further provides that “[n]o person or entity shall initiate any call for
telemarketing purposes to a residential telephone subscriber unless such person or entity has
instituted procedures for maintaining a list of persons who request not to receive telemarketing
calls made by or on behalf of that person or entity.” The procedures instituted must meet the
following minimum standards:
(1) Written policy. Persons or entitles making calls for telemarketing purposes
must have a written policy, available upon demand, for maintaining a do-not-call
list.
(2) Training of personnel engaged in telemarketing. Personnel engaged in any
aspect of telemarketing must be informed and trained in the existence and use of
the do-not-call list.
(3) Recording, disclosure of do-not-call requests. If a person or entity making a
call for telemarketing purposes (or on whose behalf such a call is made) receives
a request from a residential telephone subscriber not to receive calls from that
person or entity, the person or entity must record the request and place the
subscriber’s name, if provided, and telephone number on the do-not-call list at
the time the request is made. Persons or entities making calls for telemarketing
purposes (or on whose behalf such calls are made) must honor a residential
subscriber’s do-not-call request within a reasonable time from the date such
request is made. This period may not exceed thirty days from the date of such
request…
(4) Identification of sellers and telemarketers. A person or entity making a call
for telemarketing purposes must provide the called party with the name of the
individual caller, the name of the person or entity on whose behalf the call is
being made, and a telephone number or address at which the person or entity
may be contacted. The telephone number provided may not be a 900 number or
any other number for which charges exceed local or long distance transmission
charges.
(5) Affiliated persons or entities. In the absence of a specific request by the
subscriber to the contrary, a residential subscriber’s do-not-call request shall
apply to the particular business entity making the call (or on whose behalf a call
is made) and will not apply to affiliated entities unless the consumer reasonably
would expect them to be included given the identification of the caller and the
product being advertised.
(4) Maintenance of do-not-call lists. A person or entity making calls for
telemarketing purposes must maintain a record of a consumer’s request not to
COMMON FACTUAL ALLEGATIONS
33.
Defendants own and operate a real-time lead service company in the online
marketing and advertising industry. Defendants have engaged in a scheme, to place text
messages and place automated telephone calls, en masse, to consumers across the country. On
information and belief, Defendants and or their agents purchase “leads” containing consumers’
contact information and create electronic databases from which Defendants makes automated
text messages that are not hand delivered. On information and belief, Defendants and/or their
agents also obtain “leads” containing consumers’ contact information and create an electronic
database from which Defendants make automated calls through a sophisticated automatic
telephone dialling system utilizing an artificial or pre-recorded voice. On information and
belief, Defendants and/or their agents also obtain “leads” containing consumers’ contact
information by utilizing referral services. Defendants and/or third parties believe they have
circumvented the TCPA and have legal consent to place the calls to these individuals. The
problem is, on information and belief, Defendants and/or third parties forwards contact
information for any live body who answers the call and communicates with the automated
system, regardless of whether that person gave valid consent to receive subsequent marketing
calls from Defendants.
34.
In Defendants’ overzealous attempt to market its services, Defendants placed
repeated and unwanted texts and automated telemarketing calls to consumers whose phone
numbers are listed on the National Do Not Call Registry. Consumers place their phone numbers
on the Do Not Call Registry for the express purpose of avoiding unwanted telemarketing calls
like those alleged here.
35.
Defendants knowingly made these telemarketing text messages and automated
telemarketing calls without the prior express written consent of the recipients, and knowingly
continue to message them after requests to stop. As such, Defendants not only invaded the
personal privacy of Plaintiff and members of the putative Class, but also intentionally and
repeatedly violated the TCPA.
telephone numbers beginning with the (925) area code from Contra Costa County, California.
FACTS SPECIFIC TO PLAINTIFF REEVE SCHLEY
A.
TEXT VIOLATIONS
37.
On or about August 7, 2019 at 3:50 p.m., Defendants began using an automated
text-messaging platform, causing the following text message to be transmitted to Plaintiff’s
cellular telephone:
“Hi Good day! this is Mark Belfort from Contractors.com, We are a real-time
Lead Service Company. just checking in if you’re already available to take additional Home
Improvement Projects from Homeowners. We are currently receiving a lot of Roofing Job
request in LA We only charge $45 for Roofing, no annual fees, no subscription fees and no
contracts or any long term commitment. Please let me know if you’re interested.”
38.
The message was sent from the number 925-465-2000, which is a dedicated
number used for mass texts, not hand delivered messages.
39.
On or about August 9, 2019 at 8:45 a.m., Defendants using an automated text-
messaging platform, caused a similar sales pitch text message from Contractors.com to be
transmitted to Plaintiff’s cellular phone. The message was sent from the number 925-378-3733,
which is a dedicated number used for mass texts, not hand delivered messages.
40.
On or about August 21, 2019 at 3:39 p.m., Defendants using an automated text-
messaging platform, caused at least three text messages to be transmitted to Plaintiff’s cellular
telephone with a similar sales pitch referenced in ¶ 37. These messages were sent from the same
number 925-465-2000.
41.
Defendants’ text message constitutes telemarketing because it promotes
Defendants’ goods and/or services, including its “lead service for roofing fees.”
42.
At no point in time did Plaintiff provide Defendants with his express written
consent to be contacted by text messages using an ATDS.
43.
At no point in time did Plaintiff provide Defendants with his express consent or
express permission to be contacted by text messages using an ATDS.
****.
45.
Upon information and belief, Defendants caused the same or similar text
messages to be transmitted to the cellular telephones of consumers throughout the country.
46.
The impersonal and generic nature of Defendants’ text message establishes that
Defendants utilized an ATDS in transmitting the messages. See Jenkins v. LL Atlanta, LLC, No.
1:14-cv-2791-WSD, 2016 U.S. Dist. LEXIS 30051, at *11 (N.D. Ga. Mar. 9, 2016) (“These
assertions, combined with the generic, impersonal nature of the text message advertisements
and the use of a short code, support an inference that the text messages were sent using an
ATDS.”) (citing Legg v. Voice Media Grp., Inc., 20 F. Supp. 3d 1370, 1354 (S.D. Fla. 2014)
(plaintiff alleged facts sufficient to infer text messages were sent using ATDS; use of a short
code and volume of mass messaging alleged would be impractical without use of an ATDS);
Kramer v. Autobytel, Inc., 759 F. Supp. 2d 1165, 1171 (N.D. Cal. 2010) (finding it “plausible”
that defendants used an ATDS where messages were advertisements written in an impersonal
manner and sent from short code); Robbins v. Coca-Cola Co., No. 13-CV-132-IEG NLS, 2013
U.S. Dist. LEXIS 72725, 2013 WL 2252646, at *3 (S.D. Cal. May 22, 2013) (observing that
mass messaging would be impracticable without use of an ATDS)).
47.
Defendants utilized a combination of hardware and software systems to send the
text messages at issue in this case. The systems utilized by Defendants have the current capacity
or present ability to store numbers using a random or sequential generator, and to dial such
numbers. Additionally, the equipment used by Defendants has the capacity to dial numbers
from a list of numbers, automatically without human intervention.
48.
Defendants knowingly made these telemarketing text messages without the prior
express written consent of the recipients, and knowingly continue to text them after requests to
stop. As such, Defendants not only invaded the personal privacy of Plaintiff and members of the
putative Class, but also intentionally and repeatedly violated the TCPA.
///
///
49.
Plaintiff registered his cellular phone number with the area code 310 and
beginning in 435-**** with the National Do Not Call Registry several years prior to
Defendants’ illegal texts and calls.
50.
Plaintiff is the regular carrier and exclusive user of the telephone assigned the
number beginning in 310-435-****. The number is assigned to a cellular telephone service for
which Plaintiff is charged for incoming calls pursuant to 47 U.S.C. § 227(b)(1).
51.
Beginning on or about August 21, 2019, Plaintiff began receiving automated
calls on his cellular telephone from various numbers including 925-465-2000, claiming to be
Defendants.
52.
On or about September 6, 2019 at 10:55 a.m., Plaintiff received an automated
call on his cellular telephone from the number 925-378-3733, claiming to be Defendants.
53.
On or about September 26, 2019 at 1:50 p.m., Plaintiff received an automated
call on his cellular telephone from the number 925-322-2820, claiming to be Defendants.
54.
On or about September 26, 2019 at 4:22 p.m., Plaintiff received an automated
call on his cellular telephone from the number 925-951-0936, claiming to be Defendants.
55.
On or about November 1, 2019, Plaintiff received an automated call on his
cellular telephone from the number 925-357-3136, claiming to be Defendants.
56.
On or about December 20, 2019 at 11:22 a.m., Plaintiff received an automated
call on his cellular telephone from the number 925-357-3136, claiming to be Defendants.
57.
Plaintiff has received approximately thirty (30) calls between August 2019 and
December 2019, from various numbers all with the area code (925), claiming to be Defendants.
58.
Plaintiff never had a business relationship with Defendants.
59.
Plaintiff never provided Defendants with prior consent or invitation or
permission to contact him on his phone via a text message or telephone call.
60.
Nonetheless, Defendants called Plaintiff utilizing a deceptive automated system
at least twice on his phone during a twelve-month period.
61.
Plaintiff received at least two calls in which, after picking up the call, a voice
second delay was caused by an ATDS system, connecting live call recipients with
telemarketers.
C.
FACTS CONCERNING TEXTS AND TELEPHONE CALL VIOLATIONS
62.
Defendants’ calls/texts constituted calls that were not for emergency purposes as
defined by 47 U.S.C. § 227(b)(1(A)(i).
63.
Defendants’ unsolicited telemarketing calls/texts caused Plaintiff extreme
aggravation and occupied his telephone line.
64.
Plaintiff has reason to believe Defendants texted thousands of telephone
customers to market their products and services.
65.
Plaintiff’s overriding interest is ensuring Defendants cease all illegal
telemarketing practices and compensates all members of the Plaintiff Class for invading their
privacy in the manner the TCPA was contemplated to prevent.
66.
In order to redress injuries caused by Defendants’ violations of the TCPA,
Plaintiff, on behalf of himself and a class of similarly situated individuals, bring suit under the
TCPA, 47 U.S.C. § 227, et seq., which prohibits certain unsolicited calls voice and text to
individuals whose numbers are registered on the Do Not Call Registry as well as illegal text
messages to anyone cellphones.
67.
On behalf of the Class, Plaintiff seeks an injunction requiring Defendants to
cease all illegal telemarketing and spam activities and an award of statutory damages to the
class numbers, together with costs and reasonable attorneys’ fees.
STANDING
68.
Plaintiff has standing to bring this suit on behalf of himself and the members of
the class under Article III of the United States Constitution because Plaintiff’s claims state: (a) a
valid injury in fact; (b) an injury which is traceable to the conduct of Defendants; and (c) is
likely to be redressed by a favorable judicial decision. See Spokeo v. Robins, 578 U.S. __ (2016)
at 6; Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
///
69.
Plaintiff has standing to bring this suit on behalf of himself and the members of
the class under Article III of the United States Constitution because Plaintiff’s claims state: (a) a
valid injury in fact; (b) an injury which is traceable to the conduct of Defendants; and (c) is
likely to be redressed by a favorable judicial decision. See Spokeo v. Robins, 578 U.S. __
(2016) at 6; Robins v. Spokeo, 867 F.3d 1108 (9th Cir. 2017) (cert denied. 2018 WL 491554,
U.S., Jan. 22 2018); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992); and Chen v.
Allstate Inc. Co., 819 F.3d 1136 (9th Cir. 2016).
70.
Plaintiff’s injuries must be both “concrete” and “particularized” in order to
satisfy the requirements of Article III of the Constitution. (Id.)
71.
For an injury to be concrete it must be a de facto injury, meaning it actually
exists. In the present case, Plaintiff took the affirmative step of enrolling himself on the
National Do-Not-Call Registry for the purpose of preventing marketing calls to their
telephones. Such telemarketing calls are a nuisance, an invasion of privacy, and an expense to
Plaintiff. See Soppet v. enhanced Recovery Co., LLC, 679 F.3d 637, 638 (7th Cir. 2012). All
three of these injuries are present in this case. (See also Chen v. Allstate Inc. Co., 819 F.3d 1136
(9th Cir. 2016).)
72.
Furthermore, the Third Circuit recently stated, Congress found that
“[u]nsolicited telemarketing phone calls or text messages, by their nature, invade the privacy
and disturb the solitude of their recipients,” Van Patten, 847 F.3d at 1043, and sought to protect
the same interests implicated in the traditional common law cause of action. Put differently,
Congress was not inventing a new theory of injury when it enacted the TCPA. Rather, it
elevated a harm that, while “previously inadequate in law,” was of the same character of
previously existing “legally cognizable injuries.” Spokeo, 136 S.Ct. at 1549. Spokeo addressed,
and approved, such a choice by Congress. Susinno v. Work Out World Inc., No. 16-3277, 2017
WL 2925432, at *4 (3d Cir. July 10, 2017).
73.
For an injury to be particularized means that the injury must affect the plaintiff
in a personal and individual way. See Spokeo at 7. Furthermore, Plaintiff is the person who pays
particular to Plaintiff.
B.
TRACEABLE TO THE CONDUCT OF DEFENDANTS
74.
Plaintiffs must allege at the pleading stage of the case facts to show that their
injury is traceable to the conduct of Defendants. In this case, Plaintiff satisfies this requirement
by alleging that Defendants, and/or agents of Defendants on behalf of Defendants, placed illegal
text messages and automated telephone calls to Plaintiff’s phone.
75.
In the instant case, Defendants placed text messages and automated telephone
calls to Plaintiff’s wireless/cellular phone.
C.
INJURY LIKELY TO BE REDRESSED BY A FAVORABLE JUDICIAL OPINION
76.
The third prong to establish standing at the pleadings phase requires Plaintiffs to
allege facts to show that the injury is likely to be redressed by a favorable judicial opinion. In
the present case, Plaintiff’s Prayers for Relief include a request for damages for each text made
by Defendants, as authorized by statute in 47 U.S.C. § 227. The statutory damages were set by
Congress and specifically redress the financial damages suffered by Plaintiff and the members
of the putative class. Furthermore, Plaintiff’s Prayers for Relief request injunctive relief to
restrain Defendants from the alleged abusive practices in the future. The award of monetary
damages and the order for injunctive relief redress the injuries of the past, and prevent further
injury in the future.
77.
Because all standing requirements of Article III of the U.S. Constitution have
been met, as laid out in Spokeo, Inc. v. Robins, 578 U.S. ___ (2016) and in the context of a
TCPA claim, as explained by the Ninth Circuit in Chen v. Allstate Inc. Co., 819 F.3d 1136 (9th
Cir. 2016), Plaintiff has standing to sue Defendants on the stated claims.
CLASS ACTION ALLEGATIONS
A.
CLASS ALLEGATIONS
78.
Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23(a),
(b)(2), and (b)(3) on behalf of himself and all others similarly situated, as a member of a
proposed class (hereafter “the Cell Phone Class,” “the DNC Class,” and the “Internal DNC
Class”):
“Cell Phone Class”: All individuals within the United States, who
within four years prior to the filing of the initial Complaint in this action,
were sent a text message or received more than one telephone call via an
ATDS made by or on behalf of Defendants within a 12-month period,
from Defendants or anyone on Defendants’ behalf, to said person’s
cellular telephone number, for the purposes of promoting Defendants’
service, without their prior express written consent.
“DNC2 Class”: All individuals in the United States who: (1) received
more than one telephone call made by or on behalf of Defendants within
a 12-month period; and, (2) to a telephone number that had been
registered with the National Do Not Call Registry for at least 30 days.
“Internal DNC Class”: All persons in the United States to whom: (a)
received more than one telephone call made by or on behalf of
Defendant(s); (b) promoting Defendants’ goods or services; (c) more
than 30 days after requesting not to receive further calls; (d) in a 12-
month period; (e) on their cellular telephone line or residential telephone
line; and (f) at any time in the period that begins four years before the
date of filing this Complaint to trial.
79.
The following individuals are excluded from the Class: (1) any Judge or
Magistrate presiding over this action and members of their families; (2) Defendants,
Defendants’ subsidiaries, parents, successors, predecessors, and any entity in which Defendants
or their parents have a controlling interest, and its current or former employees, officers, and
directors; (3) Plaintiff’s counsel and Defendants’ counsel; (4) persons who properly execute and
file a timely request for exclusion from the Class; (5) the legal representatives, successors or
assigns of any such excluded persons; (6) persons whose claims against Defendants have been
fully and finally adjudicated and/or released; and (7) individuals for whom Defendants have
record of consent to place telemarketing calls.
80.
This suit seeks only damages, statutory penalties, and injunctive relief for
recovery of economic injury on behalf of the Class, and it expressly is not intended to request
any recovery for personal injury and claims related thereto.
2
“DNC” referenced herein refers to the National Do Not Call Registry, established pursuant to 47
U.S.C. 227(c) and the regulations promulgated by the Federal Communications Commission
(“FCC”).
behalf of additional persons as warranted as facts are learned in further investigation and
discovery.
82.
Plaintiff and members of the Class were harmed by Defendant’s acts in at least
the following ways: Defendants, either directly or through agents, illegally contacted Plaintiff
and the Class members via their telephones, after Plaintiff and the Class members took the
affirmative step of registering their numbers on the DNC, and/or contacted Plaintiff and
members of the Class using a pre-recorded voice for telemarketing purposes without first
obtaining prior consent.
B.
NUMEROSITY
83.
The exact sizes of the Class is unknown and not available to Plaintiff at this
time, but it is clear individual joinder is impracticable.
84.
On information and belief, Defendants made text messages to thousands of
consumers who fall into the definition of the Class. Members of the Class can be easily
identified through Defendants’ records.
C.
COMMONALITY AND PREDOMINANCE
85.
There are many questions of law and fact common to the claims of Plaintiff and
the Class, and those questions predominate over any questions that may affect individual
members of the Class.
86.
Common questions for the Class include, but are not necessarily limited to the
following:
(a)
Whether Defendants’ conduct violated the TCPA;
(b)
Whether Defendants systematically made text messages to consumers
who did not previously provide Defendants and/or their agents with prior
express written consent to receive such messages;
(c)
Whether Defendant systematically made telephone calls to consumers
whose telephone numbers were registered with the Do Not Call Registry;
(d)
Whether Defendants contacted Plaintiff and the Cell Phone Class
members using an automatic telephone dialing system, without prior
express written consent;
(e)
Whether Defendants complied with 47 CFR § 1200(d) requirement to
maintain an internal DNC list and whether Defendants continued to
contact members on that internal DNC list;
(f)
Whether members of the Classes are entitled to up to three times actual
monetary loss based on the willfulness of Defendants’ conduct; and
(g)
Whether Defendants and their agents should be enjoined from engaging
in such conduct in the future.
87.
The common questions in this case are capable of having common answers. If
Plaintiff’s claim that Defendants routinely violate the TCPA is correct, Plaintiff and the Class
members will have identical claims capable of being efficiently adjudicated and administered in
this case.
D.
TYPICALITY
88.
Plaintiff’s claims are typical of the claims of the other members of the Classes.
89.
Plaintiff and the Class sustained damages as a result of Defendants’ uniform
wrongful conduct during transactions with Plaintiff and the Classes.
E.
ADEQUATE REPRESENTATION
90.
Plaintiff will fairly and adequately represent and protect the interests of the
Class, and has retained counsel competent and experienced in complex class actions.
91.
Plaintiff has no interest antagonistic to those of the Defendants and their agents,
and Defendants have no defenses unique to Plaintiff.
F.
POLICIES GENERALLY APPLICABLE TO THE CLASS
92.
This class action is appropriate for certification because the Defendants have
acted or refused to act on grounds generally applicable to the Classes as a whole, thereby
requiring the Court’s imposition of uniform relief to ensure compatible standards of conduct
toward the Classes members, and making final injunctive relief appropriate with respect to the
Classes as a whole.
93.
Defendants’ practices challenged herein apply to and affect the Classes’
members uniformly, and Plaintiff’s challenge of those practices hinges on Defendants’ conduct
with respect to the Classes as a whole, not on facts or law applicable only to Plaintiff.
94.
This case is also appropriate for class certification because class proceedings are
superior to all other available methods for the fair and efficient adjudication of this controversy
given that joinder of all parties is impracticable.
95.
The damages suffered by the individual members of the Classes will likely be
relatively small, especially given the burden and expense of individual prosecution of the
complex litigation necessitated by Defendants’ actions.
96.
Thus, it would be virtually impossible for the individual members of the Classes
to obtain effective relief from Defendants’ misconduct.
97.
Even if members of the Classes could sustain such individual litigation, it would
still not be preferable to a class action, because individual litigation would increase the delay
and expense to all parties due to the complex legal and factual controversies presented in this
Complaint.
98.
By contrast, a class action presents far fewer management difficulties and
provides the benefits of single adjudication, economy of scale, and comprehensive supervision
by a single court. Economies of time, effort and expense will be fostered, and uniformity of
decisions ensured.
FIRST CAUSE OF ACTION
VIOLATION OF TCPA, 47 U.S.C. § 227
(“Illegal Cell Phone and Text Claim” on behalf of Plaintiff and the Cell Phone Class)
99.
Plaintiff re-alleges and incorporates by reference each preceding paragraph as
though set forth at length herein.
100.
The foregoing acts and omissions of Defendants constitute numerous and
multiple violations of the TCPA, including but not limited to each and every one of the above
cited provisions of 47 U.S.C. § 227, et seq. and 47 C.F.R. §64.1200, et seq.
///
///
///
emergency purposes or made with the prior express consent of the called party) using any
automatic telephone dialing system or an artificial or prerecorded voice…to any telephone
number assigned to a…cellular telephone service….” 47 U.S.C. § 227(b)(1)(A)(iii).
102.
“Automatic telephone dialing system” refers to any equipment that has the
“capacity to dial numbers without human intervention.” See, e.g., Hicks v. Client Servs., Inc.,
No. 07-61822, 2009 WL 2365637, at *4 (S.D. Fla. June 9, 2009) (citing FCC, In re: Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991: Request of ACA
International for Clarification and Declaratory Ruling, 07–232, ¶ 12, n.23 (2007)).
103.
Defendants – or third parties directed by Defendants – used equipment having
the capacity to dial numbers without human intervention to make non-emergency text messages
and phone calls to the cellular telephones of Plaintiff and the other members of the Cell Phone
Class. Defendants contacted Plaintiff and members of the Cell Phone Class, on their cellular
phones through a sophisticated automatic telephone dialling system utilizing an artificial or pre-
recorded voice message and via text message.
104.
When Plaintiff answered the repeated telephone calls from Defendants’ caller
identification numbers, all beginning with area code (925), a voice became audible after a
several seconds of delayed silence. These facts led Plaintiff to believe that Defendants were
utilizing an ATDS or pre-recorded voice while making the calls prior to connecting call
recipients with telemarketers.
105.
Plaintiff was annoyed by the unsolicited automated calls and wanted them to
stop. When Plaintiff called Defendant’s (925) telephone numbers back, he was greeted with an
automated system that would abruptly redirect the call to hold with automated music audible.
106.
These calls were made without regard to whether Defendants had first obtained
express written consent to make such calls or send such texts. In fact, Defendants did not have
prior express written consent to call or text the cell phones of Plaintiff and Cell Phone Class
members when the subject calls and texts were made.
///
telephone dialing system to make non-emergency text messages to the cell phones of Plaintiff
and the other members of the putative Class without their prior express consent.
108.
As a result of Defendants’ conduct, and pursuant to 47 U.S.C. § 227, et seq., and
47 C.F.R. § 64.1200, et seq., Plaintiff and the other members of the putative Class were harmed
and are each entitled to a minimum of $500.00 in damages for each violation. Plaintiff and the
class are also entitled to an injunction against future calls.
109.
To the extent Defendants’ misconduct is determined to be willful and knowing,
the Court should, pursuant to 47 U.S.C. § 227(c)(5), award up to three times the amount of
statutory damages recoverable by the members of the Class.
110.
Plaintiff is also entitled to and seeks injunctive relief prohibiting such conduct in
the future.
SECOND CAUSE OF ACTION
VIOLATION OF TCPA, 47 U.S.C. § 227
(“DNC Claim” on behalf of Plaintiff and the DNC Class)
111.
Plaintiff re-alleges and incorporates by reference each preceding paragraph as
though set forth at length herein.
112.
47 U.S.C. § 227(c) provides that any “person who has received more than one
telephone call within any 12-month period by or on behalf of the same entity in violation of the
regulations prescribed under this subsection may” bring a private action based on a violation of
said regulations, which were promulgated to protect telephone subscribers’ privacy rights to
avoid receiving telephone solicitations to which they object.
113.
The TCPA’s implementing regulation—47 C.F.R. § 64.1200(c)—provides that
“[n]o person or entity shall initiate any telephone solicitation” to “[a] residential telephone
subscriber who has registered his or her telephone number on the national do-not-call registry
of persons who do not wish to receive telephone solicitations that is maintained by the federal
government.” See 47 C.F.R. § 64.1200(c).
///
initiated, telephone solicitations to wireless and residential telephone subscribers such as
Plaintiff and the DNC Class members who registered their respective telephone numbers on the
National Do Not Call Registry, a listing of persons who do not wish to receive telephone
solicitations that is maintained by the federal government.
115.
Defendants made more than one unsolicited telephone call to Plaintiff and
members of the Class within a 12-month period without their prior express consent to place
such calls. Plaintiff and members of the DNC Class never provided any form of consent to
receive telephone calls from Defendants and do not have a record of consent to place
telemarketing calls to them.
116.
Defendants violated 47 U.S.C. § 227(c)(5) because Plaintiff and the DNC Class
members received more than one telephone call in a 12-month period made by or on behalf of
Defendants in violation of 47 C.F.R. § 64.1200, as described above. As a result of Defendants’
conduct as alleged herein, Plaintiff and the DNC Class suffered actual damages and, under
section 47 U.S.C. § 227(c), are each entitled, inter alia, to receive up to $500 in damages for
such violations of 47 C.F.R. § 64.1200.
117.
To the extent Defendants’ misconduct is determined to be willful and knowing,
the Court should, pursuant to 47 U.S.C. § 227(c)(5), treble the amount of statutory damages
recoverable by the members of the Class.
///
///
///
///
///
///
///
///
///
INTERNAL DNC CLAIM IN VIOLATION OF
THE TELEPHONE CONSUMER PROTECTION ACT,
47 U.S.C. § 227, ET SEQ. (64 C.F.R. § 64.1200(D))
(“Internal DNC Claim” on behalf of Plaintiff and the Internal DNC Class)
118.
Plaintiff hereby incorporates by reference and re-alleges each and every
allegation set forth in each and every preceding paragraph of this Complaint, as though fully set
forth herein.
119.
47 C.F.R. § 64.1200(d) further provides that “[n]o person or entity shall initiate
any call for telemarketing purposes to a residential telephone subscriber unless such person or
entity has instituted procedures for maintaining a list of persons who request not to receive
telemarketing calls made by or on behalf of that person or entity. The procedures instituted
must meet the following minimum standards:
(1) Written policy. Persons or entitles making calls for telemarketing purposes
must have a written policy, available upon demand, for maintaining a do-not-call
list.
(2) Training of personnel engaged in telemarketing. Personnel engaged in any
aspect of telemarketing must be informed and trained in the existence and use of
the do-not-call list.
(3) Recording, disclosure of do-not-call requests. If a person or entity making a
call for telemarketing purposes (or on whose behalf such a call is made) receives
a request from a residential telephone subscriber not to receive calls from that
person or entity, the person or entity must record the request and place the
subscriber’s name, if provided, and telephone number on the do-not-call list at
the time the request is made. Persons or entities making calls for telemarketing
purposes (or on whose behalf such calls are made) must honor a residential
subscriber’s do-not-call request within a reasonable time from the date such
request is made. This period may not exceed thirty days from the date of such
request…
(4) Identification of sellers and telemarketers. A person or entity making a call
for telemarketing purposes must provide the called party with the name of the
individual caller, the name of the person or entity on whose behalf the call is
being made, and a telephone number or address at which the person or entity
may be contacted. The telephone number provided may not be a 900 number or
any other number for which charges exceed local or long distance transmission
charges.
(5) Affiliated persons or entities. In the absence of a specific request by the
subscriber to the contrary, a residential subscriber’s do-not-call request shall
apply to the particular business entity making the call (or on whose behalf a call
is made), and will not apply to affiliated entities unless the consumer reasonably
would expect them to be included given the identification of the caller and the
product being advertised.
(6) Maintenance of do-not-call lists. A person or entity making calls for
telemarketing purposes must maintain a record of a consumer’s request not to
receive further telemarketing calls. A do-not-call request must be honored for 5
years from the time the request is made.
120.
Defendants made more than one unsolicited telephone call to Plaintiff and
members of the Internal DNC Class within a 12-month period. Plaintiff and members of the
Internal DNC Class never provided any form of consent to receive telephone calls from
Defendants do not have a record of consent to place telemarketing calls to them and/or Plaintiff
and members of the Internal DNC Class revoked consent.
121.
Defendants violated 47 C.F.R. § 64.1200(d) by initiating calls for telemarketing
purposes to residential and wireless telephone subscribers, such as Plaintiff and the Class,
without instituting procedures that comply with the regulatory minimum standards for
maintaining a list of persons who request not to receive telemarketing calls from them.
122.
Defendants violated 47 U.S.C. § 227(c)(5) because Plaintiff and the Internal
DNC Class received more than one telephone call more than 30 days after revoking any
purported consent in violation of 47 C.F.R. § 64.1200, as described above. As a result of
Defendants’ conduct as alleged herein, Plaintiff and the Internal DNC Class and the Class
suffered actual damages and, under section 47 U.S.C. § 227(c), are each entitled, inter alia, to
receive up to $500 in damages for such violations of 47 C.F.R. § 64.1200.
123.
To the extent Defendants’ misconduct is determined to be willful and knowing,
the Court should, pursuant to 47 U.S.C. § 227(c)(5), treble the amount of statutory damages
recoverable by the members of the Class.
124.
Plaintiff is also entitled to and seeks injunctive relief prohibiting such conduct in
the future.
///
125.
Each and every allegation contained in the foregoing paragraphs is re-alleged as
if fully rewritten herein.
126.
Plaintiff is entitled to recover reasonable attorney fees under Rule 23 of the
Federal Rules of Civil Procedure, California law, and requests the attorneys’ fees be awarded.
JURY DEMAND
127.
Plaintiff, individual and on behalf of the Classes, demand a jury trial on all
issues triable to a jury.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Class, prays for the
following relief:
(a)
An order certifying the Cell Phone Class as defined above, appointing
Plaintiff as the representative of the Class, and appointing his counsel,
Kristensen LLP as lead Class Counsel;
(b)
An order certifying the DNC Class as defined above, appointing Plaintiff
as the representative of the Class, and appointing his counsel, Kristensen
LLP as lead Class Counsel;
(c)
An order certifying the Internal DNC Class as defined above, appointing
Plaintiff as the representative of the Class, and appointing his counsel,
Kristensen LLP as lead Class Counsel;
(d)
An award of actual and statutory damages for each and every violation to
each member of the Class pursuant to 47 U.S.C. § 227(b)(3)(B);
(e)
An award of actual and statutory damages for each and every knowing
and/or willful violation to each member of the Class pursuant to 47
U.S.C § 227(b)(3)(B);
(f)
An injunction requiring Defendants and Defendants’ agents to cease all
unsolicited telephone calling activities, and otherwise protecting the
interests of the Class, pursuant to 47 U.S.C. § 227(b)(3)(A);
(h)
Pre-judgment and post-judgment interest on monetary relief;
(i)
An award of reasonable attorneys’ fees and court costs; and
(j)
All other and further relief as the Court deems necessary, just, and
proper.
Dated: January 9, 2020
Respectfully submitted,
By: /s/ John P. Kristensen
John P. Kristensen (SBN 224132)
KRISTENSEN LLP
12540 Beatrice Street, Suite 200
Los Angeles, California 90066
Telephone: (310) 507-7924
Fax: (310) 507-7906
john@kristensenlaw.com
Jarrett L. Ellzey (pro hac vice pending)
HUGHES ELLZEY, LLP
Attorneys for Plaintiffs
Plaintiff hereby demands a trial by jury for all such triable claims.
Dated: January 9, 2020
Respectfully submitted,
By: /s/ John P. Kristensen
John P. Kristensen (SBN 224132)
KRISTENSEN LLP
12540 Beatrice Street, Suite 200
Los Angeles, California 90066
Telephone: (310) 507-7924
Fax: (310) 507-7906
john@kristensenlaw.com
Jarrett L. Ellzey (pro hac vice pending)
HUGHES ELLZEY, LLP
Attorneys for Plaintiffs
| privacy |
26D1CIcBD5gMZwczicm0 | IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS
SANDRA WASHINGTON, on behalf of
herself and all others similarly situated,
Plaintiff,
Civil Action No. 18-cv-03334
COLLECTIVE AND
CLASS ACTION COMPLAINT
MED-SPEC. TRANSPORT, INC.
JURY DEMANDED
Defendant.
COLLECTIVE AND CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE
FAIR LABOR STANDARDS ACT, ILLINOIS’ MINIMUM WAGE LAW, AND THE
FEDERAL EQUAL PAY ACT
Plaintiff, SANDRA WASHINGTON, by and through her undersigned counsels,
Cass T. Casper, Esq., TALON LAW, LLC, and complains as follows against Defendant
on behalf of herself and all others similarly-situated.
NATURE OF THE CASE
1. This is a collective action under the Fair Labor Standards Act (“FLSA”) and an
Illinois class action brought by Plaintiff SANDRA WASHINGTON (“Plaintiff”), on
behalf of herself and others similarly situated, to recover overtime compensation
from her employer Med-Spec. Transport, Inc. (“Defendant”).
2. Defendant employs persons in the position known as “Carrier,” and persons in
similar positions, but improperly classifies them as “independent contractors.” The
Carriers routinely work more than forty (40) hours in a workweek, but are not paid
an overtime premium for any of their overtime hours.
3. Plaintiff brings this action (1) as an opt-in collective action on behalf of herself and
all similarly-situated individuals for violations of the FLSA, 29 U.S.C. § 201, et seq.;
and, (2) as an opt-out class action on behalf of herself and the putative class for state
violations of the Illinois Minimum Wage Law (“IMWL”), 820 ILCS 105/1, et seq.
4. Plaintiff’s FLSA claim is asserted as a collective action under FLSA, 29 U.S.C. §
216(b), while her IMWL claim is asserted as a class action under Federal Rule of
Civil Procedure 23.
5. Plaintiff additionally brings a claim under the federal Equal Pay Act (“EPA”), 29
U.S.C. 206(d), on behalf of herself and all others similarly-situated, for willful
discrimination by Defendant based on her sex (female) in regards to pay and
benefits. Plaintiff also brings this claim as an opt-out class action under Federal Rule
of Civil Procedure 23.
JURISDICTION AND VENUE
6. This Court has original jurisdiction pursuant to 28 U.S.C. § 1331 to hear this
Complaint and to adjudicate these claims because this action is brought under the
federal FLSA and the federal EPA.
7. This Court has supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a) to hear
Plaintiff’s state law claims brought under the IMWL, 820 ILCS 105/1, et seq.
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8. Venue is proper in this Court pursuant to 28 U.S.C. § 1391 because Defendant
operates in this district, Plaintiff works in this district, and because a substantial part
of the events/omissions giving rise to the claims herein occurred in this district.
PARTIES
9. Plaintiff SANDRA WASHINGTON is an adult resident of Cook County, Illinois.
Plaintiff has worked for Defendant as a Carrier since approximately 2012.
10. Plaintiff is assigned to pick up and deliver medical/biological specimens, and
medical supplies, from medical locations throughout Cook County, Illinois.
11. Plaintiff brings this action on behalf of herself and all other similarly-situated
individuals nationwide (“FLSA Collective”) pursuant to the FLSA, 29 U.S.C. §
216(b). Plaintiff and the FLSA collective are current and former employees of
Defendant within the meaning of the FLSA, employed as Carriers, or other job titles
performing similar duties, across the country within the three years predating the
filing of this Complaint. See 29 U.S.C. § 255(a).
12. Plaintiff also brings her IMWL claim as a class action pursuant to Federal Rule of
Civil Procedure 23 on behalf of all Carriers who have worked for Defendant in
Illinois in the past three years (“IMWL Class”). Plaintiff and the IMWL Class are
current and former employees of Defendant within the meaning of the IMWL,
employed by Defendant as Carriers, or other job titles performing similar duties,
across the state of Illinois within three years predating the filing of this Complaint.
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13. Defendant MED-SPEC. TRANSPORT, INC., is a domestic corporation incorporated
and headquartered, to the best of Plaintiff’s knowledge and belief, within the state of
Illinois.
14. Defendant is a provider of delivery services to various hospitals, medical
laboratories, and companies in the business of providing dialysis services.
Defendant sells its delivery and transport services to such companies, and employs
drivers, such as Plaintiff, to deliver both organic biological material, as well as
medical and other supplies.
15. Upon information and belief, gross annual sales//business done by Defendant has
been in excess of $500,000 during each of the three years prior to the filing of this
Complaint.
16. At all times relevant, Defendant is and has been an “employer” engaged in interstate
commerce and/or the production of goods and/or the procurement of services for
commerce, within the meaning of the FLSA, 29 U.S.C. § 203(d). Defendant is also an
“employer” within the meaning of the IMWL, as well as under the Equal Pay Act.
17. Defendant operates in interstate commerce by, inter alia, dispatching its employees,
equipment, supplies, and services to customers in multiple states, including Illinois,
Florida, Wisconsin, Maryland, Arizona, California, Georgia, New York, and
Virginia. Defendant also utilizes the instrumentalities of interstate commerce in the
implementation of its services and operates on a nationwide basis.
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FACTUAL ALLEGATIONS
18. Plaintiff, the FLSA Collective, and the IMWL Class are individuals who are or were
employed by Defendant as Carriers, or in other job titles performing similar duties.
In these positions, their primary job duties were non-exempt work, including
picking up and delivering organic and biological medical material, and medical and
other supplies.
19. Plaintiff, the FLSA Collective, and the IMWL Class are individuals who were paid
hourly, but they do not, and have never, received overtime pay for hours worked
over forty (40) in a workweek.
20. Defendant suffered and permitted Plaintiff, the FLSA Collective, and the IMWL
Class to work more than forty (40) hours a week without overtime pay.
21. Defendant has classified Plaintiff, the FLSA Collective, and the IMWL Class as
independent contractors who are precluded from receiving overtime compensation.
22. Defendant at all times is and has been aware of Plaintiff’s, the FLSA Collective’s, and
the IMWL Class’ long work hours in excess of 40 hours per workweek. Plaintiff, for
example, routinely works more than 40 hours per workweek in order to complete all
of the deliveries she is assigned by the Defendant.
23. In addition, Plaintiff and similarly-situated current and former employees routinely
work “off-the-clock,” with no pay whatsoever, in order to complete all of her
required deliveries within the time period allotted for her to do so by Defendant.
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FLSA COLLECTIVE ACTION ALLEGATIONS
24. Plaintiff and the FLSA Collective restate and incorporate by reference all other
paragraphs of this Complaint as if fully restated herein.
25. Plaintiff files this action on behalf of herself and all similarly-situated individuals.
The proposed FLSA Collective is defined as follows:
All persons who worked as Carriers (or other job titles performing similar job
duties) for Defendant at any time since three years prior to the filing of this
Complaint.
26. Plaintiff has consented in writing to be a part of this action. Plaintiff’s signed
consent form is attached as Exhibit A.
27. As this case proceeds, it is likely that other individuals will file consent forms and
join as “opt-in” plaintiffs.
28. During the applicable statutory period, Plaintiff and the FLSA Collective routinely
worked in excess of forty (40) hours a workweek without receiving overtime
compensation.
29. Defendant willfully engaged in a pattern of violating the FLSA, 29 U.S.C. § 201, et
seq., as described in this Complaint in ways including, but not limited to, failing to
pay its Carriers overtime compensation. Defendant’s conduct constitutes a willful
violation of the FLSA within the meaning of 29 U.S.C. § 255.
30. Defendant is liable under the FLSA for failing to properly compensate Plaintiff and
the FLSA Collective. Accordingly, notice should be sent to the FLSA Collective.
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There are numerous similarly-situated current and former employees of Defendant
who have suffered from Defendant’s practice of denying overtime pay, and who
would benefit from issuance of court-supervised notice of this lawsuit and
opportunity to join. Those similarly-situated employees are known to Defendant
and are readily identifiable through Defendant’s records.
FEDERAL EQUAL PAY ACT AND STATE LAW IMWL
CLASS ACTION ALLEGATIONS
31. Plaintiff and the IMWL Class restate and incorporate by reference all other
paragraphs of this Complaint as if fully restated herein.
32. Plaintiff, as class representative, files this action on behalf of herself and all
similarly-situated individuals pursuant to Rule 23(a) and (b) of the Federal Rules of
Civil Procedure.
33. The proposed IMWL Class is defined as follows:
All persons who worked as Carriers (or other job titles performing similar job
duties) for Defendant at any time since three years prior to the filing of this
Complaint.
34. The proposed EPA Class is defined as follows:
All females who worked as Carriers (or other job titles performing similar job
duties) for Defendant at any time since three years prior to the filing of this
Complaint.
35. Plaintiff has consented in writing to be a part of this EPA action pursuant to 29
U.S.C. § 216(b). Plaintiff’s signed consent form is attached as Exhibit B.
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36. Members of the proposed IMWL and EPA Classes are so numerous that joinder is
impractical and inefficient. Upon information and belief, there are more than 50
members of the proposed IMWL Class, and more than 20 members of the EPA Class.
The identities of the proposed IMWL and EPA Classes may be ascertained from the
files and records of Defendant.
37. There are common questions of law and fact affecting Plaintiff and members of the
IMWL and EPA Class, including, but not limited to, whether Defendant
misclassified Plaintiff and the IMWL Class and unlawfully failed to pay them
overtime compensation, whether Defendant discriminated against members of the
EPA Class, whether Defendant failed to keep accurate time records for all hours
worked, whether Defendant’s actions were willful, and the proper measure of
damages by Plaintiff, and the IMWL and EPA Class members.
38. The claims of Plaintiff are typical of the claims of the IMWL and the EPA Class.
Plaintiff had the same job duties and responsibilities as other IMWL and EPA Class
members, and other IMWL Class members worked unpaid overtime hours. Like
Plaintiff, other EPA Class members were paid less than male counterparts
performing identical and/or substantially similar job duties. Plaintiff and the IMWL
Class are and were subject to Defendant’s uniform policy and practice of improperly
treating and classifying its Carriers as “independent contractors” not entitled to the
benefit of wage and hour laws nor overtime compensation. Plaintiff and the EPA
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Class are and were subject to Defendant’s policy and practice of discriminating
against female Carriers with respect to pay and benefits.
39. Plaintiff will fairly and adequately protect the interest of the proposed IMWL and
EPA Class because her interests are not inconsistent with or antagonistic to the
interests of the proposed other class members. She has retained counsel experienced
in employment litigation (Cass T. Casper, Esq., TALON LAW, LLC) and class
litigation (Art Gold, Esq., Gold & Associates).
40. The prosecution of separate actions by individual members of the class would create
a risk that inconsistent or varying adjudications with respect to individual members
of the class would establish incompatible standards of conduct for Defendant in
opposing the proposed IMWL and EPA Class, and would substantially impair or
impede the interest of other members of the proposed IMWL and EPA Class to
protect their interests. Certification under Rule 23(b)(1) is, therefore, appropriate.
41. The class action mechanism is superior to other available methods for the fair and
efficient adjudication of this controversy, particularly in the context of wage and
hour litigation where individual plaintiffs lack the financial resources to vigorously
prosecute separate lawsuits in federal court against a large Defendant, such as is the
case here.
42. The members of the proposed IMWL and EPA Class have suffered damages and are
entitled to recovery as a result of Defendant’s common practices and uniform
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policies, including Defendant’s willful misclassification of them as independent
contractors, and willful payment of female employees less wages and benefits than
their male counterparts. The damages suffered by class members are relatively
small compared to the expense and burden of individual prosecution of the claims
underlying this Complaint. Class certification will also eliminate the likelihood of
inconsistent judgments.
43. Plaintiff intends to send notice to all members of the proposed IMWL and EPA Class
to the extent permitted and required by Federal Rule of Civil Procedure 23.
COUNT 1: VIOLATIONS OF THE FLSA: FAILURE TO PAY OVERTIME
(On behalf of Plaintiff and the FLSA Collective)
44. Plaintiff and the FLSA Collective restate and incorporate by reference all other
paragraphs of this Complaint as if fully restated herein.
45. The FLSA, 29 U.S.C. § 207, requires employers to pay non-exempt employees one
and one-half times the regular rate of pay for all hours worked over forty (40) hours
per workweek.
46. Defendant suffered and permitted Plaintiff and the FLSA Collective to routinely
work more than forty (40) hours a workweek without overtime compensation.
47. Defendant’s actions, policies, and practices described herein violate the FLSA’s
overtime requirements by regularly and repeatedly failing to compensate Plaintiff
and the FLSA Collective at the required overtime rate.
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48. As a direct and proximate result of Defendant’s unlawful conduct, Plaintiff and the
FLSA Collective have suffered and will continue to suffer a loss of income and other
damages. Plaintiff and the FLSA Collective are entitled to liquidated damages and
attorney’s fees and costs incurred in connection with this claim.
49. The foregoing conduct, as alleged, constitutes a willful violation of the FLSA within
the meaning of 29 U.S.C. § 255(a). Defendant knew or showed reckless disregard for
the fact that its compensation practices were in violation of these laws.
WHEREFORE, Plaintiff, on behalf of herself and all others similarly-situated, prays
for judgment against Defendant as follows:
A. Designation of this action as a collective action on behalf of Plaintiff and those
similarly situated, and prompt issuance of notice pursuant to 29 U.S.C. § 216(b)
to all those similarly situated apprising them of the pendency of this action, and
permitting them to assert timely FLSA claims in this action by filing individual
consent forms;
B. A finding that Plaintiff and the FLSA Collective are employees entitled to
protection under the FLSA;
C. A finding that Defendant violated the overtime provisions of the FLSA;
D. A finding that Defendant’s violations of the FLSA were and are willful
violations;
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E. Judgment against Defendant in the amount of Plaintiff and the FLSA Collective’s
unpaid back wages at the applicable rates;
F. An award of all damages, liquidated damages, pre- and post-judgment interest;
G. An award of attorneys’ fees and costs incurred in prosecuting this action;
H. Leave to add additional plaintiffs and/or state law claims by motion, the filing of
written consent forms, or any other method approved by the Court; and,
I.
For such other and further legal and/or equitable relief as this Court deems just
and proper.
COUNT 2: VIOLATIONS OF THE IMWL: FAILURE TO PAY OVERTIME
(On behalf of Plaintiff and the IMWL Rule 23 Class)
50. Plaintiff and the IMWL Class restate and incorporate by reference all other
paragraphs of this Complaint as if fully restated herein.
51. At all times relevant, Plaintiff and the IMWL Class were employees of Defendant
within the meaning of the IMWL, and, therefore, entitled to such law’s protections.
See 820 ILCS 105/3(d).
52. Defendant is an employer within the meaning of the IMWL. See 820 ILCS 105/3(c).
53. The IMWL entitles employees to overtime compensation “at a rate not less than 1 ½
times the regular rate” for hours worked over forty (40) in a workweek. See 820
ILCS 105/4a(1).
54. Defendant violated the IMWL by routinely failing to compensate Plaintiff and the
IMWL Class for hours worked in excess of forty (40) a workweek, and with respect
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to such hours, failing to compensate Plaintiff and the IMWL Class based on the
overtime pay rate of one and one-half times their regular pay rate.
55. Plaintiff and the IMWL Class seek damages in the amount of their underpayments
based on Defendant’s failure to pay wages due pursuant to the IMWL, and such
other legal and equitable relief from Defendant’s unlawful conduct as the Court
deems proper.
56. Plaintiff and the IMWL Class also seek recovery of all attorneys’ fees, costs,
liquidated damages, pre- and post-judgment interest, and expenses of this action
that are available under the IMWL.
WHEREFORE, Plaintiff, on behalf of herself and all others similarly-situated, prays
for judgment against Defendant as follows:
A. Certification of this action as a class action, pursuant to Rule 23 of the Federal
Rules of Civil Procedure, on behalf of the IMWL Class;
B. A finding that Plaintiff and IMWL Class are employees entitled to protection
under the IMWL;
C. A finding that Defendant violated the overtime provisions of the IMWL;
D. Judgment against Defendant in the amount of Plaintiff and the IMWL Class’
unpaid back wages at the applicable rates;
E. An award of all damages, including liquidated damages as allowed by 820 ILCS
105/12;
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F. An award of attorneys’ fees and costs incurred in prosecuting this action;
G. Leave to add additional plaintiffs and/or state law claims by motion, the filing of
written consent forms, or any other method approved by the Court; and,
H. For such other and further legal and/or equitable relief as this Court deems just
and proper.
COUNT 3: VIOLATIONS OF THE EQUAL PAY ACT, 29 U.S.C. § 206(d)
(On behalf of Plaintiff and the EPA Class)
57. Plaintiff restates and incorporates by reference all other paragraphs of this
Complaint as if fully restated herein.
58. This Count is brought on behalf of Plaintiff and all members of the EPA Class.
59. Plaintiff, a female, is employed by Defendant as a Carrier and works identical
and/or substantially-similar job duties as male Carriers.
60. Defendant has discriminated against Plaintiff and similarly-situated female
employees in violation of the federal Equal Pay Act, by subjecting her and EPA
Class members to unequal pay on the basis of sex.
61. Defendant has discriminated against Plaintiff and similarly-situated female
employees by treating them differently from and less preferably than similarly-
situated male employees who performed jobs which required equal skill, effort,
responsibility, and which were performed under similar working conditions.
Defendant has also discriminated against them by subjecting them to less – and
14
discriminatory – pay and benefits in violation of the federal Equal Pay Act, 29 U.S.C.
§ 206(d).
62. As a result of Defendant’s conduct alleged herein and/or Defendant’s willful,
knowing, and intentional discrimination, Plaintiff and similarly-situated female
employees have suffered and will continue to suffer harm, including, but not limited
to, lost wages, lost benefits, and other financial loss.
63. Plaintiff and similarly-situated female employees should be awarded the entire
amount of underpayment, interest, costs, reasonable attorneys’ fees and other
statutory penalties or relief as may be allowed by the Court pursuant to 29 U.S.C. §
206(d) and other applicable provisions of the Equal Pay Act.
WHEREFORE, Plaintiff, on behalf of herself and all others similarly-situated, prays
for judgment against Defendant as follows:
A. Certification of this Count as a class action, pursuant to Rule 23 of the Federal
Rules of Civil Procedure, on behalf of the EPA Class;
B. A finding that Plaintiff and EPA Class are employees entitled to protection under
the Equal Pay Act;
C. A finding that Defendant violated the equal pay provisions of the Equal Pay Act;
D. Judgment against Defendant in the amount of Plaintiff and the EPA Class’
unpaid wages at the applicable rates;
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E. An award of all damages, including unpaid minimum and overtime wages, and
liquidated damages as allowed by 29 U.S.C. § 216(b);
F. An award of reasonable attorneys’ fees and costs incurred in prosecuting this
action; and,
G. For such other and further legal and/or equitable relief as this Court deems just
and proper.
CONCLUSION
FOR THE FOREGOING REASONS, Plaintiff prays that this Honorable Court
grant the relief sought in all Counts in this Complaint, on behalf of herself and all others
similarly-situated.
PLAINTIFF DEMANDS A TRIAL BY JURY AS TO ALL COUNTS
DATED: MAY 9, 2018
Respectfully submitted,
/s Cass T. Casper
By:________________________________
Cass T. Casper
One of Plaintiff’s
Attorneys
Cass T. Casper, Esq. (IL #6303022)
TALON LAW, LLC
1153 West Lunt Avenue, Suite 253
Chicago, Illinois 60626
P: (312) 351-2478
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F: (312) 276-4930
E: ctc@talonlaw.com
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| discrimination |
Hf2FFIcBD5gMZwczA9w6 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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VICTOR LOPEZ, ON BEHALF OF HIMSELF
AND ALL OTHER PERSONS SIMILARLY
SITUATED
Plaintiffs,
ECF CASE
No.:19cv3125
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
v.
:
:
:
:
:
:
:
:
:
:
:
:
MCR INVESTORS LLC,
Defendant.
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INTRODUCTION
1.
Plaintiff, VICTOR LOPEZ, on behalf of himself and all other persons similarly
situated (“Plaintiff”), asserts the following claims against Defendants, MCR INVESTORS LLC,
(“Defendant” or “MCR”), as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using his computer. Plaintiff uses the terms “blind” or
“visually-impaired” to refer to all people with visual impairments who meet the legal definition
of blindness in that they have a visual acuity with correction of less than or equal to 20 x 200.
Some blind people who meet their definition have limited vision. Others have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and according to the
American Foundation for the Blind’s 2015 report, approximately 400,000 visually impaired
persons live in the State of New York.
4.
Plaintiff asserts claims under the Americans With Disabilities Act (“ADA”), New
York State Human Rights Law (“NYSHRL”) and New York City Human Rights Law
(“NYCHRL”) against Defendant.
5.
Because Defendant’s websites, https://www.mcrdevelopment.com/contact.htm
(the “Website” or “Defendant’s Website”)1, fail to identify and describe accessible features in the
hotels and guest rooms offered through its reservations service on its Website in enough detail to
reasonably permit individuals with disabilities such as the Plaintiff to assess independently
whether a given hotel or guest room meets his or her accessibility needs, it violates the
provisions of the ADA including certain regulations promulgated thereunder (28 C.F.R. §
36.302(e)(1)).
6.
Plaintiff seeks a permanent injunction to cause a change in Defendant’s corporate
policies, practices, and procedures so that Defendant’s Website will include information as to
accessibility features in their hotels and guest rooms to reasonably permit individuals with
disabilities, including Plaintiff, to assess independently whether Defendant’s hotels or guest
rooms meet his or her accessibility needs so that Defendant’s hotels become and remain
accessible to blind and visually-impaired consumers. See, Poschmann v. Coral Reef of Key
Biscayne Developers, Inc., (U.S.D.C. SDFL, May 23, 2108), WL 3387679, Lexis 87457.
JURISDICTION AND VENUE
7.
The Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42 U.S.C. § 12181,
et seq., and 28 U.S.C. § 1332.
1Included in the definition of Defendant’s website are all of the subsidiary websites for the MCR’s brands which are
all accessed through this website, “main website” and are owned, operated, and managed in New York City or New
York State, as follows: The New Yorker Hotel: https://www.mcrdevelopment.com/contact.htm and TWA Hotel:
https://www.twahotel.com/.
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8.
The Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York State Human Rights Law, N.Y. Exec. Law Article 15, (“NYSHRL”) and New York
City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq., (“NYCHRL”) claims.
9.
Venue is proper in this District under 28 U.S.C. §1391(b)(1) and (2) because
Defendant does business by owning, managing and/or operating several hotels in New York, NY
in this District and would thereby be considered a resident of this District if it were a separate
state and 28 U.S.C. §1391(d) because a substantial part of the events giving rise to this claim
occurred in this District due to the Plaintiff attempting to access the Defendant’s website to find
more information about their hotels located in this district, from his home in New York, NY.
10.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of New York that
caused injury, and violated rights the ADA prescribes to Plaintiff and to other blind and other
visually impaired-consumers. Plaintiff has been denied the full use and enjoyment of the
Defendant’s facilities, goods, and services of Defendant’s physical hotels as a result of
Defendant’s failure to include information relating to the accessibility features of its facilities
and information relating to its accessible guest rooms in enough detail on its reservation system
to permit Plaintiff to access whether the facility and/or the guest room meets its individual needs.
The lack of information on the Website reservation system has caused a denial of Plaintiff’s full
and equal access to Defendant’s hotels.
11.
The Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
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THE PARTIES
12.
Plaintiff, at all relevant times, is a resident of New York, New York. Plaintiff is a
blind, visually-impaired handicapped person and a member of a protected class of individuals
under the ADA, under 42 U.S.C. § 12102(1)-(2), and the regulations implementing the ADA set
forth at 28 CFR §§ 36.101 et seq., the NYSHRL and NYCHRL.
13.
Defendant, MCR Investors LLC, is and was, at all relevant times herein,
registered to do business in New York state and is a Delaware Foreign Limited Liability
Company with a principal place of business located at One World Trade Center, Floor 86, New
York, NY.
14.
MCR is one of the largest hospitality companies in the world and operates
numerous hotels around the country. The hotels which are subject to this lawsuit are the New
Yorker Hotel and the TWA Hotel.
15.
MCR gives access to each of their owned hotel’s reservation system by way of
offering a link on their website. These links on MCR’s website, connect its users with the
reservation of system of each of their hotels so that users may make a reservation and/or contact
the property for more information, such as amenities, special offers, and property locations.
NATURE OF ACTION
16.
The Internet has become a significant source of information, a portal, and a tool
for conducting business, doing everyday activities such as shopping, learning, banking,
researching, choosing hotel accommodations, as well as many other activities for sighted, blind
and visually-impaired persons alike.
17.
Blind and visually-impaired people have the ability to access websites using
keyboards in conjunction with screen access software that vocalizes the visual information found
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on a computer screen or displays the content on a refreshable Braille display. Their technology is
known as screen-reading software. Screen-reading software is currently the only method a blind
or visually-impaired person may independently access the Internet. Unless websites are designed
to be read by screen-reading software, blind and visually-impaired persons are unable to fully
access websites, and the information, products, and services contained thereon.
18.
Blind and visually-impaired users of Windows operating system-enabled
computers and devices have several screen reading software programs available to them. Some
of these programs are available for purchase and other programs are available without the user
having to purchase the program separately. Job Access With Speech, otherwise known as
“JAWS” is currently the most popular, separately purchased and downloaded screen-reading
software program available for a Windows computer.
19.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being rendered into
text, the blind or visually-impaired user is unable to access the same content available to sighted
20.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.0 of the Web Content
Accessibility Guidelines (“WCAG 2.0”). WCAG 2.0 are well-established guidelines for making
websites accessible to blind and visually-impaired people. These guidelines are universally
followed by most large business entities, most Courts and government agencies to ensure their
websites are accessible.
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21.
On March 15, 2012, the revised regulations implementing Title III of the ADA
took effect, imposing significant new obligations on inns, motels, hotels and other “places of
lodging,” specifically, 28 C.F.R. § 36.302(e)(i) provides that:
Reservations made by places of lodging. A public accommodation that owns, leases (or
leases to), or operates a place of lodging shall, with respect to reservations made by any
means, including by telephone, in person, or by a third party ---
(i)
Modify its policies, practices, or procedures to ensure that individuals with
disabilities can make reservations for accessible guest rooms during the
same hours and in the same manner as individuals who do not need
accessible rooms;
(ii)
Identify and describe accessible features in the hotels and guest rooms
offered through its reservations service in enough detail to reasonably
permit individuals with disabilities to assess independently whether a
given hotel or guest room meets his or her accessibility needs;
(iii)
Ensure that accessible guest rooms are held for use by individuals with
disabilities until all other guest rooms of that type;
(iv)
Reserve, upon request, accessible guest rooms or specific types of guest
rooms and ensure that the guest rooms requested are blocked and removed
from all reservation systems; and
(v)
Guarantee that the specific accessible guest room or guest rooms reserved
through its reservations service is held for the reserving customer,
regardless of whether a specific room is held in response to reservations
made by others
22.
Hotels are required to identify and describe all accessible features in the hotel and
guest rooms; “[t]his requirement is essential to ensure individuals with disabilities receive
information they need to benefit from the services offered by the place of lodging.” 28 C.F.R.
Part 36, Appx. A. Moreover, “a public accommodation’s designation of a guest room as
‘accessible’ does not ensure necessarily that the room complies with all of the 1991 Standards.”
28 C.F.R. Part 36, Appx. A. Labeling a guest room as “accessible” or “ADA” is not sufficient.
Accordingly, Defendant is required to set forth specific accessible features and not merely recite
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that a guest room is “accessible” or “ADA compliant” or list accessibility features that may (or
may not) be offered within a particular room.
23.
For hotels in buildings constructed after the effective date of 1991, such as many
of Defendant’s hotels, the regulations provide that it is sufficient to advise that the hotel itself is
fully ADA compliant, and for each accessible guest room, to specify the room type, the type of
accessible bathing facility in the room, and the communications features in the room. 28 C.F.R.
Part 36, Appx. A. For hotels built before the effective date in 1991, there is detailed information
relating to the description of individual accessibility features that the hotel is also required to
disclose.
24.
In promulgating these new requirements, it is clear that the intention of the
Department of Justice is to ensure that individuals with disabilities should be able to reserve
hotel rooms with the same efficiency, immediacy, and convenience as those who do not need
accessible guest rooms. 28 C.F.R. Part 36, Appx. A.
STATEMENT OF FACTS
Defendant’s Website and Compliance with
Requirement to Describe Accessibility Features
25.
Defendant owns and operates hotels in the City of New York as well as in the rest
of the United States. Many of these locations also offer dining and entertainment options,
including on-site restaurants, room service and lobby lounges.
26.
Defendant’s Website offers features to the public that should allow all consumers
to access the facilities and services that it offers about their hotels. The Website is heavily
integrated with their hotels, serving as their gateway.
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27.
It is, upon information and belief, Defendant’s policy and practice to deny
Plaintiff, along with other blind or visually-impaired users, using Defendant’s Website access to
information through their reservation system relating to the availability of ADA compliant rooms
and handicap accessible features of the hotel, and to therefore specifically deny the goods and
services that are offered and integrated with Defendant’s hotels. Due to Defendant’s failure and
refusal to add information through their reservation system relating to its accessibility for
visually-impaired persons on their Website, Plaintiff and visually-impaired persons have been
and are still being denied equal access to Defendant’s hotels and the numerous goods, services,
and benefits offered to the public at Defendant’s hotels.
28.
Plaintiff is a visually-impaired and legally blind person, who cannot use a
computer without the assistance of screen-reading software. Plaintiff is, however, a proficient
JAWS screen-reader user and uses it to access the Internet. Plaintiff has visited the Defendant’s
Website on separate occasions using the JAWS screen-reader.
29.
During Plaintiff’s visits to the Website, last occurring in March, 2019, Plaintiff
was not able to determine from the reservation system on the Website what ADA compliant
features, if any, the hotels offer and whether the guest rooms have handicap accessible facilities
or communications equipment in the guest rooms suitable to blind or visually-impaired persons.
As a result, Plaintiff has been denied full and equal access to the facilities, goods and services
offered to the public and made available to the public; and that denied Plaintiff the full
enjoyment of the facilities, goods, and services of Defendant’s physical locations in New York
City and New York State by being unable to learn any information about the accessibility
features of the hotels or its guest rooms.
-8-
Defendant Must Include Information Relating to ADA Compliant Rooms
and Handicap Accessibility Features Through Its Website Reservation System
30.
Due to the lack of information relating to the accessibility features of Defendant’s
hotels through the reservation system on the Website, blind and visually-impaired customers
such as Plaintiff, who need screen-readers, cannot fully and equally use or enjoy the facilities,
goods, and services Defendant offers to the public in their hotels. The access barriers Plaintiff
encountered have caused a denial of Plaintiff’s full and equal access in the past, and now deter
Plaintiff on a regular basis using the services that the hotels offer to the public because of the
lack of information on accessibility through the reservation system on the Website. Plaintiff
intends to visit Defendant’s hotels or book rooms in Defendant’s hotels in the future if the
Plaintiff was able to learn about the accessibility of Defendant’s hotels and guest rooms for blind
and vision-impaired persons through the reservation system on their website and those
accessibility features meet the needs of the Plaintiff.
31.
These access barriers on Defendant’s Website reservation system have deterred
Plaintiff from visiting Defendant’s physical locations, and enjoying them equal to sighted
individuals because: Plaintiff was unable to find information on the Website reservation system
relating to the accessibility of the hotels and guest rooms for blind and visually-impaired people
and other important information, preventing Plaintiff from reserving a room at the hotels, staying
at the hotel and using the facilities of the hotel including restaurants and attending events.
32.
If the hotels and the Website reservation system were equally accessible to all,
Plaintiff could independently navigate the Website and complete a desired transaction as sighted
individuals do.
-9-
33.
Through visiting the Website, Plaintiff has actual knowledge of the lack of
information on accessibility features available on the reservation system on the Website that
result in making the services and facilities of the hotel inaccessible and independently unusable
by blind and visually-impaired people.
34.
Because simple compliance with the provisions of the ADA relating to providing
information about accessibility features of the hotels and the guest rooms on its Website
reservation system would provide Plaintiff and other visually-impaired consumers with equal
access to the services and facilities at Defendant’s hotels, Plaintiff alleges that Defendant has
engaged in acts of intentional discrimination, including, but not limited to, the failure to provide
information on its Website reservation system sufficient to advise that the hotels are fully ADA
compliant, and for each accessible guest room, to specify the room type, the type of accessible
facility in the room, and the communications features in the room.
35.
Defendant therefore use standards, criteria or methods of administration that have
the effect of discriminating or perpetuating the discrimination of others, as alleged herein.
36.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to alter
facilities to make such facilities readily accessible to and usable by individuals with
disabilities . . . Where appropriate, injunctive relief shall also include requiring the . . .
modification of a policy . . .
42 U.S.C. § 12188(a)(2).
37.
Because Defendant’s Website reservation system has never included the required
information, and because Defendant lacks a corporate policy that is reasonably calculated to
cause the Website reservation system to include the required information relating to accessibility,
Plaintiff invokes 42 U.S.C. § 12188(a)(2) and seeks a permanent injunction requiring Defendant
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to retain a qualified consultant acceptable to Plaintiff (“Agreed Upon Consultant”) to assist
Defendant to comply with the ADA regulations requiring certain accessibility information to be
included on Defendant’s Website reservation system. Plaintiff seeks that their permanent
injunction requires Defendant to cooperate with the Agreed Upon Consultant to:
a.
Train Defendant’s employees and agents who develop the Website for
accessibility and compliance to identify and describe accessible features in the hotels and guest
rooms on the Website reservation system and a statement that the hotels are fully ADA
compliant, and for each accessible guest room, to specify the room type, the type of accessible
facility in the room including a detailed description of the features of such facility so that a blind
or visually-impaired person can determine if the features meet such person’s needs, and the
communications features in the room including a detailed description of the communications
features so that a blind or visually-impaired person can independently determine if the features
meet such person’s needs, including, but not limited to:
1. Whether Defendant’s employees and agents such as managers, bell staff, doormen,
concierges, transportation providers, security personnel, front desk and other staff are
trained to assist blind and vision-impaired guests with basic needs such as: completing
the hotel registration; learning about and completing service requests like laundry, dry
cleaning, valet, shipping, room service, etc.; reviewing the hotel bill and charges;
counting and identifying currency; using a signature guide or template in conjunction
with their credit card; using a passcard-type of key; luggage rooms, business center, gym
or health club, lounge facilities, rest rooms; orienting guests to hotel and guest room
layouts; location of fire alarms, emergency exits and equipment; heating and air
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conditioning controls; TV remote controls; message retrieval system; automated wake-
up systems; and safe deposit box.
2. Whether Defendant accepts guide dogs and, if so, if there are any charges associated with
the guide dogs, their policies with respect to guide dogs and if there are any rest areas for
guide dogs.
3. Whether the hotels provide a braille and/or large print menu for restaurants and/or room
service and, in the alternative, if they have trained staff to read the menu to blind or
vision-impaired guests.
4. Whether or not emergency exit signs are compliant with ADAAG2 requirements and
emergency evacuation plans and information are provided in braille and large print.
5. Whether or not all accessible signage complies with the requirements of the ADAAG.
6. Whether or not the stairs, escalators and elevators comply with ADAAG standards, such
as braille for floor numbers in the elevator and a verbal annunciator for each floor.
7. Whether or not the hotels have removed or protected protruding objects which protrude
more than 4” into walkways and hallways such as drinking fountains, fire extinguishers,
and planters and if they provide cane detectable warnings for the underside of stairways.
8. Whether or not the guest rooms contain tactile and large print thermostat controls and
talking/large print clocks.
9. Whether or not signage in the hotel can be easily located by blind and vision-impaired
persons with 2” minimum height raised letters and braille characters centered at 60”
above the finished floor to indicate floor numbers, rest rooms, lobby, vending and ice
machines and all other hotel facilities and amenities.
2 ADA Accessibility Guidelines promulgated by the United States Access Board
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b.
Regularly check the accessibility of the Website and its reservation system
under the WCAG 2.0 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons to
ensure that Defendant’s Website and the reservation system complies under the WCAG 2.0
guidelines; and
d.
Regularly check the hotels and the guest rooms to ensure that the
accessibility features that they describe on its website reservation system are in fact available and
properly maintained.
38.
If the ADA-required information is included on the Website reservation system,
Plaintiff and similarly situated blind and visually-impaired people could independently determine
through use of the Website if Defendant’s hotels and guest rooms are ADA compliant and if the
facilities described relating the facilities and communications equipment in guest rooms are
acceptable to the Plaintiff and similarly situated blind and visually-impaired people
39.
Although Defendant may currently have centralized policies regarding
maintaining and operating its Website and the inclusion of information on the Website,
Defendant lacks a plan and policy reasonably calculated to include the ADA-required
information on the Website reservation system to make such information fully and equally
accessible to, and independently usable by, blind and other visually-impaired consumers.
40.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining the Website and has generated significant revenue from the Website.
These amounts are far greater than the associated cost of including the information required
under the ADA regulations on the Website reservation system in order to make its facilities and
guest rooms equally accessible to visually impaired customers.
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41.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website reservation system to obtain information
relating to ADA accessibility of the hotels and their guest rooms, violating their rights.
CLASS ACTION ALLEGATIONS
42.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in the
United States who have attempted to access Defendant’s Website to obtain the ADA-required
accessibility information and as a result have been denied access to the equal enjoyment of goods
and services offered in Defendant’s physical locations, during the relevant statutory period.
43.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
New York State subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in
the State of New York who have attempted to access Defendant’s Website to obtain the ADA-
required information and as a result have been denied access to the equal enjoyment of goods
and services offered in Defendant’s physical locations, during the relevant statutory period.
44.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
New York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in
the City of New York who have attempted to access Defendant’s Website to obtain the ADA-
required information and as a result have been denied access to the equal enjoyment of goods
and services offered in Defendant’s physical locations, during the relevant statutory period.
45.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website reservation system contains the information
on accessibility required under the ADA regulations;
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b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYSHRL or NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment of its
goods, services, facilities, privileges, advantages, or accommodations to people with visual
disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment of its
goods, services, facilities, privileges, advantages, or accommodations to people with visual
disabilities, violating the NYSHRL or NYCHRL.
46.
Plaintiff’s claims are typical of the Class. The Class, similarly to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant have violated the ADA,
NYSHRL or NYCHRL by failing to include the ADA-required information on the Website
reservation system so individuals with disabilities can independently assess if Defendant’s hotels
or guest rooms meet the accessibility needs of the Plaintiff and the Class.
47.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent and experienced
in complex class action litigation, and because Plaintiff has no interests antagonistic to the Class
Members. Class certification of the claims is appropriate under Fed. R. Civ. P. 23(b)(2) because
Defendant has acted or refused to act on grounds generally applicable to the Class, making
appropriate both declaratory and injunctive relief with respect to Plaintiff and the Class as a
48.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3)
because fact and legal questions common to Class Members predominate over questions
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affecting only individual Class Members, and because a class action is superior to other available
methods for the fair and efficient adjudication of their litigation.
49.
Judicial economy will be served by maintaining their lawsuit as a class action in
that it is likely to avoid the burden that would be otherwise placed upon the judicial system by
the filing of numerous similar suits by people with visual disabilities throughout the United
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
50.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges
every allegation of the preceding paragraphs as if fully set forth herein.
51.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and equal
enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of
any place of public accommodation by any person who owns, leases (or leases to), or
operates a place of public accommodation.
42 U.S.C. § 12182(a).
52.
Defendant’s hotels are places of public accommodation within the definition of
Title III of the ADA, 42 U.S.C. § 12181(7)(A). Defendant’s Website is a service, privilege, or
advantage of Defendant’s hotels. The Website is a service that is integrated with the Defendant’s
hotels and is a gateway thereto.
53.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodations of an entity. 42 U.S.C. §
12182(b)(1)(A)(i).
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54.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodation, which is equal to the opportunities
afforded to other individuals. 42 U.S.C. § 12182(b)(1)(A)(ii).
55.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures, when
such modifications are necessary to afford such goods, services, facilities, privileges,
advantages, or accommodations to individuals with disabilities, unless the entity can
demonstrate that making such modifications would fundamentally alter the nature of such
goods, services, facilities, privileges, advantages or accommodations; and a failure to
take such steps as may be necessary to ensure that no individual with a disability is
excluded, denied services, segregated or otherwise treated differently than other
individuals because of the absence of auxiliary aids and services, unless the entity can
demonstrate that taking such steps would fundamentally alter the nature of the good,
service, facility, privilege, advantage, or accommodation being offered or would result in
an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
56.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class of persons
under the ADA, has a physical disability that substantially limits the major life activity of sight
within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A). Furthermore, Plaintiff has been denied
full and equal access to the ADA-required information on the Website reservation system, and,
as a result, has not been provided services that are provided to other patrons who are not
disabled, and has been provided services that are inferior to the services provided to non-disabled
persons. Defendant have failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
57.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
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SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYSHRL
58.
Plaintiff, on behalf of himself and the New York State Sub-Class Members,
repeats and realleges every allegation of the preceding paragraphs as if fully set forth herein.
59.
N.Y. Exec. Law § 296(2)(a) provides that it is “an unlawful discriminatory
practice for any person, being the owner, lessee, proprietor, manager, superintendent, agent or
employee of any place of public accommodation . . . because of the . . . disability of any person,
directly or indirectly, to refuse, withhold from or deny to such person any of the
accommodations, advantages, facilities or privileges thereof.”
60.
Defendant’s physical hotels are located in the State of New York and constitute
places of public accommodation within the definition of N.Y. Exec. Law § 292(9). Defendant’s
Website is a service, privilege or advantage of Defendant. Defendant’s Website is a service that
is heavily integrated with these physical locations and is a gateway thereto.
61.
Defendant is subject to New York Human Rights Law because it owns and
operates its physical locations and Website. The Defendant is a person within the meaning of
N.Y. Exec. Law § 292(1).
62.
Defendant is violating N.Y. Exec. Law § 296(2)(a) in refusing to include the
ADA-required information on the Website reservation system, causing the Website and the
services integrated with Defendant’s physical locations to be completely inaccessible to the
blind. This inaccessibility denies blind patrons full and equal access to the facilities, goods and
services that Defendant makes available to the non-disabled public.
63.
Under N.Y. Exec. Law § 296(2)(c)(i), unlawful discriminatory practice includes,
among other things, “a refusal to make reasonable modifications in policies, practices, or
procedures, when such modifications are necessary to afford facilities, privileges, advantages or
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accommodations to individuals with disabilities, unless such person can demonstrate that making
such modifications would fundamentally alter the nature of such facilities, privileges, advantages
or accommodations being offered or would result in an undue burden."
64.
Under N.Y. Exec. Law § 296(2)(c)(ii), unlawful discriminatory practice also
includes, “a refusal to take such steps as may be necessary to ensure that no individual with a
disability is excluded or denied services because of the absence of auxiliary aids and services,
unless such person can demonstrate that taking such steps would fundamentally alter the nature
of the facility, privilege, advantage or accommodation being offered or would result in an undue
burden.”
65.
Readily available, well-established guidelines exist on the Internet for including
the ADA-required information on websites making such websites accessible to the blind and
visually impaired. Incorporating the basic components to make the Website reservation system
include the ADA-required information would neither fundamentally alter the nature of
Defendant’s business nor result in an undue burden to Defendant.
66.
Defendant’s actions constitute willful intentional discrimination against the class
on the basis of a disability in violation of the NYSHRL, N.Y. Exec. Law § 296(2) in that
Defendant has:
a.
constructed and maintained a website that does not contain the ADA-
required information on its reservation system making their hotels inaccessible to blind class
members with knowledge of the discrimination; and/or
b.
failed to take actions to correct the lack of the ADA-required information
in the face of substantial harm and discrimination to blind class members.
-19-
67.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
68.
Defendant discriminates, and will continue in the future to discriminate against
Plaintiff and New York State Sub-Class Members on the basis of disability in the full and equal
enjoyment of the goods, services, facilities, privileges, advantages, accommodations and/or
opportunities of Defendant’s Website and their physical locations under § 296(2) et seq. and/or
its implementing regulations. Unless the Court enjoins Defendant from continuing to engage in
these unlawful practices, Plaintiff and the Sub-Class Members will continue to suffer irreparable
69.
Defendant’s actions were and are in violation of New York State Human Rights
Law and therefore Plaintiff invokes his right to injunctive relief to remedy the discrimination.
70.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y. Exec. Law § 297(4)(c) et seq. for each and every offense.
71.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
72.
Under N.Y. Exec. Law § 297 and the remedies, procedures, and rights set forth
and incorporated therein Plaintiff prays for judgment as set forth below.
THIRD CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
73.
Plaintiff, on behalf of himself and the New York City Sub-Class Members,
repeats and realleges every allegation of the preceding paragraphs as if fully set forth herein.
74.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor, manager,
superintendent, agent or employee of any place or provider of public accommodation, because of
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. . . disability . . . directly or indirectly, to refuse, withhold from or deny to such person, any of
the accommodations, advantages, facilities or privileges thereof.”
75.
Defendant’s hotels are places of public accommodation within the definition of
N.Y.C. Admin. Code § 8-102(9), and the Website is a service that is integrated with their
establishments.
76.
Defendant is subject to NYCHRL because it owns and operates physical locations
in the City of New York and the Website, making the Defendant a person within the meaning of
N.Y.C. Admin. Code § 8-102(1).
77.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update the Website and remove access barriers to its hotels by failing to include the ADA-
required information on its reservation system, causing the services integrated with their physical
locations to be completely inaccessible to the blind. The inaccessibility denies blind patrons full
and equal access to the facilities, goods, and services that Defendant makes available to the non-
disabled public.
78.
Defendant is required to “make reasonable accommodation to the needs of
persons with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.] from
discriminating on the basis of disability shall make reasonable accommodation to enable a
person with a disability to . . . enjoy the right or rights in question provided that the disability is
known or should have been known by the covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
79.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code § 8-107(4)(a)
and § 8-107(15)(a) in that Defendant has:
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a.
constructed and maintained a website that does not contain the ADA-
required information on its reservation system making their hotels inaccessible to blind class
members with knowledge of the discrimination; and/or
b.
failed to take actions to correct the lack of the ADA-required information
in the face of substantial harm and discrimination to blind class members.
80.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
81.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of disability in the
full and equal enjoyment of the goods, services, facilities, privileges, advantages,
accommodations and/or opportunities of the Website and their establishments under § 8-
107(4)(a) and/or its implementing regulations. Unless the Court enjoins Defendant from
continuing to engage in these unlawful practices, Plaintiff and members of the class will continue
to suffer irreparable harm.
82.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
83.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense as well as
punitive damages pursuant to § 8-502.
84.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
85.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for judgment as set forth
-22-
FOURTH CAUSE OF ACTION
DECLARATORY RELIEF
86.
Plaintiff, on behalf of himself and the Class and New York State and City Sub-
Classes Members, repeats and realleges every allegation of the preceding paragraphs as if fully
set forth herein.
87.
An actual controversy has arisen and now exists between the parties in that
Plaintiff contends, and is informed and believes that Defendant denies, that the Website does not
contain the ADA-required information on its reservation system denying blind customers the full
and equal access to the goods, services and facilities of the Website and by extension their
physical locations, which Defendant owns, operates and controls, fails to comply with applicable
laws including, but not limited to, Title III of the Americans with Disabilities Act, 42 U.S.C. §§
12182, et seq., N.Y. Exec. Law § 296, et seq., and N.Y.C. Admin. Code § 8-107, et seq.
prohibiting discrimination against the blind.
88.
A judicial declaration is necessary and appropriate at this time in order that each
of the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests the Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law §
296, et seq., N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take all
the steps necessary to make the Website reservation system into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that the Website
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contains the ADA-required information making their hotels and guest rooms accessible to and
usable by blind and vision-impaired individuals;
c.
A declaration that Defendant owns, maintains and/or operates the Website
reservation system in a manner that discriminates against the blind and vision-impaired and
which fails to provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., N.Y.C.
Administrative Code § 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P. 23(a)
& (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative, and his attorneys as Class
Counsel;
e.
Compensatory damages in an amount to be determined by proof, including
all applicable statutory and punitive damages and fines, to Plaintiff and the proposed class and
subclasses;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of the action together with reasonable
attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions of fact
the Complaint raises.
Dated: New York, New York
April 8, 2019
GOTTLIEB & ASSOCIATES
s/Jeffrey M. Gottlieb
Jeffrey M. Gottlieb (JG-7905)
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Dana L. Gottlieb (DG-6151)
GOTTLIEB & ASSOCIATES
150 East 18th Street, Suite PHR
New York, New York 10003
Tel: 212.228.9795
Fax: 212.982.6284
nyjg@aol.com
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| civil rights, immigration, family |
57_DDIcBD5gMZwcz7WnC |
CLASS ACTION
Case No.
JURY TRIAL DEMANDED
SUSAN TAYLOR, individually and on behalf of all
others similarly situated,
Plaintiff,
vs.
HUDSON VALLEY AUTOMOTIVE
ENTERPRISES, L.L.C., a New York limited liability
company,
Defendant.
______________________________________/
CLASS ACTION COMPLAINT
1.
Plaintiff, Susan Taylor, brings this action against Defendant, Hudson Valley
Automotive Enterprises, L.L.C., to secure redress for violations of the Telephone Consumer
Protection Act (“TCPA”), 47 U.S.C. § 227.
NATURE OF THE ACTION
2.
This is a putative class action pursuant to the Telephone Consumer Protection Act, 47
U.S.C. § 227 et seq., (the “TCPA”).
3.
Defendant is an automotive dealership that sells vehicles to individuals and businesses.
To promote its services, Defendant engages in unsolicited marketing, harming thousands of consumers
in the process.
4.
Through this action, Plaintiff seeks injunctive relief to halt Defendant’s illegal conduct,
which has resulted in the invasion of privacy, harassment, aggravation, and disruption of the daily life
of thousands of individuals. Plaintiff also seeks statutory damages on behalf of herself and members of
the class, and any other available legal or equitable remedies.
JURISDICTION AND VENUE
statute. Jurisdiction is also proper under 28 U.S.C. § 1332(d)(2) because Plaintiff alleges a national class,
which will result in at least one class member belonging to a different state than that of Defendant.
Plaintiff seeks up to $1,500.00 (one-thousand-five-hundred dollars) in damages for each call in violation
of the TCPA, which, when aggregated among a proposed class numbering in the tens of thousands, or
more, exceeds the $5,000,000.00 (five-million dollars) threshold for federal court jurisdiction under the
Class Action Fairness Act (“CAFA”). Therefore, both the elements of diversity jurisdiction and CAFA
jurisdiction are present.
6.
Venue is proper in the United States District Court for the Southern District of New
York pursuant to 28 U.S.C. § 1391(b) and (c) because Defendant is deemed to reside in any judicial
district in which it is subject to the court’s personal jurisdiction, because Defendant resides within this
judicial district, and because Defendant provides and markets its services within this district thereby
establishing sufficient contacts to subject it to personal jurisdiction. Further, Defendant’s tortious
conduct against Plaintiff occurred within the State of New York and, on information and belief,
Defendant has sent the same text messages complained of by Plaintiff to other individuals within this
judicial district, such that some of Defendant’s acts in making such calls have occurred within this
district, subjecting Defendant to jurisdiction in the State of New York.
PARTIES
7.
Plaintiff is a natural person who, at all times relevant to this action, was a resident of
Ulster County, New York.
8.
Defendant is a New York limited liability company whose principal office is located at
200 Auto Park Pl, Newburgh, NY 12550. Defendant directs, markets, and provides its business activities
throughout the State of New York.
THE TCPA
an automatic telephone dialing system; (3) without the recipient’s prior express consent. 47 U.S.C. §
227(b)(1)(A).
10.
The TCPA defines an “automatic telephone dialing system” (“ATDS”) as “equipment
that has the capacity - (A) to store or produce telephone numbers to be called, using a random or
sequential number generator; and (B) to dial such numbers.” 47 U.S.C. § 227(a)(1).
11.
In an action under the TCPA, a plaintiff must only show that the defendant “called a
number assigned to a cellular telephone service using an automatic dialing system or prerecorded
voice.” Breslow v. Wells Fargo Bank, N.A., 857 F. Supp. 2d 1316, 1319 (S.D. Fla. 2012), aff'd, 755
F.3d 1265 (11th Cir. 2014).
12.
The Federal Communications Commission (“FCC”) is empowered to issue rules and
regulations implementing the TCPA. According to the FCC’s findings, calls in violation of the TCPA
are prohibited because, as Congress found, automated or prerecorded telephone calls are a greater
nuisance and invasion of privacy than live solicitation calls, and such calls can be costly and
inconvenient. The FCC also recognized that wireless customers are charged for incoming calls whether
they pay in advance or after the minutes are used. Rules and Regulations Implementing the Telephone
Consumer Protection Act of 1991, CG Docket No. 02-278, Report and Order, 18 FCC Rcd 14014
13.
In 2012, the FCC issued an order tightening the restrictions for automated telemarketing
calls, requiring “prior express written consent” for such calls to wireless numbers. See In the Matter of
Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27 F.C.C.R. 1830, 1838 ¶ 20
(Feb. 15, 2012) (emphasis supplied).
14.
To obtain express written consent for telemarketing calls, a defendant must establish
that it secured the plaintiff’s signature in a form that gives the plaintiff a “‘clear and conspicuous
disclosure’ of the consequences of providing the requested consent….and having received this
designates.” In re Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27 F.C.C.R.
1830, 1837 ¶ 18, 1838 ¶ 20, 1844 ¶ 33, 1857 ¶ 66, 1858 ¶ 71 (F.C.C. Feb. 15, 2012).
15.
The TCPA regulations promulgated by the FCC define “telemarketing” as “the
initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or
investment in, property, goods, or services.” 47 C.F.R. § 64.1200(f)(12). In determining whether a
communication constitutes telemarketing, a court must evaluate the ultimate purpose of the
communication. See Golan v. Veritas Entm't, LLC, 788 F.3d 814, 820 (8th Cir. 2015).
16.
“Neither the TCPA nor its implementing regulations ‘require an explicit mention of a
good, product, or service’ where the implication of an improper purpose is ‘clear from the context.’”
Id. (citing Chesbro v. Best Buy Stores, L.P., 705 F.3d 913, 918 (9th Cir. 2012)).
17.
“‘Telemarketing’ occurs when the context of a call indicates that it was initiated and
transmitted to a person for the purpose of promoting property, goods, or services.” Golan, 788 F.3d at
820 (citing 47 C.F.R. § 64.1200(a)(2)(iii); 47 C.F.R. § 64.1200(f)(12); In re Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, 18 F.C.C. Rcd at 14098 ¶ 141, 2003
WL 21517853, at *49).
18.
The FCC has explained that calls motivated in part by the intent to sell property, goods,
or services are considered telemarketing under the TCPA. See In re Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014, ¶¶ 139-142 (2003).
This is true whether call recipients are encouraged to purchase, rent, or invest in property, goods, or
services during the call or in the future. Id.
19.
In other words, offers “that are part of an overall marketing campaign to sell
property, goods, or services constitute” telemarketing under the TCPA. See In re Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014, ¶ 136
obtained the plaintiff’s prior express consent. See In the Matter of Rules and Regulaions Implementing
the Tel. Consumer Prot. Act of 1991, 30 FCC Rcd. 7961, 7991-92 (2015) (requiring express consent
“for non-telemarketing and non-advertising calls”).
21.
Further, the FCC has issued rulings and clarified that consumers are entitled to the same
consent-based protections for text messages as they are for calls to wireless numbers. See Satterfield v.
Simon & Schuster, Inc., 569 F.3d 946, 952 (9th Cir. 2009) (The FCC has determined that a text message
falls within the meaning of “to make any call” in 47 U.S.C. § 227(b)(1)(A)); Toney v. Quality Res., Inc.,
2014 WL 6757978, at *3 (N.D. Ill. Dec. 1, 2014) (Defendant bears the burden of showing that it
obtained Plaintiff's prior express consent before sending him the text message). (emphasis added).
22.
As recently held by the United States Court of Appeals for the Ninth Circuit:
“Unsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and disturb
the solitude of their recipients. A plaintiff alleging a violation under the TCPA ‘need not allege any
additional harm beyond the one Congress has identified.’” Van Patten v. Vertical Fitness Grp., No.
14-55980, 2017 U.S. App. LEXIS 1591, at *12 (9th Cir. May 4, 2016) (quoting Spokeo, Inc. v.
Robins, 136 S. Ct. 1540, 1549 (2016) (emphasis original)).
FACTS
23.
On or about September of 2019, Defendant sent the following telemarketing text
message to Plaintiff’s cellular telephone number ending in 7507 (the “7507 Number”):
24.
Defendant’s text message was transmitted to Plaintiff’s cellular telephone, and within
the time frame relevant to this action.
25.
Defendant’s text message constitutes telemarketing because it encourages the future
purchase or investment in property, goods, or services, i.e., selling Plaintiff a vehicle.
26.
The information contained in the text message advertises Defendant’s prepaid gift cards
available after a test drive, which Defendant sends to promote its business.
27.
Plaintiff received the subject text within this judicial district and, therefore, Defendant’s
violation of the TCPA occurred within this district. Upon information and belief, Defendant caused
other text messages to be sent to individuals residing within this judicial district.
28.
At no point in time did Plaintiff provide Defendant with her express written consent to
be contacted using an ATDS.
responsible for phone service to the 7505 Number.
30.
The impersonal and generic nature of Defendant’s text message demonstrates that
Defendant utilized an ATDS in transmitting the messages. See Jenkins v. LL Atlanta, LLC, No. 1:14-
cv-2791-WSD, 2016 U.S. Dist. LEXIS 30051, at *11 (N.D. Ga. Mar. 9, 2016) (“These assertions,
combined with the generic, impersonal nature of the text message advertisements and the use of a short
code, support an inference that the text messages were sent using an ATDS.”) (citing Legg v. Voice
Media Grp., Inc., 20 F. Supp. 3d 1370, 1354 (S.D. Fla. 2014) (plaintiff alleged facts sufficient to infer
text messages were sent using ATDS; use of a short code and volume of mass messaging alleged would
be impractical without use of an ATDS); Kramer v. Autobytel, Inc., 759 F. Supp. 2d 1165, 1171 (N.D.
Cal. 2010) (finding it "plausible" that defendants used an ATDS where messages were advertisements
written in an impersonal manner and sent from short code); Hickey v. Voxernet LLC, 887 F. Supp. 2d
1125, 1130; Robbins v. Coca-Cola Co., No. 13-CV-132-IEG NLS, 2013 U.S. Dist. LEXIS 72725, 2013
WL 2252646, at *3 (S.D. Cal. May 22, 2013) (observing that mass messaging would be impracticable
without use of an ATDS)).
31.
The text messages originated from telephone number 407-449-7440, a number which
upon information and belief is owned and/or operated by Defendant.
32.
The number used by Defendant is known as a “long code,” a standard 10-digit phone
number that enabled Defendant to send SMS text messages en masse, while deceiving recipients into
believing that the message was personalized and sent from a telephone number operated by an
individual.
33.
Long codes work as follows: Private companies known as SMS gateway providers have
contractual arrangements with mobile carriers to transmit two-way SMS traffic. These SMS gateway
providers send and receive SMS traffic to and from the mobile phone networks' SMS centers, which
transmission of a large number of SMS messages to and from a long code.
34.
Specifically, upon information and belief, Defendant utilized a combination of hardware
and software systems to send the text messages at issue in this case. The systems utilized by Defendant
have the capacity to store telephone numbers using a random or sequential generator, and to dial such
numbers from a list without human intervention.
35.
To send the text messages, Defendant used a messaging platform (the “Platform”)
that permitted Defendant to transmit thousands of automated text messages without any human
involvement.
36.
The Platform has the capacity to store telephone numbers, which capacity was in
fact utilized by Defendant.
37.
The Platform has the capacity to generate sequential numbers, which capacity was
in fact utilized by Defendant.
38.
The Platform has the capacity to dial numbers in sequential order, which capacity
was in fact utilized by Defendant.
39.
The Platform has the capacity to dial numbers from a list of numbers, which
capacity was in fact utilized by Defendant.
40.
The Platform has the capacity to dial numbers without human intervention, which
capacity was in fact utilized by Defendant.
41.
The Platform has the capacity to schedule the time and date for future transmission
of text messages, which occurs without any human involvement.
42.
To transmit the messages at issue, the Platform automatically executed the
following steps:
a. The Platform retrieved each telephone number from a list of numbers in the
sequential order the numbers were listed;
combined each number with the content of Defendant’s message to create
“packets” consisting of one telephone number and the message content;
c. Each packet was then transmitted in the sequential order listed to an SMS
aggregator, which acts an intermediary between the Platform, mobile carriers
(e.g. AT&T), and consumers.
d. Upon receipt of each packet, the SMS aggregator transmitted each packet –
automatically and with no human intervention – to the respective mobile carrier
for the telephone number, again in the sequential order listed by Defendant.
Each mobile carrier then sent the message to its customer’s mobile telephone.
43.
The above execution these instructions occurred seamlessly, with no human
intervention, and almost instantaneously. Indeed, the Platform is capable of transmitting thousands
of text messages following the above steps in minutes, if not less.
44.
Further, the Platform “throttles” the transmission of the text messages depending
on feedback it receives from the mobile carrier networks. In other words, the platform controls
how quickly messages are transmitted depending on network congestion. The platform performs
this throttling function automatically and does not allow a human to control the function.
45.
The following graphic summarizes the above steps and demonstrates that the
dialing of the text messages at issue was done by the Platform automatically and without any
human intervention:
of her privacy, aggravation, annoyance, intrusion on seclusion, trespass, and conversion. Defendant’s
text messages also inconvenienced Plaintiff and caused disruption to her daily life.
47.
Defendant’s unsolicited text messages caused Plaintiff actual harm. Specifically,
Plaintiff estimates that she has wasted approximately 10 minutes reviewing Defendant’s unwanted
message and retaining counsel for this case in order to stop Defendant’s unwanted messages.
48.
Furthermore, Defendant’s text message took up memory on Plaintiff’s cellular
phone. The cumulative effect of unsolicited text messages like Defendant’s poses a real risk of
ultimately rendering the phone unusable for text messaging purposes as a result of the phone’s
memory being taken up. See https://www.consumer.ftc.gov/articles/0350-text-message-spam#text
(finding that text message solicitations like the ones sent by Defendant present a “triple threat” of
identity theft, unwanted cell phone charges, and slower cell phone performance).
49.
Defendant’s text messages also can slow cell phone performance by taking up space
on the recipient phone’s memory. See https://www.consumer.ftc.gov/articles/0350-text-message-
spam#text (finding that spam text messages can slow cell phone performance by taking up phone
memory space).
CLASS ALLEGATIONS
PROPOSED CLASS
50.
Plaintiff brings this case as a class action pursuant to Fed. R. Civ. P. 23, on behalf of
herself and all others similarly situated.
51.
Plaintiff brings this case on behalf of a Class defined as follows:
No Consent Class: All persons who from four years prior
to the filing of this action (1) were sent a text message by or
on behalf of Defendant, (2) using an automatic telephone
dialing system, (3) for the purpose of soliciting Defendant’s
goods and services, and (4) for whom Defendant claims (a)
it did not obtain prior express written consent, or (b) it
obtained prior express written consent in the same manner
as Defendant claims it supposedly obtained prior express
written consent to call the Plaintiff.
52.
Defendant and its employees or agents are excluded from the Class. Plaintiff does not
know the number of members in the Class, but believes the Class members number in the several
thousands, if not more.
NUMEROSITY
53.
Upon information and belief, Defendant has placed automated and/or prerecorded calls
to cellular telephone numbers belonging to thousands of consumers throughout the United States
without their prior express consent. The members of the Class, therefore, are believed to be so numerous
that joinder of all members is impracticable.
54.
The exact number and identities of the Class members are unknown at this time and can
only be ascertained through discovery. Identification of the Class members is a matter capable of
ministerial determination from Defendant’s call records.
COMMON QUESTIONS OF LAW AND FACT
55.
There are numerous questions of law and fact common to the Class which predominate
over any questions affecting only individual members of the Class. Among the questions of law and
fact common to the Class are:
(1) Whether Defendant made non-emergency calls to Plaintiff’s and Class
members’ cellular telephones using an ATDS;
(2) Whether Defendant can meet its burden of showing that it obtained prior
express written consent to make such calls;
(3) Whether Defendant’s conduct was knowing and willful;
(4) Whether Defendant is liable for damages, and the amount of such damages; and
(5) Whether Defendant should be enjoined from such conduct in the future.
claim that Defendant routinely transmits text messages to telephone numbers assigned to cellular
telephone services is accurate, Plaintiff and the Class members will have identical claims capable of
being efficiently adjudicated and administered in this case.
TYPICALITY
57.
Plaintiff’s claims are typical of the claims of the Class members, as they are all based
on the same factual and legal theories.
PROTECTING THE INTERESTS OF THE CLASS MEMBERS
58.
Plaintiff is a representative who will fully and adequately assert and protect the interests
of the Class, and has retained competent counsel. Accordingly, Plaintiff is an adequate representative
and will fairly and adequately protect the interests of the Class.
PROCEEDING VIA CLASS ACTION IS SUPERIOR AND ADVISABLE
59.
A class action is superior to all other available methods for the fair and efficient
adjudication of this lawsuit, because individual litigation of the claims of all members of the Class is
economically unfeasible and procedurally impracticable. While the aggregate damages sustained by the
Class are in the millions of dollars, the individual damages incurred by each member of the Class
resulting from Defendant’s wrongful conduct are too small to warrant the expense of individual
lawsuits. The likelihood of individual Class members prosecuting their own separate claims is remote,
and, even if every member of the Class could afford individual litigation, the court system would be
unduly burdened by individual litigation of such cases.
60.
The prosecution of separate actions by members of the Class would create a risk of
establishing inconsistent rulings and/or incompatible standards of conduct for Defendant. For example,
one court might enjoin Defendant from performing the challenged acts, whereas another may not.
Additionally, individual actions may be dispositive of the interests of the Class, although certain class
members are not parties to such actions.
Violations of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiff and the Class)
61.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
herein.
62.
It is a violation of the TCPA to make “any call (other than a call made for
emergency purposes or made with the prior express consent of the called party) using any
automatic telephone dialing system … to any telephone number assigned to a … cellular telephone
service ….” 47 U.S.C. § 227(b)(1)(A)(iii).
63.
Defendant – or third parties directed by Defendant – used equipment having the
capacity to dial numbers without human intervention to make non-emergency telephone calls to
the cellular telephones of Plaintiff and the other members of the Class defined below.
64.
These calls were made without regard to whether or not Defendant had first
obtained express permission from the called party to make such calls. In fact, Defendant did not
have prior express consent to call the cell phones of Plaintiff and the other members of the putative
Class when its calls were made.
65.
Defendant has, therefore, violated § 227(b)(1)(A)(iii) of the TCPA by using an
automatic telephone dialing system to make non-emergency telephone calls to the cell phones of
Plaintiff and the other members of the putative Class without their prior express written consent.
66.
Defendant knew that it did not have prior express consent to make these calls, and
knew or should have known that it was using equipment that at constituted an automatic telephone
dialing system. The violations were therefore willful or knowing.
67.
As a result of Defendant’s conduct and pursuant to § 227(b)(3) of the TCPA,
Plaintiff and the other members of the putative Class were harmed and are each entitled to a
minimum of $500.00 in damages for each violation. Plaintiff and the class are also entitled to an
injunction against future calls. Id.
Knowing and/or Willful Violation of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiff and the Class)
68.
Plaintiff re-allege and incorporate paragraphs 1-60 as if fully set forth herein.
69.
At all times relevant, Defendant knew or should have known that its conduct as
alleged herein violated the TCPA.
70.
Defendant knew that it did not have prior express consent to make these calls, and
knew or should have known that its conduct was a violation of the TCPA.
71.
Because Defendant knew or should have known that Plaintiff and Class Members
had not given prior express consent to receive its autodialed calls, the Court should treble the
amount of statutory damages available to Plaintiff and the other members of the putative Class
pursuant to § 227(b)(3) of the TCPA.
72.
As a result of Defendant’s violations, Plaintiff and the Class Members are entitled
to an award of $1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Classes, prays for the following
a)
An order certifying this case as a class action on behalf of the Classes as defined above, and
appointing Plaintiff as the representative of the Classes and counsel as Class Counsel;
a)
An award of actual and statutory damages;
b)
An order declaring that Defendant’s actions, as set out above, violate the TCPA;
c)
A declaratory judgment that Defendant’s telephone calling equipment constitutes an
automatic telephone dialing system under the TCPA;
d)
An injunction requiring Defendant to cease all unsolicited text messaging activity, and to
otherwise protect the interests of the Classes;
telephone dialing system without obtaining, recipient’s consent to receive calls made with such
equipment; and
f)
Such further and other relief as the Court deems necessary.
JURY DEMAND
Plaintiff and Class Members hereby demand a trial by jury.
Dated: September 9, 2020
Shamis & Gentile, P.A.
/s/ Andrew J. Shamis
Andrew J. Shamis, Esq.
NY Bar No. 5195185
ashamis@shamisgentile.com
14 NE 1st Avenue, Suite 705
Miami, FL 33132
Telephone: 305-479-2299
Counsel for Plaintiff and the Class
| privacy |
vAkEFocBD5gMZwcztOdV | Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
Meghan E. George (SBN 274525)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 877-206-4741
Fax: 866-633-0228
tfriedman@ toddflaw.com
abacon@ toddflaw.com
mgeorge@toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ERICA ZOZULA, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
SURVEY SAMPLING
INTERNATIONAL, LLC, and DOES 1
through 10, inclusive, and each of them
Defendant.
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
DEMAND FOR JURY TRIAL
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Plaintiff ERICA ZOZULA (“Plaintiff”), individually and on behalf of all
others similarly situated, alleges the following upon information and belief based
upon personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action individually and on behalf of all others
similarly situated seeking damages and any other available legal or equitable
remedies resulting from the illegal actions of SURVEY SAMPLING
INTERNATIONAL, LLC (“Defendant”), in negligently, knowingly, and/or
willfully contacting Plaintiff on Plaintiff’s cellular telephone in violation of the
Telephone Consumer Protection Act, 47. U.S.C. § 227 et seq. (“TCPA”) and related
regulations, specifically the “automatic telephone dialing system” and “artificial or
prerecorded voice” provisions, thereby invading Plaintiff’s privacy.
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff,
a resident of California, seeks relief on behalf of a Class, which will result in at
least one class member belonging to a different state than that of Defendant, a
Delaware company. Plaintiff also seeks up to $1,500.00 in damages for each call
in violation of the TCPA, which, when aggregated among a proposed class in the
thousands, exceeds the $5,000,000.00 threshold for federal court jurisdiction.
Therefore, both diversity jurisdiction and the damages threshold under the Class
Action Fairness Act of 2005 (“CAFA”) are present, and this Court has jurisdiction.
3.
Venue is proper in the United States District Court for the Northern
District of California pursuant to 28 U.S.C. 1391(b) and because Defendant does
business within the State of California and Plaintiff resides within the County of
Alameda.
PARTIES
4.
Plaintiff, ERICA ZOZULA (“Plaintiff”), is a natural person residing
in Castro Valley, California and is a “person” as defined by 47 U.S.C. § 153 (39).
5.
Defendant, SURVEY SAMPLING INTERNATIONAL, LLC
(“Defendant”) is a data research company, and is a “person” as defined by 47
U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in or around December 2015, Defendant contacted Plaintiff
on Plaintiff’s cellular telephone number ending in -9260, in an attempt to acquire
information from Plaintiff for purposes of survey research.
9.
Defendant used an “automatic telephone dialing system” (“ATDS”)
and an “artificial or prerecorded voice” as defined by 47 U.S.C. § 227(a)(1) to place
its call to Plaintiff seeking to gather information for purposes of survey research.
10.
Defendant contacted or attempted to contact Plaintiff from telephone
numbers (510) 455-8177 and (510) 455-8180.
11.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
12.
Defendant’s calls were placed to telephone number assigned to a
cellular telephone service for which Plaintiff incurs a charge for incoming calls
pursuant to 47 U.S.C. § 227(b)(1).
13.
During all relevant times, Defendant did not possess Plaintiff’s “prior
express consent” to receive calls using an automatic telephone dialing system or an
artificial or prerecorded voice on her cellular telephone pursuant to 47 U.S.C. §
227(b)(1)(A).
14.
Defendant placed multiple calls attempting to gather survey research
to Plaintiff on her cellular telephone ending in -9260 beginning in or around
December 2015.
15.
Plaintiff received numerous survey calls from Defendant within a 24-
month period.
16.
Plaintiff requested for Defendant to stop calling Plaintiff during one
of the initial calls from Defendant, thus revoking any prior express consent that had
existed and terminating any established business relationship that had existed, as
defined under 16 C.F.R. 310.4(b)(1)(iii)(B).
17.
Despite this, Defendant continued to call Plaintiff using an automatic
dialer in an attempt to gather survey research and in violation of the ADTS
provisions of the TCPA.
18.
Upon information and belief, and based on Plaintiff’s experiences of
being called by Defendant after requesting they stop calling, and at all relevant
times, Defendant failed to establish and implement reasonable practices and
procedures to effectively prevent survey calls made by an automatic dialer and/or
an artificial or prerecorded voice in violation of the regulations prescribed under
47 U.S.C. § 227(b)(3).
19.
When Plaintiff would answer Defendant’s calls a pre-recorded
message would start, and, despite Plaintiff repeatedly requesting that Defendant
stop calling her, the pre-recorded message would follow the exact same script each
time, which is indicative of an automated telephone dialing system and/or an
artificial or prerecorded voice.
CLASS ALLEGATIONS
20.
Plaintiff brings this action individually and on behalf of all others
similarly situated, as a member the two proposed classes (hereafter, jointly, “The
Classes”). The class concerning the ATDS claim for no prior express consent
(hereafter “The ATDS Class”) is defined as follows:
All persons within the United States who received any
survey telephone calls from Defendant to said person’s
cellular telephone made through the use of any automatic
telephone dialing system or an artificial or prerecorded
voice and such person had not previously consented to
receiving such calls within the four years prior to the
filing of this Complaint
21.
The class concerning the ATDS claim for revocation of consent, to the
extent prior consent existed (hereafter “The ATDS Revocation Class”) is defined
as follows:
All persons within the United States who received any
survey telephone calls from Defendant to said person’s
cellular telephone made through the use of any automatic
telephone dialing system or an artificial or prerecorded
voice and such person had revoked any prior express
consent to receive such calls prior to the calls within the
four years prior to the filing of this Complaint.
22.
Plaintiff represents, and is a member of, The ATDS Class, consisting
of all persons within the United States who received any survey telephone calls
from Defendant to said person’s cellular telephone made through the use of any
automatic telephone dialing system or an artificial or prerecorded voice and such
person had not previously not provided their cellular telephone number to
Defendant within the four years prior to the filing of this Complaint.
23.
Plaintiff represents, and is a member of, The ATDS Revocation Class,
consisting of all persons within the United States who received any survey
telephone calls from Defendant to said person’s cellular telephone made through
the use of any automatic telephone dialing system or an artificial or prerecorded
voice and such person had revoked any prior express consent to receive such calls
prior to the calls within the four years prior to the filing of this Complaint.
24.
Defendant, its employees and agents are excluded from The Classes.
Plaintiff does not know the number of members in The Classes, but believes the
Classes members number in the thousands, if not more. Thus, this matter should
be certified as a Class Action to assist in the expeditious litigation of the matter.
25.
The Classes are so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Classes
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Classes includes thousands of members. Plaintiff alleges that The Classes
members may be ascertained by the records maintained by Defendant.
26.
Plaintiff and members of The ATDS Class and The ATDS Revocation
Class were harmed by the acts of Defendant in at least the following ways:
Defendant illegally contacted Plaintiff and ATDS Class members via their cellular
telephones thereby causing Plaintiff and ATDS Class and ATDS Revocation Class
members to incur certain charges or reduced telephone time for which Plaintiff and
ATDS Class and ATDS Revocation Class members had previously paid by having
to retrieve or administer messages left by Defendant during those illegal calls, and
invading the privacy of said Plaintiff and ATDS Class and ATDS Revocation Class
members.
27.
Common questions of fact and law exist as to all members of The
ATDS Class which predominate over any questions affecting only individual
members of The ATDS Class. These common legal and factual questions, which
do not vary between ATDS Class members, and which may be determined without
reference to the individual circumstances of any ATDS Class members, include,
but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any call (other than a call made for
emergency purposes or made with the prior express consent of
the called party) to a ATDS Class member using any automatic
telephone dialing system or any artificial or prerecorded voice
to any telephone number assigned to a cellular telephone
service;
b.
Whether Plaintiff and the ATDS Class members were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such
conduct in the future.
28.
As a person that received numerous survey calls from Defendant using
an automatic telephone dialing system or an artificial or prerecorded voice, without
Plaintiff’s prior express consent, Plaintiff is asserting claims that are typical of The
ATDS Class.
29.
Common questions of fact and law exist as to all members of The
ATDS Revocation Class which predominate over any questions affecting only
individual members of The ATDS Revocation Class. These common legal and
factual questions, which do not vary between ATDS Revocation Class members,
and which may be determined without reference to the individual circumstances of
any ATDS Revocation Class members, include, but are not limited to, the
following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any call (other than a call made for
emergency purposes or made with the prior express consent of
the called party) to an ATDS Revocation Class member, who
had revoked any prior express consent to be called using an
ATDS, using any automatic telephone dialing system or any
artificial or prerecorded voice to any telephone number
assigned to a cellular telephone service;
b.
Whether Plaintiff and the ATDS Revocation Class members
were damaged thereby, and the extent of damages for such
violation; and
c.
Whether Defendant should be enjoined from engaging in such
conduct in the future.
30.
As a person that received numerous survey calls from Defendant using
an automatic telephone dialing system or an artificial or prerecorded voice, after
Plaintiff had revoked any prior express consent, Plaintiff is asserting claims that
are typical of The ATDS Revocation Class.
31.
Plaintiff will fairly and adequately protect the interests of the members
of The Classes. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
32.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Class members is impracticable. Even if every Class member could afford
individual litigation, the court system could not. It would be unduly burdensome
to the courts in which individual litigation of numerous issues would proceed.
Individualized litigation would also present the potential for varying, inconsistent,
or contradictory judgments and would magnify the delay and expense to all parties
and to the court system resulting from multiple trials of the same complex factual
issues. By contrast, the conduct of this action as a class action presents fewer
management difficulties, conserves the resources of the parties and of the court
system, and protects the rights of each Class member.
33.
The prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Class members not parties to such
adjudications or that would substantially impair or impede the ability of such non-
party Class members to protect their interests.
34.
Defendant has acted or refused to act in respects generally applicable
to The Classes, thereby making appropriate final and injunctive relief with regard
to the members of the Classes as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b).
On Behalf of the ATDS Class and ATDS Revocation Class
35.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-34.
36.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227(b), and in particular
47 U.S.C. § 227 (b)(1)(A).
37.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b),
Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
38.
Plaintiff and the ATDS Class and ATDS Revocation Class members
are also entitled to and seek injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
On Behalf of the ATDS Class and the ATDS Revocation Class
39.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-34.
40.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227(b),
and in particular 47 U.S.C. § 227 (b)(1)(A).
41.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(b), Plaintiff and the ATDS Class and ATDS Revocation Class
members are entitled an award of $1,500.00 in statutory damages, for each and
every violation, pursuant to 47 U.S.C. § 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
42.
Plaintiff and the Class members are also entitled to and seek injunctive
relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b)
As a result of Defendant’s negligent violations of 47 U.S.C.
§227(b)(1), Plaintiff and the ATDS Class and ATDS Revocation
Class members are entitled to and request $500 in statutory damages,
for each and every violation, pursuant to 47 U.S.C. 227(b)(3)(B).
An order for injunctive relief prohibiting such conduct by Defendants
in the future.
Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(b)(1), Plaintiff and the ATDS Class and ATDS
Revocation Class members are entitled to and request treble damages,
as provided by statute, up to $1,500, for each and every violation,
pursuant to 47 U.S.C. §227(b)(3)(B) and 47 U.S.C. §227(b)(3)(C).
An order for injunctive relief prohibiting such conduct by Defendants
in the future.
Any and all other relief that the Court deems just and proper.
Respectfully Submitted this 2nd Day of August, 2018.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: /s/ Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
| privacy |
CwEAFYcBD5gMZwczYLs9 | IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
EASTERN DIVISION
)
WILLIAM HARRIS,
)
Individually, and on behalf of others
)
similarly situated.
)
)
Plaintiff,
)
)
v.
)
NO.
)
)
JURY TRIAL DEMANDED
NPC INTERNATIONAL, INC.
)
)
Defendant.
)
)
COMPLAINT
Plaintiff William Harris, individually, and on behalf of all others similarly situated, for
their Complaint against NPC International, Inc. (“NPC”), alleges as follows:
I.
INTRODUCTION
1.
This lawsuit is brought against NPC International (“NPC”) as a collective action under
the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., to recover unpaid
wages, minimum wages, and overtime wages for Plaintiff and other similarly situated
employees who are members of a class as defined herein and currently or previously
employed by NPC.
II.
JURISDICTION AND VENUE
2.
The FLSA authorizes court actions by private parties to recover damages for violations of
the FLSA’s wage and hour provisions. Jurisdiction over Plaintiff’s FLSA claims is based
on 29 U.S.C. § 216 (b) and 28 U.S.C. § 1331.
3.
Venue in this district is proper pursuant to 28 U.S.C. § 1391(b) and (c) because Plaintiff
is a resident of this district, and NPC has conducted business and continuously engaged
in the wrongful conduct alleged herein in this district.
III.
CLASS DESCRIPTION
4.
Plaintiff brings this action on behalf of the following similarly situated persons:
All current and former cooks of NPC employed in the United
States who work or have worked at NPC’s Pizza Hut Restaurants
at any time during the applicable limitations period covered by this
Complaint (i.e. two years for FLSA violations and three years for
willful FLSA violations), up to and including the date of final
judgment in this matter and who are named Plaintiffs or elect to
opt-in to this action under the FLSA, 29 U.S.C. § 216(b).
(Collectively, “the class”).
IV.
PARTIES
5.
NPC is a Kansas Corporation with its principal executive office located in Overland Park,
Kansas.
6.
Plaintiff William Harris has been employed by NPC as an hourly-paid cook in NPC’s
Bolivar, Tennessee; Henderson, Tennessee; and Jackson, Tennessee restaurants during
the past three years. Plaintiff Harris’ Consent to Become a Party Plaintiff pursuant to 29
U.S.C. § 216(b) is attached hereto as Exhibit A.
IV.
ALLEGATIONS
7.
NPC owns and operates Pizza Hut restaurants in numerous states across the country,
including: Alabama, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Illinois,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi,
Missouri, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South
Dakota, Tennessee, Texas, Virginia, Washington, and West Virginia.
8.
The primary function of these Pizza Hut restaurants is to sell pizza and other food items
to customers, whether they dine in the restaurants, carry-out the food, or have it delivered
to customers.
9.
NPC is and/or has been the “employer” of Plaintiff and those similarly situated within the
meaning of 29 U.S.C. § 203(d).
10.
NPC employed Plaintiff (and those similarly situated) and was responsible for setting pay
and overtime rates, including overtime pay during the period of time in question.
11.
The decisions regarding Plaintiff’s (and other members of the class’s) compensation and
other terms of employment were made through a centralized management of NPC’s
Headquarters location in Overland Park, Kansas.
12.
NPC has had a uniform policy and practice of incentivizing General Managers of its
individual restaurants (as well as its Area Managers) to encourage, permit, and/or require
employees such as Plaintiff (and those similarly situated) to perform “off the clock”
work, as well as to undergo training and attend meetings “off the clock,” in order to meet
its tickets per labor hour (“TPLH”) standard.
13.
NPC has had a uniform policy and practice of requiring its General Managers as well as
cooks (such as the Plaintiff and those similarly situated) to meet its tickets per labor hour
standard as a performance condition.
14.
At all times material to this action, Plaintiff and those similarly situated are or have been
“employees” of NPC as defined by Section 203(e)(1) of the FLSA and worked for NPC
within the territory of the Unites States within three (3) years preceding the filing of this
lawsuit.
15.
At all times material to this action, NPC has been an enterprise engaged in commerce or
in the production of goods for commerce as defined by Section 203(s)(1) of the FLSA,
with annual revenue in excess of $500,000.00.
16.
At all times material to this action, NPC has been subject to the pay requirements of the
FLSA because it is an enterprise in interstate commerce and its employees are engaged in
interstate commerce.
17.
At all times material to this action, NPC has had a uniform job training program that
cooks must undergo and successfully complete as a condition of being employed as a
cook.
18.
At all times material to this action, NPC has had a uniform mandatory monthly meetings
program that required the attendance of all cooks.
19.
Each of NPC’s Pizza Hut restaurants employs hourly-paid cooks whose primary duties
are to prepare and cook pizza and other food items.
20.
Plaintiff and all other similarly situated persons are current or former employees of NPC.
21.
NPC employs a uniform electronic time keeping system for tracking and reporting
employee hours worked at each of its restaurants.
22.
Cooks are paid only for the hours recorded on the uniform electronic time keeping
system.
23.
Pursuant to NPC’s uniform policies and practices, Plaintiff and other members of the
class have been encouraged, permitted, and/or required to perform prescribed duties
before, after, and during their regular shifts without being clocked into NPC’s electronic
timekeeping system.
24.
As a result of Plaintiff and other members of the class performing prescribed duties
before, after, and during their shifts without being clocked-in to NPC’s electronic
timekeeping system, NPC’s timekeeping records do not reflect the total hours worked by
Plaintiff and other members of the class.
25.
Also, as a consequence of NPC’s timekeeping records not reflecting actual hours worked,
when their “off the clock” work time is added to their recorded time, Plaintiff and other
members of the class who have worked in excess of forty hours per week are entitled to
receive overtime compensation for such work time.
26.
In addition, and as a consequence of NPC’s timekeeping records not reflecting the actual
hours worked by Plaintiff and other members of the class, when their “off the clock”
work time is added to their recorded time, Plaintiff and other members of the class who
have been paid less than the applicable minimum wage rate required by Fair Labor
Standards Act are entitled to receive minimum wages for such work time.
27.
The net effect of NPC’s policy and practice of encouraging, condoning, suffering,
permitting, and/or requiring Plaintiff and other members of the class to perform work
before, after, and during their shifts without being clocked-in to NPC’s electronic
timekeeping system is that NPC willfully failed to pay Plaintiff and other members of the
class for all straight time work, minimum wages, and premium pay for overtime work in
order to save payroll costs and payroll taxes. NPC thereby enjoys ill-gained profits at the
expense of its employees.
28.
In addition to the above described “off the clock” work time being unpaid pursuant to
NPC’s uniform policies and practices, Plaintiff and other members of the class were
required to undergo and successfully complete NPC’s cook’s training for which training
time was not recorded on NPC’s electronic timekeeping system and was thus unpaid.
29.
As a result of the required job training time not being recorded on NPC’s electronic
timekeeping system, NPC’s timekeeping records do not reflect the total hours worked by
Plaintiff and other members of the class.
30.
Also, as a consequence of NPC’s timekeeping records not reflecting actual hours worked,
when the unpaid training time is added to their recorded time, Plaintiff and other
members of the class who have worked in excess of forty hours per week are entitled to
overtime compensation for such training time.
31.
In addition, and as a consequence of NPC’s timekeeping records not reflecting actual
hours worked, when the unpaid training time is added to their recorded time, Plaintiff and
other members of the class who, as a result, have been paid less than the applicable
minimum wage required by the FLSA, are entitled to receive minimum wages for such
training time.
32.
The net effect of NPC’s policy of requiring Plaintiff and other members of the class to
undergo and successfully complete cook’s job training without being paid is that NPC
willfully failed to pay Plaintiff and other members of the class for all straight-time work,
minimum wage, and overtime compensation in order to save payroll costs and payroll
taxes. NPC thereby enjoys ill-gained profits at the expense of its employees.
33.
In addition to the above described “off the clock” work time being unrecorded and unpaid
and the required training time being unrecorded and unpaid pursuant to NPC’s uniform
policies and practices, NPC required Plaintiff and other members of the class to attend
mandatory monthly meetings without the time for such meetings being recorded on its
electronic timekeeping system.
34.
As a result of such meetings time not being reflected on NPC’s electronic timekeeping
system, NPC’s timekeeping records do not reflect the total hours for which Plaintiff and
the other members of the class are entitled to be compensated.
35.
Also, as a consequence of NPC’s timekeeping records not reflecting actual hours to be
compensated, when the unpaid meetings time is added to their recorded time, Plaintiff
and the other members of the class who have worked in excess of forty hours per week
are entitled to receive overtime compensation for such meeting time.
36.
In addition, and as a consequence of NPC’s timekeeping records not reflecting actual
hours to be compensated, when the unpaid meetings time is added to their recorded time,
Plaintiff and other members of the class who, as a result, have received less than
minimum wage, are entitled to receive minimum wages for all such meetings time.
37.
The net effect of NPC’s uniform policies and practices of requiring unpaid attendance at
mandatory monthly meetings is that NPC has willfully failed to pay Plaintiffs and other
members of the class for all straight work time, minimum wage, and overtime
compensation in order to save payroll costs and payroll taxes. NPC therefore enjoys ill-
gained profits at the expense of the employee
38.
Although at this stage Plaintiff is unable to state the exact amount of damages owed to
the class, Plaintiff believes such information will become available during the course of
discovery. But when an employer fails to keep complete and accurate time records,
employees may establish the hours worked solely by their testimony and the burden of
overcoming such testimony shifts to the employer.
V.
COLLECTIVE ACTION ALLEGATIONS
39.
Plaintiff brings this action on behalf of himself and the class as a collective action under
the Fair Labor Standards Act, 29 U.S.C. §§ 206, 207, and 216(b).
40.
The claims under the Fair Labor Standards Act may be pursued by those who opt-in to
this case pursuant to 29 U.S.C. § 216(b).
41.
The other members of the class are so numerous that joinder of all members of the class
is impracticable. While the exact number of the other members of the class is unknown
to Plaintiff at this time and can only be ascertained through applicable discovery, Plaintiff
believes there are at least thousands of individuals in the class.
42.
The claims of Plaintiff are typical of the claims of the class. Plaintiff and the other
members of the class work or have worked for NPC at its Pizza Hut restaurants and were
subject to the same operational, compensation, and timekeeping policies and practices —
including not being paid for all hours worked.
43.
Common questions of law and fact exist as to the class which predominate over any
questions only affecting other members of the class individually and include, but are not
limited to, the following:
•
Whether Plaintiff and other members of the class were expected and/or required
to work hours without compensation;
•
Whether NPC suffered and permitted Plaintiff and other members of the class to
work hours without compensation;
•
Whether NPC failed to pay Plaintiff and other members of the class all applicable
straight-time wages for all hours worked;
•
Whether NPC failed to pay Plaintiff and the other members of the class the
applicable minimum wage for all hours worked;
•
Whether NPC failed to pay Plaintiff and other members of the class all overtime
compensation due them for all hours worked in excess of forty (40) hours per
week;
•
The correct statutes of limitations for Plaintiff’s claims and the claims of the other
members of the class;
•
Whether Plaintiff and other members of the class are entitled to damages,
including, but not limited to, liquidated damages, as well as the measure of
damages; and,
•
Whether Defendant is liable for interest, attorneys’ interest, fees, and costs.
44.
Plaintiff will fairly and adequately protect the interests of the class as their interests are
aligned with those of the other members of the class. Plaintiff has no interests adverse to
the class and has retained competent counsel who are experienced in collective action
litigation.
45.
The collective action mechanism is superior to the other available methods for a fair and
efficient adjudication of the controversy. The expenses, costs, and burden of litigation
suffered by individual class members in a collective action are relatively small in
comparison to the expenses, costs, and burden of litigation of individual actions, making
it virtually impossible for other members of the class to individually seek address for the
wrongs done to them.
46.
Plaintiff and other members of the class have suffered and will continue to suffer
irreparable damage from the unlawful policies, practices, and procedures implemented by
NPC.
COUNT I
FAIR LABOR STANDARDS ACT VIOLATIONS – UNPAID WAGES
47.
Plaintiff, on behalf of himself and the class, repeats and realleges Paragraphs 1 through
46 above as if they were fully set forth herein.
48.
At all relevant times, NPC has been and continues to be an employer engaged in
interstate commerce within the meaning of the FLSA, 29 U.S.C. §§ 206(a) and 207(a).
49.
At all relevant times, NPC employed (and/or continues to employ) Plaintiff and each of
the other members of the class within the meaning of the FLSA.
50.
At all times relevant, NPC had a uniform policy and practice of willfully refusing to pay
Plaintiff and other members of the class for all hours worked.
51.
As a result of NPC’s willful failure to compensate Plaintiff and other members of the
class the applicable federal minimum wages for all hours worked, NPC has violated and
continues to violate the FLSA, 29 U.S.C. §§ 201, et seq.
52.
NPC’s conduct constitutes a willful violation of the FLSA within the meaning of 29
U.S.C. § 255(a).
53.
Due to NPC’s FLSA violations, Plaintiff and the other members of the class are entitled
to recover from NPC compensation for unpaid wages, an additional equal amount as
liquidated damages, as well as interest, reasonable attorneys’ fees, costs, and
disbursements relating to this action under 29 U.S.C. § 216(b).
COUNT II
FAIR LABOR STANDARDS ACT VIOLATIONS – OVERTIME
54.
Plaintiff, on behalf of himself and other members of the class, repeats and realleges
Paragraphs 1 through 53 above as if they were set forth herein.
55.
At all times relevant herein, NPC has been and continues to be an employer engaged in
interstate commerce within the meaning of the FLSA, 29 U.S.C. §§ 206(a) and 207(a).
56.
At all times relevant herein, NPC employed (and/or continues to employ) Plaintiff and
each of the other members of the class within the meaning of the FLSA.
57.
At all times relevant herein, NPC had a uniform policy and practice of willfully refusing
to pay Plaintiff and other members of class appropriate overtime compensation for all
hours worked in excess of forty hours per week by Plaintiff and each of the other
members of the class.
58.
As a result of NPC’s willful failure to compensate Plaintiff and the other members of the
class the applicable federal minimum wage for all hours worked at a rate not less than
one and one-half times the regular rate of pay for work performed in excess of forty hours
per work week, NPC has violated and continues to violate the FLSA, 29 U.S.C. § 255(a).
59.
Due to NPC’s FLSA violations, Plaintiff, and the other members of the class are entitled
to recover from NPC compensation for unpaid overtime wages, an additional equal
amount as liquidated damages, as well as interest, reasonable attorneys’ fees, costs, and
disbursements relating to this action under the FLSA, 29 U.S.C. § 216(b).
COUNT III
FAIR LABOR STANDARDS ACT VIOLATIONS – MINIMUM WAGE
60.
Plaintiff, on behalf of himself and the other members of the class, repeats and realleges
Paragraphs 1 through 59 above as if they were fully set forth herein.
61.
At all times relevant herein, NPC has been and continues to be an employer engaged in
interstate commerce within the meaning of the FLSA, 29 U.S.C. § 206(a) and 207(a).
62.
Pursuant to NPC’s uniform compensation policies, NPC has failed to pay Plaintiffs and
other members of the class the applicable minimum wage rates as required by the FLSA.
63.
Because of NPC’s failure to pay Plaintiff and other members of the class for all hours
worked, Plaintiff and other members of the class have not received wages equal to or in
excess of the applicable minimum wage as required by the FLSA for all hours worked.
64.
NPC’s conduct constitutes a willful violation of the FLSA within the meaning of 29
U.S.C. § 255(a).
65.
Plaintiff and the other members of the class are therefore entitled to compensation for
unpaid minimum wages at an hourly rate required by the FLSA, plus applicable overtime
compensation, and an additional amount as liquidated damages, together with interest,
costs, and reasonable attorney’s fees pursuant to the FLSA, 29 U.S.C. § 216(b).
PRAYER FOR RELIEF
Whereas, Plaintiff, individually and/or on behalf of himself and all other similarly
situated other members of the class, request this Court to grant the following relief against NPC:
A.
Designation of this cause as a collective action on behalf of the class and
promptly issue notice pursuant to 29 U.S.C. §216(b), apprising other
members of the class of the pendency of this action and permitting other
members of the class to assert timely FLSA claims in this action by filing
individual Consents pursuant to 29 U.S.C. § 216(b);
B.
On Count I, an award of compensation for unpaid wages to Plaintiff and
other members of the class;
C.
On Count II, an award of compensation for unpaid overtime to Plaintiff
and the other members of the class;
D.
On Count III, an award of compensation for unpaid minimum wages to
Plaintiff and other member of the class at the applicable minimum wage
rate as required by the FLSA;
E.
On Counts I, II, and III, an award of liquidated damages to Plaintiff and
other members of the class for the Defendant’s willful violations of the
FLSA;
F.
On Counts I, II, and III, an award of prejudgment and post-judgment
interest at the applicable legal rate to Plaintiff and other members of the
class;
G.
On Counts I, II, and III, an award of costs, expenses, and disbursements
relating to this action together with reasonable attorneys’ fees and expert
fees to Plaintiff and other members of the class; and
H.
Such other general and specific relief as this Court deems just and proper.
JURY TRIAL DEMAND
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands a trial
by jury on all issues so triable.
Dated: January _29_, 2013
Respectfully Submitted,
s/ Gordon E. Jackson.
Gordon E. Jackson (#8323)
James L. Holt, Jr. (#12123)
Timothy A. Perkins (#024657)
JACKSON, SHIELDS, YEISER & HOLT
262 German Oak Drive
Memphis, Tennessee 38018
Tel: (901) 754-8001
Fax: (901) 759-1745
ATTORNEYS FOR PLAINTIFF
gjackson@jsyc.com
| employment & labor |
NKkVCocBD5gMZwczqtPt | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
BRIAN FISCHLER, Individually and on
behalf of all other persons similarly
situated,
Plaintiff,
v.
ECF CASE
No.: ____________________
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
BETTER MANAGEMENT HOLDINGS,
LLC, d/b/a DNTL Bar,
Defendant.
INTRODUCTION
1.
Plaintiff Brian Fischler, who is legally blind, brings this civil rights action
against Defendant Better Management Holdings, LLC, d/b/a DNTL Bar (“Defendant”)
for its failure to design, construct, maintain, and operate its website, www.dntlbar.com
(the “Website”), to be fully accessible to and independently usable by Plaintiff Fischler
and other blind or visually-impaired people. Defendant denies full and equal access to its
Website.
2.
Plaintiff Fischler, individually and on behalf of others similarly situated,
asserts claims under the Americans With Disabilities Act (“ADA”), New York State
Human Rights Law (“NYSHRL”), and New York City Human Rights Law (“NYCHRL”)
against Defendant.
3.
Plaintiff Fischler seeks a permanent injunction to cause Defendant to
change its corporate policies, practices, and procedures so that its Website will become
and remain accessible to blind and visually-impaired consumers.
THE PARTIES
4.
Plaintiff Fischler is, at all relevant times, a resident of Astoria, New York,
Queens County. As a blind, visually-impaired handicapped person, he is a member of a
protected class of individuals under Title III of the ADA, under 42 U.S.C. § 12102(1)-(2),
and the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq., the
NYSHRL and NYCHRL.
5.
Defendant is at all relevant times a foreign limited liability company that
is organized under Delaware law and is authorized to do business in the State of New
York.
JURISDICTION AND VENUE
6.
This Court has subject-matter jurisdiction over this action under 28 U.S.C.
§ 1331 and 42 U.S.C. § 12181, as Plaintiff Fischler’s claims arise under Title III of the
ADA, 42 U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
7.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over
Plaintiff Fischler’s NYSHRL, N.Y. Exec. Law Article 15, and NYCHRL, N.Y.C. Admin.
Code § 8-101 et seq., claims.
8.
Venue is proper under §1391(b)(2) as a substantial part of the events
giving rise to the claims occurred in this District: Plaintiff Fischler is a resident of this
District; and he has attempted to access the Website in this District and, in doing so, was
denied the full use and enjoyment of the facilities, goods, and services of the Website
while in Kings County.
9.
This Court is empowered to issue a declaratory judgment under 28 U.S.C.
§§ 2201 and 2202.
NATURE OF ACTION
10.
Blind and visually-impaired people can access websites using keyboards
in conjunction with screen access software that vocalizes the visual information found on
a computer screen or displays the content on a refreshable Braille display. This
technology is known as screen-reading software. Screen-reading software is currently the
only method a blind or visually impaired person may independently access the Internet.
Unless websites are designed to be read by screen-reading software, blind and visually
impaired persons are unable to fully access websites, and the information, products, and
services contained thereon.
11.
Blind and visually impaired users of computers and devices have several
screen-reading software programs available to them. Some of these programs are
available for purchase and other programs are available without the user having to
purchase the program separately. Job Access With Speech (“JAWS”), Talk Back and
Voiceover are currently the most popular screen-reading programs.
12.
For screen-reading software to function, the information on a website must
be capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually impaired user is unable to access the same content
available to sighted users.
13.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.0 of the Web
Content Accessibility Guidelines (“WCAG 2.0”). WCAG 2.0 are well-established
guidelines for making websites accessible to blind and visually impaired people. These
guidelines are universally followed by most large business entities and government
agencies to ensure its websites are accessible.
14.
For a website to be equally accessible to a blind or visually impaired
person, under these guidelines, it should have following:
a.
Alternative text (“alt-text”) or text equivalent for every non-text
element. Alt-text is an invisible code embedded beneath a graphical image on a website.
Web accessibility requires that alt-text be coded with each picture so that screen-reading
software can speak the alt-text where a sighted user sees pictures, which includes captcha
prompts. Alt-text does not change the visual presentation, but instead a text box shows
when the mouse moves over the picture. The lack of alt-text on these graphics prevents
screen readers from accurately vocalizing a description of the graphics, depriving that
person from knowing what is on the website.
b.
Videos have audio description.
c.
Title frames with text are provided. Absent these titles, navigating
a website is particularly difficult.
d.
Webpage headings are properly labeled with the topic or purpose
of the webpage, versus being blank. Screen readers read out page headings, allowing
users to quickly skip to a section. Navigation is, however, very difficult without those
headings.
e.
Equivalent text is provided when using scripts.
f.
Forms may be completed with the same information and
functionality as for sighted persons. Absent forms being properly labeled, it is difficult
for a visually impaired or blind individual to complete the forms, as they do not know
what the fields, how to input data, or what options to select (e.g., selecting a date or a
size). A compliant website will, instead, provide labels or instructions when content
requires user input. This includes captcha prompts, requiring the user to verity that he or
she is not a robot.
g.
Information about the meaning and structure of content is
conveyed by more than the visual presentation of content.
h.
Web pages do not share the same ID or title. When two or more
elements on a web page share the same ID or title, it cause problems in screen readers
which use IDs for labeling controls and table headings.
i.
Linked images must contain alt-text explaining the image. Absent
that alt-text, a screen reader has no content to present the user as to what the image is.
j.
The purpose of each link is easily determined from how the link is
labeled. Absent properly labeling each link or when no description exists, it confuses
keyboard and screen-reader users as they do not know the purpose of the links. This
includes captcha prompts.
k.
No redundant links where adjacent links go to the same URL
address. When redundant links exist, it causes additional navigation and repetition for
keyboard and screen-reader users.
l.
Portable Document Formats (PDFs) are accessible. When they are
inaccessible, the visually impaired or blind individual cannot learn what information is on
them.
m.
One or more keyboard operable user interface has a mode of
operation where the keyboard focus indicator is discernible.
n.
Changing the setting of a user interface component does not
automatically cause a change of content where the user has not been advised before using
the component.
o.
The name and role of all user interface elements can be
programmatically determined; items that can be set by the user can be programmatically
set; and/or notification of changes to these items are available to user agents, including
assistive technology.
STATEMENT OF FACTS
Defendant, Its Website And Its Website’s Barriers
15.
Defendant operates walk-in dental bars in New York City. It currently has
a location at 776 6th Avenue, New York, New York, with a second location opening soon
in Union Square, New York City. At these locations, one can get a teeth cleaning,
routine dental evaluation, teeth whitening, and similar services.
16.
Defendant’s Website is heavily integrated with its dental bars, serving as a
gateway to them. Through the Website, Defendant’s customers are, inter alia, able to:
learn about the dental bar locations, learn about services offered at the dental bars, learn
about upcoming events and promotions, pay your bill and schedule an appointment.
17.
It is, upon information and belief, Defendant’s policy and practice to deny
Plaintiff Fischler and other blind or visually-impaired users access to its Website, thereby
denying the facilities and services that are offered and integrated with its dental bars. Due
to its failure and refusal to remove access barriers to its Website, Plaintiff Fischler and
visually-impaired persons have been and are still being denied equal access to
Defendant’s facilities, goods, services, and benefits offered to the public through its
Website.
18.
Plaintiff Fischler cannot use a computer without the assistance of screen-
reading software. He is, however, a proficient VoiceOver screen-reader user and uses it to
access the Internet. He has visited the Website on separate occasions using screen-
reading software.
19.
During his visits to the Website, the last occurring on or about June 29,
2020, Plaintiff Fischler encountered multiple access barriers that denied him the full
enjoyment of the facilities, goods, and services of the Website, as the facilities, goods,
and services offered at Defendant’s dental bars. Because of these barriers he was unable
a.
Know what is on the Website. This is largely due to the lack of
alternative text for non-text images. Several images are labeled only image. Other
images are not even detected by the screen reader. For example, on the location page for
Chelsea, a sighted user gets four (4) images including the map. No images were detected
by Plaintiff Fischler’s screen reader. Without access to the map, Plaintiff Fischler cannot
learn about Defendant’s locations equal to a sighted user. Plaintiff Fischler had difficulty
learning about available appointments because none of the form fields are properly
labeled and he was unable to interact with the calendar to learn about date and time
options. When he tried to click on the link to view the list of available appointments, no
information was detected.
b.
Navigate the Website. Plaintiff Fischler encountered issues with
screen reader focus throughout the Website. At the top of the Website, there is a carousel
of images that plays automatically and will hijack screen reader focus when he is not
interacting. Because the majority of information is presented on a single page, these
issues arouse when he was trying to learn about locations, the Dntl club, Defendant’s
philosophy and other information contained on the Website. Plaintiff Fischler found it
difficult to know where content ends or begins because as he is navigating through it,
focus was repeatedly redirected back to the top of the page.
c.
Contact the company. Plaintiff Fischler was unable to contact
Defendant through the form embedded on the Website because it is not properly labeled
and therefore is inaccessible to a screen reader user.
20.
Plaintiff Fischler was denied full and equal access to the facilities and
services Defendant offers to the public on its Website because he encountered multiple
accessibility barriers that visually-impaired people often encounter with non-compliant
websites:
a.
Lack of alt-text for images.
b.
Frames do not have a title.
d.
Some pages have the same title so the title cannot be used to
distinguish pages.
e.
Forms have fields without label elements or title attributes.
f.
Form field labels are not unique on a page or enclosed in a fieldset
with a legend that makes the label unique.
g.
Webpages have no headings, headings are not nested correctly, and
headings are empty.
h.
Webpages have markup errors.
Defendant Must Remove Barriers to Its Website
21.
Due to the Website’s inaccessibility, blind and visually-impaired
individuals such as Plaintiff Fischler, who need screen-readers, cannot fully and equally
use or enjoy the facilities, goods, and services Defendant offers to the public on its
Website. The Website’s access barriers that Plaintiff Fischler encountered have caused a
denial of his full and equal access in the past, and now deter him on a regular basis from
accessing the Website. These access barriers have likewise deterred him from visiting
Defendant’s dental bars and enjoying them equal to sighted individuals.
22.
If the Website was equally accessible to all, Plaintiff Fischler could
independently navigate it, view goods and service items, learn about Defendant’s dental
bars and services, learn about or schedule an appointment and contact the company, as
sighted individuals can.
23.
Through his attempts to use the Website, Plaintiff Fischler has actual
knowledge of the access barriers that make these services inaccessible and independently
unusable by blind and visually-impaired people.
24.
Because simple compliance with the WCAG 2.0 AA Guidelines would
provide Plaintiff Fischler and other visually-impaired consumers with equal access to the
Website, Plaintiff Fischler alleges that Defendant has engaged in acts of intentional
discrimination, including, but not limited to, the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff Fischler;
b.
Failing to construct and maintain a website that is sufficiently
intuitive to be equally accessible to visually-impaired individuals, including Plaintiff
Fischler; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually impaired consumers, such as
Plaintiff Fischler, as a member of a protected class.
25.
Defendant therefore uses standards, criteria or methods of administration
that have the effect of discriminating or perpetuating the discrimination of others, as
alleged herein.
26.
Title III of the ADA expressly contemplates the injunctive relief that
Plaintiff Fischler seeks under 42 U.S.C. § 12188(a)(2).
27.
Because its Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website to
become and remain accessible, Plaintiff Fischler seeks a permanent injunction under 42
U.S.C. § 12188(a)(2) requiring Defendant to retain a qualified consultant acceptable to
Plaintiff Fischler to assist Defendant to comply with WCAG 2.0 AA guidelines for its
Website:
a.
Remediating the Website to be WCAG 2.0 AA compliant;
b.
Training Defendant employees and agents who develop the
Website on accessibility compliance under the WCAG 2.0 AA guidelines;
c.
Regularly checking the accessibility of the Website under the
WCAG 2.0 guidelines;
d.
Regularly testing user accessibility by blind or vision-impaired
persons to ensure that Defendant’s Website complies under the WCAG 2.0 AA
guidelines; and,
e.
Developing an accessibility policy that is clearly disclosed on
Defendant’s Website, with contact information for users to report accessibility-related
problems.
28.
Although Defendant may currently have centralized policies on
maintaining and operating its Website, Defendant lacks a plan and policy reasonably
calculated to make them fully and equally accessible to, and independently usable by,
blind and other visually impaired consumers.
29.
Without injunctive relief, Plaintiff Fischler and other visually impaired
consumers will continue to be unable to independently use the Website, violating its
rights.
30.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining its Website and has generated significant revenue directly
from the Website and indirectly by encouraging customers to visit the dental bars. These
amounts are far greater than the associated cost of making its Website equally accessible
to visually impaired customers.
31.
Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
CLASS ACTION ALLEGATIONS
32.
Plaintiff Fischler seeks to certify a nationwide class under Fed. R. Civ. P.
23(a) and 23(b)(2): all legally blind individuals in the United States who have attempted
to access Defendant’s Website and as a result have been denied access to the equal
enjoyment of goods and services offered in the dental bars during the relevant statutory
period (“Class Members”).
33.
Plaintiff Fischler seeks to certify a State of New York subclass under Fed.
R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in the State of New York who
have attempted to access the Website and as a result have been denied access to the equal
enjoyment of goods and services offered in the dental bars during the relevant statutory
period (“New York Subclass Members”).
34.
Plaintiff Fischler seeks to certify a New York City subclass under Fed. R.
Civ. P. 23(a) and 23(b)(2): all legally blind individuals in the City of New York who have
attempted to access the Website and as a result have been denied access to the equal
enjoyment of goods and services offered in Defendant’s hospitals during the relevant
statutory period (“New York City Subclass Members”).
35.
Common questions of law and fact exist amongst the Class Members,
New York Subclass Members and New York City Subclass Members:
a.
Whether Defendant’s dental bars are “public accommodations”;
b.
Whether Defendant’s Website is a “public accommodation” or a
service or good “of a place of public accommodation” under Title III of the ADA;
c.
Whether Defendant’s Website is a “place or provider of public
accommodation” or an “accommodation, advantage, facility or privilege” under the
NYSHRL or NYCHRL;
d.
Whether Defendant’s Website denies the full and equal enjoyment
of its goods, services, facilities, privileges, advantages, or accommodations to people
with visual disabilities, violating Title III of the ADA; and
e.
Whether Defendant’s Website denies the full and equal enjoyment
of its goods, services, facilities, privileges, advantages, or accommodations to people
with visual disabilities, violating the NYSHRL or NYCHRL.
36.
Plaintiff Fischler’s claims are typical of the Class Members, New York
Subclass Members and New York City Subclass Members: they are all severely visually
impaired or otherwise blind, and claim that Defendant has violated Title III of the ADA,
NYSHRL or NYCHRL by failing to update or remove access barriers on its Website so it
can be independently accessible to the visually impaired individuals.
37.
Plaintiff Fischler will fairly and adequately represent and protect the Class
and Subclasses’ interests because he has retained and is represented by counsel
competent and experienced in complex class action litigation, and because he has no
interests antagonistic to the Class or Subclasses. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused to act
on grounds generally applicable to the Class and Subclasses, making appropriate both
declaratory and injunctive relief with respect to Plaintiff, the Class and Subclasses.
38.
Alternatively, class certification is appropriate under Fed. R. Civ. P.
23(b)(3) because fact and legal questions common to Class and Subclass Members
predominate over questions affecting only individuals, and because a class action is
superior to other available methods for the fair and efficient adjudication of this litigation.
39.
Judicial economy will be served by maintaining this lawsuit as a class
action in that it is likely to avoid the burden that would be otherwise placed upon the
judicial system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
40.
Plaintiff Fischler, individually and on behalf of the Class Members,
repeats and realleges every allegation of the preceding paragraphs as if fully set forth
herein.
41.
Title III of the ADA prohibits “discriminat[ion] on the basis of disability
in the full and equal enjoyment of the goods, services, facilities, privileges, advantages,
or accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.” 42 U.S.C. § 12182(a).
42.
The Defendant’s dental bars are public accommodations under Title III of
the ADA, 42 U.S.C. § 12181(7). Its Website is a service, privilege, or advantage of
Defendant’s dental bars. The Website is a service that is integrated with Defendant’s
dental bars.
43.
Under Title III of the ADA, it is unlawful discrimination to deny
individuals with disabilities the opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodations of an entity. 42 U.S.C. §
12182(b)(1)(A)(i).
44.
Under Title III of the ADA, it is unlawful discrimination to deny
individuals with disabilities an opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodation, which is equal to the
opportunities afforded to other individuals. 42 U.S.C. § 12182(b)(1)(A)(ii).
45.
Under Title III of the ADA, unlawful discrimination also includes, among
other things:
[A] failure to make reasonable modifications in policies, practices, or
procedures, when such modifications are necessary to afford such goods,
services, facilities, privileges, advantages, or accommodations to
individuals with disabilities, unless the entity can demonstrate that making
such modifications would fundamentally alter the nature of such goods,
services, facilities, privileges, advantages or accommodations; and a
failure to take such steps as may be necessary to ensure that no individual
with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of
auxiliary aids and services, unless the entity can demonstrate that taking
such steps would fundamentally alter the nature of the good, service,
facility, privilege, advantage, or accommodation being offered or would
result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
46.
These acts violate Title III of the ADA, and the regulations promulgated
thereunder. Plaintiff Fischler, who is a member of a protected class of persons under Title
III of the ADA, has a physical disability that substantially limits the major life activity of
sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A). Furthermore, he has been
denied full and equal access to the Website, has not been provided services that are
provided to other patrons who are not disabled, and has been provided services that are
inferior to the services provided to non-disabled persons.
47.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set
forth and incorporated therein, Plaintiff Fischler requests the relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYSHRL
48.
Plaintiff Fischler, individually and on behalf of the New York Subclass
Members, repeats and realleges every allegation of the preceding paragraphs as if fully
set forth herein.
49.
The Defendant’s dental bars constitute sales establishments and public
accommodations under N.Y. Exec. Law § 292(9). Defendant’s Website is a service,
privilege or advantage of Defendant’s dental bars. Defendant’s Website is a service that
is by and integrated with its hospitals.
50.
Defendant is subject to NYSHRL because it owns and operates its dental
bars and the Website. Defendant is a “person” under N.Y. Exec. Law § 292(1).
51.
Defendant is violating the NYSHRL in refusing to update or remove
access barriers to its Website, causing its Website and the services integrated with its
dental bars to be completely inaccessible to the blind. This inaccessibility denies blind
patrons full and equal access to the facilities, goods and services that Defendant makes
available to the non-disabled public. N.Y. Exec. Law §§ 296(2)(a), 296(2)(c)(i),
296(2)(c)(ii).
52.
Readily available, well-established guidelines exist on the Internet for
making websites accessible to the blind and visually impaired. These guidelines have
been followed by other large business entities and government agencies in making their
websites accessible, including but not limited to: adding alt-text to graphics and ensuring
that all functions can be performed using a keyboard. Incorporating the basic components
to make its Website accessible would neither fundamentally alter the nature of its
business nor result in an undue burden to them.
53.
Defendant’s actions constitute willful intentional discrimination against
the class because of a disability, violating the NYSHRL, N.Y. Exec. Law § 296(2), in
that Defendant has:
a.
Constructed and maintained a website that is inaccessible to Class
Members with knowledge of the discrimination; and/or
b.
Constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
Failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
54.
Defendant discriminates, and will continue in the future to discriminate
against Plaintiff Fischler and New York Subclass Members on the basis of disability in
the full and equal enjoyment of the goods, services, facilities, privileges, advantages,
accommodations and/or opportunities of Defendant’s Website and its dental bars under §
296(2) et seq. and/or its implementing regulations. Unless the Court enjoins Defendant
from continuing to engage in these unlawful practices, Plaintiff and the New York
Subclass Members will continue to suffer irreparable harm.
55.
As Defendant’s actions violate the NYSHRL, Plaintiff Fischler seeks
injunctive relief to remedy the discrimination.
56.
Plaintiff Fischler is also entitled to compensatory damages, as well as civil
penalties and fines under N.Y. Exec. Law § 297(4)(c) et seq. for every offense.
57.
Plaintiff Fischler is also entitled to reasonable attorneys’ fees and costs.
58.
Under N.Y. Exec. Law § 297 and the remedies, procedures, and rights set
forth and incorporated therein Plaintiff prays for judgment as set forth below.
THIRD CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
59.
Plaintiff Fischler, individually and on behalf the New York City Subclass
Members, repeats and realleges every allegation of the preceding paragraphs as if fully
set forth herein.
60.
Defendant’s
dental
bars
are
sales
establishments
and
public
accommodations under NYCHRL, N.Y.C. Admin. Code § 8-102(9), and its Website is a
service that is integrated with its establishments.
61.
Defendant is subject to NYCHRL because it owns and operates its dental
bars in the City of New York, and its Website, making it a person under N.Y.C. Admin.
Code § 8-102(1).
62.
Defendant is violating the NYCHRL in refusing to update or remove
access barriers to Website, causing its Website and the services integrated with its dental
bars to be completely inaccessible to the blind. This inaccessibility denies blind patrons
full and equal access to the facilities, goods, and services that the Defendant makes
available to the non-disabled public. N.Y.C. Admin. Code §§ 8-107(4)(a), 8-107(15)(a).
63.
Defendant’s actions constitute willful intentional discrimination against
the Subclass because of a disability, violating the NYCHRL, N.Y.C. Admin. Code § 8-
107(4)(a) and § 8-107(15)(a,) in that it has:
a.
Constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
Constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
Failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
64.
As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff Fischler and the New York City Subclass Members because
of disability in the full and equal enjoyment of the goods, services, facilities, privileges,
advantages, accommodations and/or opportunities of its Website and its establishments
under § 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and the New
York City Subclass will continue to suffer irreparable harm.
65.
As Defendant’s actions violate the NYCHRL, Plaintiff Fischler seeks
injunctive relief to remedy the discrimination.
66.
Plaintiff Fischler is also entitled to compensatory damages, as well as civil
penalties and fines for each offense. N.Y.C. Admin. Code §§ 8-120(8), 8-126(a).
67.
Plaintiff Fischler is also entitled to reasonable attorneys’ fees and costs.
68.
Under N.Y.C. Admin. Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for judgment as
set forth below.
FOURTH CAUSE OF ACTION
DECLARATORY RELIEF
69.
Plaintiff Fischler, individually and on behalf the Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
70.
An actual controversy has arisen and now exists between the parties in that
Plaintiff Fischler contends, and is informed and believes that Defendant denies, that its
Website contains access barriers denying blind customers the full and equal access to the
goods, services and facilities of its Website and by extension its dental bars, which
Defendant owns, operates and controls, failing to comply with applicable laws including,
but not limited to, Title III of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et
seq., N.Y. Exec. Law § 296, et seq., and N.Y.C. Admin. Code § 8-107, et seq. prohibiting
discrimination against the blind.
71.
A judicial declaration is necessary and appropriate now in order that each
of the parties may know its respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Fischler respectfully requests this Court grant the
following relief:
a.
A preliminary and permanent injunction to prohibit Defendant
from violating Title III of the ADA, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296,
et seq., N.Y.C. Admin. Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to
take all the steps necessary to bring its Website into full compliance with the
requirements set forth in Title III of the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates the
Website in a manner that discriminates against the blind and which fails to provide access
for persons with disabilities as required by ADA, 42 U.S.C. §§ 12182, et seq., N.Y. Exec.
Law § 296, et seq., N.Y.C. Admin. Code § 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Subclasses under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative, and his
attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory damages, punitive damages and fines;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff Fischler demands a trial by jury on all
questions of fact the Complaint raises.
Dated: New York, New York
June 30, 2020
LIPSKY LOWE LLP
s/ Christopher H. Lowe
Christopher H. Lowe
Douglas B. Lipsky
420 Lexington Avenue, Suite 1830
New York, New York 10170
Tel: 212.392.4772
Fax: 212.444.1030
chris@lipskylowe.com
doug@lipskylowe.com
| civil rights, immigration, family |
EwHyFIcBD5gMZwcz9E8M | I. (a) PLAINTIFFS
DEFENDANTS
Janicia Hyde, individually and on behalf of all others similarly situated
WWF Operating Company, LLC
Kings
(b) County of Residence of First Listed Plaintiff
County of Residence of First Listed Defendant
(EXCEPT IN U.S. PLAINTIFF CASES)
(IN U.S. PLAINTIFF CASES ONLY)
NOTE:
IN LAND CONDEMNATION CASES, USE THE LOCATION OF
THE TRACT OF LAND INVOLVED.
(c) Attorneys (Firm Name, Address, and Telephone Number)
Attorneys (If Known)
SHEEHAN & ASSOCIATES, P.C., 505 NORTHERN BLVD STE 311
GREAT NECK NY 11021-5101, (516) 303-0552
II. BASIS OF JURISDICTION (Place an “X” in One Box Only)
III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff
(For Diversity Cases Only)
and One Box for Defendant)
� 1 U.S. Government
� 3 Federal Question
PTF
DEF
PTF
DEF
Plaintiff
(U.S. Government Not a Party)
Citizen of This State
� 1
� 1
Incorporated or Principal Place
�
4
� 4
of Business In This State
� 2 U.S. Government
� 4 Diversity
Citizen of Another State
� 2
� 2
Incorporated and Principal Place
�
5
� 5
Defendant
(Indicate Citizenship of Parties in Item III)
of Business In Another State
Citizen or Subject of a
� 3
� 3
Foreign Nation
�
6
� 6
Foreign Country
IV. NATURE OF SUIT (Place an “X” in One Box Only)
CONTRACT
TORTS
FORFEITURE/PENALTY
BANKRUPTCY
OTHER STATUTES
� 6 Multidistrict
Litigation -
Transfer
� 8 Multidistrict
Litigation -
�Direct File
� 110 Insurance
PERSONAL INJURY
PERSONAL INJURY
� 625 Drug Related Seizure
� 422 Appeal 28 USC 158
� 375 False Claims Act
� 120 Marine
� 310 Airplane
� 365 Personal Injury -
of Property 21 USC 881
� 423 Withdrawal
� 376 Qui Tam (31 USC
� 130 Miller Act
� 315 Airplane Product
Product Liability
� 690 Other
28 USC 157
3729(a))
� 140 Negotiable Instrument
Liability
� 367 Health Care/
� 400 State Reapportionment
� 150 Recovery of Overpayment
� 320 Assault, Libel &
Pharmaceutical
PROPERTY RIGHTS
� 410 Antitrust
& Enforcement of Judgment
Slander
Personal Injury
� 820 Copyrights
� 430 Banks and Banking
� 151 Medicare Act
� 330 Federal Employers’
Product Liability
� 830 Patent
� 450 Commerce
� 152 Recovery of Defaulted
Liability
� 368 Asbestos Personal
� 840 Trademark
� 460 Deportation
Student Loans
� 340 Marine
Injury Product
� 470 Racketeer Influenced and
(Excludes Veterans)
� 345 Marine Product
Liability
LABOR
SOCIAL SECURITY
Corrupt Organizations
� 153 Recovery of Overpayment
Liability
PERSONAL PROPERTY � 710 Fair Labor Standards
� 861 HIA (1395ff)
� 480 Consumer Credit
of Veteran’s Benefits
� 350 Motor Vehicle
� 370 Other Fraud
Act
� 862 Black Lung (923)
� 490 Cable/Sat TV
� 160 Stockholders’ Suits
� 355 Motor Vehicle
� 371 Truth in Lending
� 720 Labor/Management
� 863 DIWC/DIWW (405(g))
� 850 Securities/Commodities/
� 190 Other Contract
Product Liability
� 380 Other Personal
Relations
� 864 SSID Title XVI
Exchange
� 195 Contract Product Liability
� 360 Other Personal
Property Damage
� 740 Railway Labor Act
� 865 RSI (405(g))
� 890 Other Statutory Actions
� 196 Franchise
Injury
� 385 Property Damage
� 751 Family and Medical
� 891 Agricultural Acts
� 362 Personal Injury -
Product Liability
Leave Act
� 893 Environmental Matters
Medical Malpractice
� 790 Other Labor Litigation
� 895 Freedom of Information
REAL PROPERTY
CIVIL RIGHTS
PRISONER PETITIONS
� 791 Employee Retirement
FEDERAL TAX SUITS
Act
� 210 Land Condemnation
� 440 Other Civil Rights
Habeas Corpus:
Income Security Act
� 870 Taxes (U.S. Plaintiff
� 896 Arbitration
� 220 Foreclosure
� 441 Voting
� 463 Alien Detainee
or Defendant)
� 899 Administrative Procedure
� 230 Rent Lease & Ejectment
� 442 Employment
� 510 Motions to Vacate
� 871 IRS—Third Party
Act/Review or Appeal of
� 240 Torts to Land
� 443 Housing/
Sentence
26 USC 7609
Agency Decision
� 245 Tort Product Liability
Accommodations
� 530 General
� 950 Constitutionality of
� 290 All Other Real Property
� 445 Amer. w/Disabilities - � 535 Death Penalty
IMMIGRATION
State Statutes
Employment
Other:
� 462 Naturalization Application
� 446 Amer. w/Disabilities - � 540 Mandamus & Other
� 465 Other Immigration
Other
� 550 Civil Rights
Actions
� 448 Education
� 555 Prison Condition
� 560 Civil Detainee -
Conditions of
Confinement
V. ORIGIN (Place an “X” in One Box Only)
� 1
Original
Proceeding
� 2 Removed from
State Court
� 3
Remanded from
Appellate Court
� 4 Reinstated or
Reopened
� 5 Transferred from
Another District
(specify)
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
28 USC § 1332
VI. CAUSE OF ACTION
Brief description of cause:
False advertising
5,000,000.00
VII. REQUESTED IN
COMPLAINT:
�
CHECK IF THIS IS A CLASS ACTION
UNDER RULE 23, F.R.Cv.P.
DEMAND $
CHECK YES only if demanded in complaint:
JURY DEMAND:
� Yes
� No
VIII. RELATED CASE(S)
IF ANY
(See instructions):
JUDGE
DOCKET NUMBER
DATE
SIGNATURE OF ATTORNEY OF RECORD
10/02/2019
/s/ Spencer Sheehan
Spencer Sheehan
plaintiff
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| consumer fraud |
RxECF4cBD5gMZwczS-Kx |
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
Cassius Croom, individually and on behalf of all others
similarly situated,
Case. No.: 2:20-cv-2872
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Automated Collection Services, Inc. and
John Does 1-25,
Defendants.
Plaintiff Cassius Croom (“Plaintiff”) brings this Class Action Complaint by and through her
attorneys, Stein Saks, PLLC, against Defendant Automated Collection Services, Inc., (“ACS”),
individually and on behalf of a class of all others similarly situated, pursuant to Rule 23 of the
Federal Rules of Civil Procedure, based upon information and belief of Plaintiff’s counsel, except
for allegations specifically pertaining to Plaintiff, which are based upon Plaintiff's personal
knowledge.
INTRODUCTION/PRELIMINARY STATEMENT
1.
The Fair Debt Collection Practices Act (“FDCPA’) was enacted in response to the
"abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many
debt collectors." 15 U.S.C. §1692(a). This was because of the concern that "abusive debt collection
practices contribute to the number of personal bankruptcies, to material instability, to the loss of
jobs, and to invasions of individual privacy." Id. Congress concluded that "existing laws…[we]re
inadequate to protect consumers," and that "'the effective collection of debts" does not require
"misrepresentation or other abusive debt collection practices." 15 U.S.C. §§ 1692(b) & (c).
2.
The purpose of the Act was not only to eliminate abusive debt collection practices,
but also to ensure “that those debt collectors who refrain from using abusive debt collection practices
are not competitively disadvantaged." Id. § 1692(e). After determining that the existing consumer
protection laws were inadequate. Id. § 1692(b), Congress gave consumers a private cause of action
against debt collectors who fail to comply with the Act. Id. § 1692k.
JURISDICTION AND VENUE
3.
The Court has jurisdiction over this class action pursuant to 28 U.S.C. § 1331 and
15 U.S.C. § 1692 et. seq. The Court has pendent jurisdiction over any State law claims in this action
pursuant to 28 U.S.C. § 1367(a).
4.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) as this is
where a substantial part of the events or omissions giving rise to the claim occurred.
NATURE OF THE ACTION
5.
Plaintiff brings this class action on behalf of a class of Tennessee consumers under
§ 1692 et seq. of Title 15 of the United States Code, also known as the Fair Debt Collections
Practices Act ("FDCPA"), and
6.
Plaintiff is seeking damages and declaratory relief.
PARTIES
7.
Plaintiff is a resident of the State of Tennessee, residing at 3716 Southridge Blvd,
Murfreesboro, TN 37128.
8.
Defendant ACS is a "debt collector" as the phrase is defined in 15 U.S.C.
§ 1692(a)(6) and used in the FDCPA with a physical address at 2802 Opryland Drive, Nashville,
TN 37214.
9.
Defendant ACS is a company that uses the mail, telephone, and facsimile and
regularly engages in business the principal purpose of which is to attempt to collect debts alleged to
be due itself or another.
10.
John Does 1-25, are fictitious names of individuals and businesses alleged for the
purpose of substituting names of Defendants whose identities will be disclosed in discovery and
should be made parties to this action.
CLASS ALLEGATIONS
11.
Plaintiff brings this claim on behalf of the following case, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
12.
The Class consists of:
a. all individuals with addresses in the State of Tennessee;
b. to whom Defendant ACS sent an initial collection letter;
c. attempting to collect a consumer debt;
d. providing multiple addresses;
e. without identifying which address is the correct one to send a dispute; and
f. which letter was sent on or after a date one (1) year prior to the filing of this
action and on or before a date twenty-one (21) days after the filing of this action.
13.
The identities of all class members are readily ascertainable from the records of
Defendants and those companies and entities on whose behalf they attempt to collect and/or have
purchased debts.
14.
Excluded from the Plaintiff Class is the Defendant and all officers, members,
partners, managers, directors and employees of the Defendant and its respective immediate families,
and legal counsel for all parties to this action, and all members of their immediate families.
15.
There are questions of law and fact common to the Plaintiff Class, which common
issues predominate over any issues involving only individual class members. The principal issue is
whether the Defendant’s written communications to consumers, in the forms attached as Exhibit A,
violate 15 U.S.C. §§ 1692e, 1692f, and 1692g.
16.
The Plaintiff’s claims are typical of the class members, as all are based upon the same
facts and legal theories. The Plaintiff will fairly and adequately protect the interests of the Plaintiff
Class defined in this complaint. The Plaintiff has retained counsel with experience in handling
consumer lawsuits, complex legal issues, and class actions, and neither the Plaintiff nor his attorneys
have any interests, which might cause them not to vigorously pursue this action.
17.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a well-
defined community interest in the litigation:
a. Numerosity: The Plaintiff is informed and believes, and on that basis alleges,
that the Plaintiff Class defined above is so numerous that joinder of all members
would be impractical.
b. Common Questions Predominate: Common questions of law and fact exist as
to all members of the Plaintiff Class and those questions predominance over any
questions or issues involving only individual class members. The principal issue
is whether the Defendants' written communications to consumers, in the forms
attached as Exhibit A violate 15 U.S.C. §§ 1692e, 1692f, and 1692g.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class members.
The Plaintiff and all members of the Plaintiff Class have claims arising out of the
Defendants' common uniform course of conduct complained of herein.
d. Adequacy: The Plaintiff will fairly and adequately protect the interests of the
class members insofar as Plaintiff has no interests that are adverse to the absent
class members. The Plaintiff is committed to vigorously litigating this matter.
Plaintiff has also retained counsel experienced in handling consumer lawsuits,
complex legal issues, and class actions. Neither the Plaintiff nor her counsel have
any interests which might cause them not to vigorously pursue the instant class
action lawsuit.
e. Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all
members would be impracticable. Class action treatment will permit a large
number of similarly situated persons to prosecute their common claims in a single
forum efficiently and without unnecessary duplication of effort and expense that
individual actions would engender.
18.
Certification of a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure
is also appropriate in that the questions of law and fact common to members of the Plaintiff Class
predominate over any questions affecting an individual member, and a class action is superior to
other available methods for the fair and efficient adjudication of the controversy.
19.
Depending on the outcome of further investigation and discovery, Plaintiff may, at
the time of class certification motion, seek to certify a class(es) only as to particular issues pursuant
to Fed. R. Civ. P. 23(c)(4).
FACTUAL ALLEGATIONS
20.
Plaintiff repeats the above allegations as if set forth here.
21.
Some time prior to December 2, 2019, Plaintiff allegedly incurred an obligation to
Vanderbilt Hospital.
22.
The obligation arose out of a transaction involving a medical debt to Vanderbilt
Hospital in which money, property, insurance or services, which are the subject of the transaction,
were incurred solely for personal purposes, specifically personal medical care.
23.
The alleged Vanderbilt Hospital obligation is a "debt" as defined by 15 U.S.C.§
1692a (5).
24.
Vanderbilt Hospital is a "creditor" as defined by 15 U.S.C. § 1692a (4).
25.
Vanderbilt Hospital contracted with the Defendant ACS to collect the alleged debt.
26.
Defendant ACS collects and attempts to collect debts incurred or alleged to have
been incurred for personal, family or household purposes on behalf of creditors using the United
States Postal Services, telephone and internet.
December 2, 2019 Collection Letter
27.
On or about December 2, 2019, Defendant sent the Plaintiff an initial collection letter
regarding the alleged debt owed to Vanderbilt Hospital. See Letter attached as Exhibit A.
28.
The letter ostensibly provides the notices as required by 15 U.S.C. § 1692g regarding
disputing the debt.
29.
However, there are three addresses listed for Defendant in two different cities and
a. 2802 Spryland Drive, Nashville, TN 37214;
b. PO Box 4115, Concord, CA 94524;
c. PO Box 17737 Nashville, TN 37217.
30.
None of the three addresses are specifically identified as the correct address where
to send disputes.
31.
The consumer is therefore confused as to how to properly dispute the debt and
exercise his rights under § 1692g.
32.
Upon information and belief, disputes sent to one or more of these addresses will not
be honored by Defendant.
33.
Listing these incorrect addresses(es) misleads the consumer into believing a proper
dispute can be sent there.
34.
Plaintiff was therefore unable to straightforwardly dispute the debt resulting in
wasted time.
35.
As a result of Defendant's deceptive, misleading and unfair debt collection practices,
Plaintiff has been damaged.
COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692e et seq.
36.
Plaintiff repeats the above allegations as if set forth here.
37.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692e.
38.
Pursuant to 15 U.S.C. § 1692e, a debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.
39.
Defendant violated said section:
a. By providing multiple addresses and not identifying which one should be used to
dispute the debt, in violation of § 1692e (10).
40.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692e et seq. of the FDCPA, actual damages, statutory damages, costs and
attorneys’ fees.
COUNT II
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692f et seq.
41.
Plaintiff repeats the above allegations as if set forth here.
42.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692f.
43.
Pursuant to 15 U.S.C. § 1692f, a debt collector may not use any unfair or
unconscionable means in connection with the collection of any debt.
44.
Defendant violated this section by providing multiple addresses and not identifying
which one should be used for disputing the debt.
45.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692f et seq. of the FDCPA, actual damages, statutory damages, costs and
attorneys’ fees.
COUNT III
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692g et seq.
46.
Plaintiff repeats the above allegations as if set forth here.
47.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692g.
48.
Pursuant to 15 U.S.C. § 1692g:
Within five days after the initial communication with a consumer in
connection with the collection of any debt, a debt collector shall, unless the
following information is contained in the initial communication or the
consumer has paid the debt, send the consumer a written notice containing –
1. The amount of the debt;
2. The name of the creditor to whom the debt is owed;
3. A statement that unless the consumer, within thirty days after
receipt of the notice, disputes the validity of the debt, or any
4. portion thereof, the debt will be assumed to be valid by the debt-
collector;
5. A statement that the consumer notifies the debt collector in
writing within thirty-day period that the debt, or any portion
thereof, is disputed, the debt collector will obtain verification of
the debt or a copy of a judgment against the consumer and a copy
of such verification or judgment will be mailed to the consumer
by the debt collector; and
6. A statement that, upon the consumer’s written request within the
thirty-day period, the debt collector will provide the consumer
with the name and address of the original creditor, if different
from the current creditor.
49.
Defendant violated this section by providing multiple addresses and not identifying
which one should be used for disputing the debt thereby failing to provide the proper notice required
by §1692g in an initial collection letter.
50.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692g et seq. of the FDCPA, actual damages, statutory damages, costs and
attorneys’ fees.
DEMAND FOR TRIAL BY JURY
51.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby requests
a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Cassius Croom, individually and on behalf of all others similarly
situated, demands judgment from Defendant ACS as follows:
i.
Declaring that this action is properly maintainable as a Class Action and
certifying Plaintiff as Class representative, and Yaakov Saks, Esq. as Class Counsel;
ii.
Awarding Plaintiff and the Class statutory damages;
iii.
Awarding Plaintiff and the Class actual damages;
iv.
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees
and expenses;
v.
Awarding pre-judgment interest and post-judgment interest; and
vi.
Awarding Plaintiff and the Class such other and further relief as this Court
may deem just and proper.
Dated: December 2, 2020
Respectfully Submitted,
Stein Saks, PLLC
/s/ Yaakov Saks
_________
Yaakov Saks
285 Passaic Street
Hackensack, NJ, 07601
P. (201) 282-6500 ext 101
F. (201) 282-6501
ysaks@steinsakslegal.com
Attorneys for Plaintiff
| consumer fraud |
rejrEYcBD5gMZwczu_VK | UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK
HIMELDA MENDEZ, for herself and on
behalf of all other persons similarly situated,
Plaintiff,
19 CV 11538
–against–
PRIMAVERA GALLERY, INC.,
Defendant.
CLASS ACTION COMPLAINT AND JURY DEMAND
INTRODUCTION
1.
Plaintiff, HIMELDA MENDEZ, on behalf of herself and others similarly situated,
asserts the following claims against Defendant PRIMAVERA GALLERY, INC., as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using her computer. Plaintiff uses the terms “blind” or
“visually-impaired” to refer to all people with visual impairments who meet the legal definition of
blindness in that they have a visual acuity with correction of less than or equal to 20 x 200. Some
blind people who meet their definition have limited vision. Others have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and according to the
American Foundation for the Blind’s 2015 report, approximately 400,000 visually impaired
persons live in the State of New York.
4.
Plaintiff brings her civil rights action against CAVIN-MORRIS, INC.,
(“Defendant” or “COMPANY”), for its failure to design, construct, maintain, and operate its
website to be fully accessible to and independently usable by Plaintiff and other blind or visually-
impaired people. Defendant’s denial of full and equal access to its website, and therefore denial of
its products and services offered thereby and in conjunction with its physical location, is a violation
of Plaintiff’s rights under the Americans with Disabilities Act (“ADA”).
5.
Because Defendant’s website, https://www.primaveragallery.com (the “Website”
or “Defendant’s Website”), is not equally accessible to blind and visually-impaired consumers, it
violates the ADA. Plaintiff seeks a permanent injunction to cause a change in Defendant’s
corporate policies, practices, and procedures so that Defendant’s website will become and remain
accessible to blind and visually-impaired consumers.
JURISDICTION AND VENUE
6.
The Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42 U.S.C. § 12181,
et seq., and 28 U.S.C. § 1332.
7.
The Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York State Human Rights Law, N.Y. Exec. Law Article 15, (“NYSHRL”) and New York
City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq., (“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount of business in
this District, Defendant is subject to personal jurisdiction in this District, and a substantial portion
of the conduct complained of herein occurred in this District.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of New York that
caused injury, and violated rights the ADA prescribes to Plaintiff and to other blind and other
visually impaired-consumers. A substantial part of the acts and omissions giving rise to Plaintiff’s
claims occurred in this District: on several separate occasions, Plaintiff has been denied the full
use and enjoyment of the facilities, goods, and services of Defendant’s physical location and/or
Website with respect to Defendant’s art gallery located in New York County. These access barriers
that Plaintiff encountered have caused a denial of Plaintiff’s full and equal access multiple times
in the past, and now deter Plaintiff on a regular basis from visiting Defendant’s brick-and mortar
location. This includes, Plaintiff attempting to obtain information about Defendant’s art gallery
(location and hours and other important information) in New York County
10.
The Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
PARTIES
11.
Plaintiff, at all relevant times, is a resident of New York, New York. Plaintiff is a
blind, visually-impaired handicapped person and a member of member of a protected class of
individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and the regulations implementing the
ADA set forth at 28 CFR §§ 36.101 et seq., the NYSHRL and NYCHRL.
12.
Defendant, is and was, at all relevant times herein, a Domestic Business
Corporation registered to do business in the State of New York with a principal place of business
located at 210 11th Avenue, New York, NY. Defendant operates its art gallery as well as the
Website and advertises, markets, and operates in the State of New York and throughout the United
States. Defendant is, upon information and belief, licensed to do business and is doing business in
the State of New York.
13.
Defendant’s art gallery operates as a place of public accommodation, as a sales
establishment and/or place of exhibition. Defendant’s art gallery provides to the public important
goods and services. Defendant’s Website provides consumers with access to an array of goods and
services including art gallery location and hours, information about artwork, events, art
descriptions, inquiring about pricing and other products available online and in the art gallery for
purchase, the Defendant’s privacy policies and other goods and services offered by the Defendant.
14.
Defendant’s art gallery is a place of public accommodation within the definition of
Title III of the ADA, 42 U.S.C. § 12181(7). Defendant’s Website is a service, privilege, or
advantage of Defendant’s art gallery.
NATURE OF ACTION
15.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking, researching,
as well as many other activities for sighted, blind and visually-impaired persons alike.
16.
In today’s tech-savvy world, blind and visually-impaired people have the ability to
access websites using keyboards in conjunction with screen access software that vocalizes the
visual information found on a computer screen or displays the content on a refreshable Braille
display. Their technology is known as screen-reading software. Screen-reading software is
currently the only method a blind or visually-impaired person may independently access the
Internet. Unless websites are designed to be read by screen-reading software, blind and visually-
impaired persons are unable to fully access websites, and the information, products, and services
contained thereon.
17.
Blind and visually-impaired users of Windows operating system-enabled
computers and devices have several screen reading software programs available to them. Some of
these programs are available for purchase and other programs are available without the user having
to purchase the program separately. Job Access With Speech, otherwise known as “JAWS” is
currently the most popular, separately purchased and downloaded screen-reading software
program available for a Windows computer.
18.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being rendered into
text, the blind or visually-impaired user is unable to access the same content available to sighted
19.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.0 of the Web Content
Accessibility Guidelines (“WCAG 2.0”). WCAG 2.0 are well-established guidelines for making
websites accessible to blind and visually-impaired people. These guidelines are universally
followed by most large business entities and government agencies to ensure their websites are
accessible.
20.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired persons include,
but are not limited to, the following:
a.
A text equivalent for every non-text element is not provided;
b.
Title frames with text are not provided for identification and navigation;
c.
Equivalent text is not provided when using scripts;
d.
Forms with the same information and functionality as for sighted persons
are not provided;
e.
Information about the meaning and structure of content is not conveyed by
more than the visual presentation of content;
f.
Text cannot be resized without assistive technology up to 200% without
losing content or functionality;
g.
If the content enforces a time limit, the user is not able to extend, adjust or
disable it;
h.
Web pages do not have titles that describe the topic or purpose;
i.
The purpose of each link cannot be determined from the link text alone or
from the link text and its programmatically determined link context;
j.
One or more keyboard operable user interface lacks a mode of operation
where the keyboard focus indicator is discernible;
k.
The default human language of each web page cannot be programmatically
determined;
l.
When a component receives focus, it may initiate a change in context;
m.
Changing the setting of a user interface component may automatically cause
a change of context where the user has not been advised before using the component;
n.
Labels or instructions are not provided when content requires user input,
which include captcha prompts that require the user to verify that he or she is not a robot;
o.
In content which is implemented by using markup languages, elements do
not have complete start and end tags, elements are not nested according to their specifications,
elements may contain duplicate attributes and/or any IDs are not unique;
p.
Inaccessible Portable Document Format (PDFs); and,
q.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be programmatically set;
and/or notification of changes to these items is not available to user agents, including assistive
technology.
STATEMENT OF FACTS
Defendant’s Barriers on Its Website
21.
Defendant is an art dealer that operates its art gallery as well as the Website to the
public. The art gallery is located at 210 11th Avenue, New York, NY, New York, New York.
Defendant’s art gallery constitutes a place of public accommodation. Defendant’s art gallery
provides to the public important goods and services. Defendant’s Website provides consumers
with access to an array of goods and services which allow consumers to find information about the
art gallery location and hours, information about artwork, events, art descriptions, inquire about
pricing and other products available online and in the art gallery for purchase and view privacy
policies and other goods and services offered by the Defendant.
22.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff,
along with other blind or visually-impaired users, access to Defendant’s Website, and to therefore
specifically deny the goods and services that are offered and integrated with Defendant’s art
gallery. Due to Defendant’s failure and refusal to remove access barriers to its Website, Plaintiff
and visually-impaired persons have been and are still being denied equal access to Defendant’s art
gallery and the numerous goods, services, and benefits offered to the public through the Website.
23.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff is, however, a proficient JAWS screen-
reader user and uses it to access the Internet. Plaintiff has visited the Website on separate occasions
using the JAWS screen-reader.
24.
During Plaintiff’s visits to the Website, the last occurring in July, 2019, Plaintiff
encountered multiple access barriers that denied Plaintiff full and equal access to the facilities,
goods and services offered to the public and made available to the public; and that denied Plaintiff
the full enjoyment of the facilities, goods, and services of the Website, as well as to the facilities,
goods, and services of Defendant’s physical location in New York by being unable to learn more
information on the location and hours of the art gallery, information about artwork, events, art
descriptions, inquiries about pricing and other products available online and in the art gallery for
purchase and view privacy policies and other goods and services offered by Defendant.
25.
While attempting to navigate the Website, Plaintiff encountered multiple
accessibility barriers for blind or visually-impaired people that include, but are not limited to, the
following:
a.
Lack of Alternative Text (“alt-text”), or a text equivalent. Alt-text is an
invisible code embedded beneath a graphical image on a website. Web accessibility requires that
alt-text be coded with each picture so that screen-reading software can speak the alt-text where a
sighted user sees pictures, which includes captcha prompts. Alt-text does not change the visual
presentation, but instead a text box shows when the keyboard scrolls over the picture. The lack of
alt-text on these graphics prevents screen readers from accurately vocalizing a description of the
graphics. As a result, visually-impaired customers of the Defendant are unable to determine what
is on the Website, browse, look for information about the art gallery’ locations and hours of
operation, artwork, events, art descriptions, inquiries about pricing and other products available
online and in the art gallery for purchase, view privacy policies and other goods and services
offered by the Defendant;
b.
Empty Links That Contain No Text causing the function or purpose of the
link to not be presented to the user. They can introduce confusion for keyboard and screen-reader
c.
Redundant Links where adjacent links go to the same URL address which
results in additional navigation and repetition for keyboard and screen-reader users; and
d.
Linked Images Missing Alt-text, which causes problems if an image within
a link contains no text and that image does not provide alt-text. A screen reader then has no content
to present the user as to the function of the link, including information contained in PDFs.
Defendant Must Remove Barriers To Its Website
26.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use or enjoy the
facilities, goods, and services Defendant offers to the public on its Website. The access barriers
Plaintiff encountered have caused a denial of Plaintiff’s full and equal access in the past, and now
deter Plaintiff on a regular basis from accessing the Website.
27.
These access barriers on Defendant’s Website have deterred Plaintiff from visiting
Defendant’s physical location, and enjoying it equal to sighted individuals because: Plaintiff was
unable to find the location and hours of operation of Defendant’s physical art gallery on its Website
and other important information, preventing Plaintiff from visiting the location to view and
purchase the artwork and to attend events.
28.
If the Website was equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
29.
Through her attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable by blind and
visually-impaired people.
30.
Because simple compliance with the WCAG 2.0 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff alleges that
Defendant has engaged in acts of intentional discrimination, including but not limited to the
following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to visually-
impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is not sufficiently intuitive
so as to be equally accessible to visually-impaired individuals, including Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired consumers, such as Plaintiff,
as a member of a protected class.
31.
Defendant therefore uses standards, criteria or methods of administration that have
the effect of discriminating or perpetuating the discrimination of others, as alleged herein.
32.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . their title, injunctive relief shall include an order to alter
facilities to make such facilities readily accessible to and usable by individuals with
disabilities . . . Where appropriate, injunctive relief shall also include requiring the . . .
modification of a policy . . .
42 U.S.C. § 12188(a)(2).
33.
Because Defendant’s Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website to become
and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and seeks a permanent injunction
requiring Defendant to retain a qualified consultant acceptable to Plaintiff (“Agreed Upon
Consultant”) to assist Defendant to comply with WCAG 2.0 guidelines for Defendant’s Website.
Plaintiff seeks that their permanent injunction requires Defendant to cooperate with the Agreed
Upon Consultant to:
a.
Train Defendant’s employees and agents who develop the Website on
accessibility compliance under the WCAG 2.0 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG 2.0
guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons to
ensure that Defendant’s Website complies under the WCAG 2.0 guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
Website, with contact information for users to report accessibility-related problems.
34.
If the Website was accessible, Plaintiff and similarly situated blind and visually-
impaired people could independently view artwork, locate Defendant’s art gallery’ locations and
hours of operation, shop for and otherwise research related products and services via the Website.
35.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated to make them
fully and equally accessible to, and independently usable by, blind and other visually-impaired
consumers.
36.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining its Website and has generated significant revenue from the Website.
These amounts are far greater than the associated cost of making its Website equally accessible to
visually impaired customers.
37.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
CLASS ACTION ALLEGATIONS
38.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in the United
States who have attempted to access Defendant’s Website and as a result have been denied access
to the equal enjoyment of goods and services offered in Defendant’s physical location, during the
relevant statutory period.
39.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a
New York State subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in
the State of New York who have attempted to access Defendant’s Website and as a result have
been denied access to the equal enjoyment of goods and services offered in Defendant’s physical
location, during the relevant statutory period.
40.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a
New York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind individuals in
the City of New York who have attempted to access Defendant’s Website and as a result have been
denied access to the equal enjoyment of goods and services offered in Defendant’s physical
location, during the relevant statutory period.
41.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under the
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYSHRL or NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment of its
goods, services, facilities, privileges, advantages, or accommodations to people with visual
disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment of its
goods, services, facilities, privileges, advantages, or accommodations to people with visual
disabilities, violating the NYSHRL or NYCHRL.
42.
Plaintiff’s claims are typical of the Class. The Class, similarly to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has violated the ADA,
NYSHRL or NYCHRL by failing to update or remove access barriers on its Website so either can
be independently accessible to the Class.
43.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent and experienced
in complex class action litigation, and because Plaintiff has no interests antagonistic to the Class
Members. Class certification of the claims is appropriate under Fed. R. Civ. P. 23(b)(2) because
Defendant has acted or refused to act on grounds generally applicable to the Class, making
appropriate both declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
44.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3)
because fact and legal questions common to Class Members predominate over questions affecting
only individual Class Members, and because a class action is superior to other available methods
for the fair and efficient adjudication of their litigation.
45.
Judicial economy will be served by maintaining their lawsuit as a class action in
that it is likely to avoid the burden that would be otherwise placed upon the judicial system by the
filing of numerous similar suits by people with visual disabilities throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
46.
Plaintiff, on behalf of herself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
47.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and equal
enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of
any place of public accommodation by any person who owns, leases (or leases to), or
operates a place of public accommodation.
42 U.S.C. § 12182(a).
48.
Defendant’s art gallery is a place of public accommodation within the definition of
Title III of the ADA, 42 U.S.C. § 12181(7). Defendant’s Website is a service, privilege, or
advantage of Defendant’s art gallery. The Website is a service that is integrated with these
locations.
49.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodations of an entity. 42 U.S.C. §
12182(b)(1)(A)(i).
50.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodation, which is equal to the opportunities
afforded to other individuals. 42 U.S.C. § 12182(b)(1)(A)(ii).
51.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures, when
such modifications are necessary to afford such goods, services, facilities, privileges,
advantages, or accommodations to individuals with disabilities, unless the entity can
demonstrate that making such modifications would fundamentally alter the nature of such
goods, services, facilities, privileges, advantages or accommodations; and a failure to take
such steps as may be necessary to ensure that no individual with a disability is excluded,
denied services, segregated or otherwise treated differently than other individuals because
of the absence of auxiliary aids and services, unless the entity can demonstrate that taking
such steps would fundamentally alter the nature of the good, service, facility, privilege,
advantage, or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
52.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class of persons
under the ADA, has a physical disability that substantially limits the major life activity of sight
within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A). Furthermore, Plaintiff has been denied
full and equal access to the Website, has not been provided services that are provided to other
patrons who are not disabled, and has been provided services that are inferior to the services
provided to non-disabled persons. Defendant has failed to take any prompt and equitable steps to
remedy its discriminatory conduct. These violations are ongoing.
53.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYSHRL
54.
Plaintiff, on behalf of herself and the New York State Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
55.
N.Y. Exec. Law § 296(2)(a) provides that it is “an unlawful discriminatory practice
for any person, being the owner, lessee, proprietor, manager, superintendent, agent or employee
of any place of public accommodation . . . because of the . . . disability of any person, directly or
indirectly, to refuse, withhold from or deny to such person any of the accommodations, advantages,
facilities or privileges thereof.”
56.
Defendant’s physical location is located in the State of New York and constitute a
sales establishment and place of public accommodation within the definition of N.Y. Exec. Law §
292(9). Defendant’s Website is a service, privilege or advantage of Defendant. Defendant’s
Website is a service that is by and integrated with this physical location.
57.
Defendant is subject to New York Human Rights Law because it owns and operates
its physical location and Website. Defendant is a person within the meaning of N.Y. Exec. Law §
58.
Defendant is violating N.Y. Exec. Law § 296(2)(a) in refusing to update or remove
access barriers to its Website, causing its Website and the services integrated with Defendant’s
physical location to be completely inaccessible to the blind. Their inaccessibility denies blind
patrons full and equal access to the facilities, goods and services that Defendant makes available
to the non-disabled public.
59.
Under N.Y. Exec. Law § 296(2)(c)(i), unlawful discriminatory practice includes,
among other things, “a refusal to make reasonable modifications in policies, practices, or
procedures, when such modifications are necessary to afford facilities, privileges, advantages or
accommodations to individuals with disabilities, unless such person can demonstrate that making
such modifications would fundamentally alter the nature of such facilities, privileges, advantages
or accommodations being offered or would result in an undue burden".
60.
Under N.Y. Exec. Law § 296(2)(c)(ii), unlawful discriminatory practice also
includes, “a refusal to take such steps as may be necessary to ensure that no individual with a
disability is excluded or denied services because of the absence of auxiliary aids and services,
unless such person can demonstrate that taking such steps would fundamentally alter the nature of
the facility, privilege, advantage or accommodation being offered or would result in an undue
burden.”
61.
Readily available, well-established guidelines exist on the Internet for making
websites accessible to the blind and visually impaired. These guidelines have been followed by
other large business entities and government agencies in making their website accessible, including
but not limited to: adding alt-text to graphics and ensuring that all functions can be performed
using a keyboard. Incorporating the basic components to make its Website accessible would
neither fundamentally alter the nature of Defendant’s business nor result in an undue burden to
Defendant.
62.
Defendant’s actions constitute willful intentional discrimination against the class
on the basis of a disability in violation of the NYSHRL, N.Y. Exec. Law § 296(2) in that Defendant
a.
constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is not sufficiently intuitive and/or
obvious and that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
63.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
64.
Defendant discriminates and will continue in the future to discriminate against
Plaintiff and New York State Sub-Class Members on the basis of disability in the full and equal
enjoyment of the goods, services, facilities, privileges, advantages, accommodations and/or
opportunities of Defendant’s Website and its physical locations under § 296(2) et seq. and/or its
implementing regulations. Unless the Court enjoins Defendant from continuing to engage in these
unlawful practices, Plaintiff and the Sub-Class Members will continue to suffer irreparable harm.
65.
Defendant’s actions were and are in violation of New York State Human Rights
Law and therefore Plaintiff invokes her right to injunctive relief to remedy the discrimination.
66.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y. Exec. Law § 297(4)(c) et seq. for each and every offense.
67.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
68.
Under N.Y. Exec. Law § 297 and the remedies, procedures, and rights set forth and
incorporated therein Plaintiff prays for judgment as set forth below.
THIRD CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
69.
Plaintiff, on behalf of herself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
70.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor, manager,
superintendent, agent or employee of any place or provider of public accommodation, because of
. . . disability . . . directly or indirectly, to refuse, withhold from or deny to such person, any of the
accommodations, advantages, facilities or privileges thereof.”
71.
Defendant’s location is a sales establishment and place of public accommodation
within the definition of N.Y.C. Admin. Code § 8-102(9), and its Website is a service that is
integrated with its establishment.
72.
Defendant is subject to NYCHRL because it owns and operates its physical location
in the City of New York and its Website, making it a person within the meaning of N.Y.C. Admin.
Code § 8-102(1).
73.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services integrated with
its physical location to be completely inaccessible to the blind. The inaccessibility denies blind
patrons full and equal access to the facilities, goods, and services that Defendant makes available
to the non-disabled public.
74.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.] from
discriminating on the basis of disability shall make reasonable accommodation to enable a person
with a disability to . . . enjoy the right or rights in question provided that the disability is known or
should have been known by the covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
75.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code § 8-107(4)(a) and
§ 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is not sufficiently intuitive and/or
obvious and that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
76.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
77.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of disability in the
full and equal enjoyment of the goods, services, facilities, privileges, advantages, accommodations
and/or opportunities of its Website and its establishments under § 8-107(4)(a) and/or its
implementing regulations. Unless the Court enjoins Defendant from continuing to engage in these
unlawful practices, Plaintiff and members of the class will continue to suffer irreparable harm.
78.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes her right to injunctive relief to remedy the discrimination.
79.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense as well as
punitive damages pursuant to § 8-502.
80.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
81.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for judgment as set forth
FOURTH CAUSE OF ACTION
DECLARATORY RELIEF
82.
Plaintiff, on behalf of herself and the Class and New York State and City Sub-
Classes Members, repeats and realleges every allegation of the preceding paragraphs as if fully set
forth herein.
83.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website contains access
barriers denying blind customers the full and equal access to the goods, services and facilities of
its Website and by extension its physical location, which Defendant owns, operate and controls,
fails to comply with applicable laws including, but not limited to, Title III of the Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., and N.Y.C. Admin.
Code § 8-107, et seq. prohibiting discrimination against the blind.
84.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests the Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296,
et seq., N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take all the
steps necessary to make its Website into full compliance with the requirements set forth in the
ADA, and its implementing regulations, so that the Website is readily accessible to and usable by
blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its Website
in a manner that discriminates against the blind and which fails to provide access for persons with
disabilities as required by Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec.
Law § 296, et seq., N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P. 23(a)
& (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative, and her attorneys as Class
Counsel;
e.
Compensatory damages in an amount to be determined by proof, including
all applicable statutory and punitive damages and fines, to Plaintiff and the proposed class and
subclasses for violations of their civil rights under New York State Human Rights Law and City
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of the action together with reasonable
attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions of fact
the Complaint raises.
LAW OFFICE OF JUSTIN A. ZELLER, P.C.
Dated: New York, New York
December 17, 2019
By: __________________________________
Justin A. Zeller
jazeller@zellerlegal.com
John M. Gurrieri
jmgurrieri@zellerlegal.com
277 Broadway, Suite 408
New York, N.Y. 10007-2036
Telephone: (212) 229-2249
Facsimile: (212) 229-2246
GOTTLIEB & ASSOCIATES
Jeffrey M. Gottlieb (JG7905)
nyjg@aol.com
Dana L. Gottlieb (DG6151)
danalgottlieb@aol.com
150 East 18th Street, Suite PHR
New York, N.Y. 10003-2461
Telephone: (212) 228-9795
Facsimile: (212) 982-6284
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
ecWHDYcBD5gMZwczPY5I | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
ANDRES GOMEZ, individually and on behalf of
all others similarly situated,
Plaintiff,
v.
ONEUNITED BANK,
Defendant.
Case No.
Complaint – Class Action
CLASS ACTION COMPLAINT
Comes now Andres Gomez, (“Plaintiff”), on behalf of himself and all others similarly
situated and alleges as follows:
INTRODUCTION
1.
Plaintiff is a legally blind individual. He suffers from macular degeneration.
2.
As Plaintiff goes about his daily business, he regularly has occasion to make use
of the banking services that are available through Automated Teller Machines (“ATMs”), so long
as those ATMs are accessible to the blind. As discussed at length below, federal law includes
very specific provisions calculated to guarantee that ATMs are accessible to blind and visually-
impaired individuals.1
3.
If a given ATM does not include the accessibility features that are mandated by
federal law, a blind consumer like Plaintiff cannot use the ATM independently and is thus faced
with the prospect of having to share private banking information with other individuals to
complete a banking transaction at the ATM. The mandatory ATM accessibility requirements at
1
Plaintiff invokes the term “accessibility” as a defined term of art. That is, “accessibility”
is specifically defined in the applicable statutes and regulations discussed at length in the text
below and Plaintiff is using the term in the context of those definitions, and not in the abstract.
issue in this lawsuit are calculated to permit blind and visually impaired individuals to use ATMs
independently, without having to divulge private banking information to a third party.
4.
Notwithstanding that federal law mandates very specific ATM accessibility
requirements for the blind, a March 7, 2012 Wall Street Journal article noted the widely
publicized fact that at least 50% of the nation’s ATMs remain inaccessible to blind individuals in
violation of these laws. In that same article, a spokesperson for the National Federation of the
Blind (“NFB”) was quoted as saying: “It is absolutely unacceptable that at this late date there are
hundreds of thousands of ATMs that are still not accessible to blind people.”
5.
As is the case nationally, a significant percentage of the ATMs throughout Florida
continue to violate accessibility requirements mandated by federal law. Many inaccessible
ATMs are located within the geographic zone that Plaintiff typically travels as part of his regular
activities. This shortage of accessible ATMs severely limits the ability of Plaintiff and other
blind and visually impaired individuals to benefit from the banking services made available to
the American consumer public through ATMs.
6.
The NFB and other blind advocacy groups have been fighting to achieve ATM
accessibility since at least as early as 1999, at which time the NFB began to work with the
manufacturers of ATMs and the banking industry to encourage the addition of voice guidance
and universal tactile keypads, inter alia, to ATM machines.
7.
While some financial institutions have worked pro-actively to achieve compliance
with federal ATM accessibility requirements that impact the blind community, the NFB and
other blind advocacy organizations have pursued civil litigation against financial institutions
which remain in violation of accessibility requirements long after those accessibility
requirements were first introduced.2
8.
As noted above, to the extent that a given ATM does not comply with the
accessibility requirements mandated by federal law, it is nearly impossible for Plaintiff and
others similarly situated to independently use that ATM.3
9.
After March 15, 2012, Plaintiff visited an ATM owned and operated by
Defendant Oneunited Bank (“Defendant”) located at 3275 Northwest 79th Street, Miami, FL
33147 (the “Subject ATM”). The Subject ATM is inaccessible to the blind in violation of
applicable law, as is described in detail in the text below.
10.
The Subject ATM is within the geographic zone that Plaintiff typically travels as
part of his regular activities. The Subject ATM is located approximately five (5) miles from
Plaintiff’s home. Plaintiff will continue to visit the Subject ATM in the future as part of his
effort to locate accessible ATMs that he personally can use within the geographic zone that he
typically travels as part of his regular activities, and on behalf of the blind community, generally.
11.
Plaintiff alleges violations of Title III of the Americans with Disabilities Act, 42
U.S.C. § 12101 et seq., (the “ADA”) and its implementing regulations.
12.
On behalf of a class of similarly situated individuals, Plaintiff seeks a declaration
that Defendant’s ATMs violate federal law as described and an injunction requiring Defendant to
2
The history of the specific accessibility requirements applicable to ATMs is discussed in
detail in the text below.
3
To understand how difficult it would be for a blind person to use an ATM that does not
include the accessibility features at issue in this lawsuit, a sighted individual need only close his
or her eyes, approach the ATM and attempt to perform a banking transaction—any transaction.
It is impossible to perform the transaction without vision because the input modalities for the
transaction rely upon visual cues, which are of course meaningless to somebody who is blind.
That is why an ATM is not accessible to a blind individual unless it offers voice guidance and all
of the additional accessibility requirements that are mandated by the laws at issue.
update or replace its ATMs so that they are fully accessible to, and independently usable by,
blind individuals. Plaintiff also requests that once Defendant is fully in compliance with the
requirements of the ADA, the Court retain jurisdiction for a period of time to be determined to
ensure that Defendant has adopted and is following an institutional policy that will, in fact, cause
Defendant to remain in compliance with the law.
JURISDICTION AND VENUE
13.
This Court has federal question jurisdiction over the ADA claims asserted herein
pursuant to 28 U.S.C. § 1331 and 42 U.S.C. § 12188.
14.
Plaintiff’s claims asserted herein arose in this judicial district and Defendant does
substantial business in this judicial district.
15.
Venue in this judicial district is proper under 28 U.S.C. § 1391(b)(2) in that this is
the judicial district in which a substantial part of the acts and omissions giving rise to the claims
occurred.
PARTIES
16.
Plaintiff, Andres Gomez, is and, at all times relevant hereto, was a resident of the
State of Florida. Plaintiff is and, at all times relevant hereto, has been legally blind and is
therefore a member of a protected class under the ADA, 42 U.S.C. § 12102(2) and the
regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq.
17.
Defendant, Oneunited Bank is a bank organized under the laws of the
Commonwealth of Massachusetts and is headquartered at 100 Franklin Street, Boston, MA
02110. Defendant is a public accommodation pursuant to 42 U.S.C. § 12181(7)(F) which offers
banking services through its ATMs.
TITLE III OF THE ADA
18.
On July 26, 1990, President George H.W. Bush signed into law the ADA, a
comprehensive civil rights law prohibiting discrimination on the basis of disability.
19.
The ADA broadly protects the rights of individuals with disabilities with respect
to employment, access to State and local government services, places of public accommodation,
transportation, and other important areas of American life.
20.
Title III of the ADA prohibits discrimination in the activities of places of public
accommodation and requires places of public accommodation to comply with ADA standards
and to be readily accessible to, and independently usable by, individuals with disabilities. 42
U.S.C. § 12181-89.
21.
On July 26, 1991, the Department of Justice (“DOJ”) issued rules implementing
Title III of the ADA, which are codified at 28 CFR Part 36.4
22.
Appendix A of the 1991 Title III regulations (republished as Appendix D to 28
CFR part 36) contains the ADA standards for Accessible Design (1991 Standards), which were
based upon the Americans with Disabilities Act Accessibility Guidelines (1991 ADAAG)
published by the Access Board on the same date.5
4
The DOJ is the administrative agency charged by Congress with implementing the
requirements of the ADA.
5
The Access Board was established by section 502 of the Rehabilitation Act of 1973. 29
U.S.C.§ 792. The Board consists of 13 public members appointed by the President, the majority
of whom must be individuals with disabilities, and the heads of the 12 Federal departments and
agencies specified by statute, including the heads of the Department of Justice and the
Department of Transportation. Originally, the Access Board was established to develop and
maintain accessibility guidelines for facilities designed, constructed, altered, or leased with
Federal dollars under the Architectural Barriers Act of 1968. 42 U.S.C. § 4151 et seq. The
passage of the ADA expanded the Access Board’s responsibilities.
The ADA requires the Access Board to “issue minimum guidelines . . . to ensure that
buildings, facilities, rail passenger cars, and vehicles are accessible, in terms of architecture and
design, transportation, and communication, to individuals with disabilities.” 42 U.S.C. § 12204.
23.
In 1994, the Access Board began the process of updating the 1991 ADAAG by
establishing a committee composed of members of the design and construction industries, the
building code community, and State and local government entities, as well as individuals with
disabilities.
24.
In 1999, based largely on the report and recommendations of the advisory
committee, the Access Board issued a notice of proposed rulemaking to update and revise its
ADA and ABA Accessibility Guidelines.
25.
The Access Board issued final publication of revisions to the 1991 ADAAG on
July 23, 2004 (“2004 ADAAG”).
26.
On September 30, 2004, the DOJ issued an advance notice of proposed
rulemaking to begin the process of adopting the 2004 ADAAG.
27.
On June 17, 2008, the DOJ published a notice of proposed rulemaking covering
Title III of the ADA.
28.
The long-contemplated revisions to the 1991 ADAAG culminated with the DOJ’s
issuance of The 2010 Standards for Accessible Design (“2010 Standards”). The DOJ published
the Final Rule detailing the 2010 Standards on September 15, 2010. The 2010 Standards consist
of the 2004 ADAAG and the requirements contained in subpart D of 28 CFR part 36.6
The ADA requires the DOJ to issue regulations that include enforceable accessibility standards
applicable to facilities subject to Title III that are consistent with the “minimum guidelines”
issued by the Access Board, 42 U.S.C. § 12134(c), 12186(c), but vests with the Attorney General
sole responsibility for the promulgation of those standards that fall within the DOJ’s jurisdiction
and enforcement of the regulations.
The ADA also requires the DOJ to develop regulations with respect to existing facilities
subject to Title III.
6
Though the Effective Date of the 2010 Standards was March 15, 2011, the
communication elements of Chapter 7 of the Standards—which frame Plaintiff’s allegations in
this case—did not become effective until March 15, 2012, at which time the 2010 Standards
became enforceable through civil actions by private plaintiffs.
THE ADA HAS LONG REQUIRED THAT FINANCIAL INSTITUTIONS
THAT OWN, OPERATE, CONTROL AND/OR LEASE ATMS PROVIDE ATMS THAT
ARE FULLY ACCESSIBLE AND INDEPENDENTLY USABLE BY BLIND PEOPLE
29.
Since the enactment of the ADA in 1991, banks and financial institutions which
provide banking services through ATMs have been required to ensure that all banking services
available at the ATM are fully accessible to, and independently usable by, individuals who are
blind. The 1991 DOJ Standards required that “instructions and all information for use shall be
made accessible to and independently usable by persons with vision impairments.” 28 CFR part
36, App. A. section 4.34.4.
30.
Initially, the ADA and its implementing regulations did not provide technical
details defining the steps required to make an ATM fully accessible to and independently usable
by blind individuals.
31.
However, after a lengthy rulemaking process wherein the Access Board
entertained extensive input from all stakeholders, the 2004 ADAAGs adopted very specific
guidelines calculated to ensure that ATM banking services were, in fact, fully accessible to, and
independently usable by, individuals who are blind.
32.
Section 220.1 of the 2004 ADAAGs stated that “where automatic teller machines
. . . are provided, at least one of each type provided at each location shall comply with Section
33.
In turn, Section 707 of the 2004 ADAAGs delineated very precise accessibility
guidelines for ATMs, including guidelines calculated to ensure that ATMs are fully accessible
to, and independently usable by, visually impaired individuals. These guidelines included, inter
alia, the following elements: ATMs shall be speech enabled (i.e. talking ATMs)—Section
707.5; input controls shall be tactilely discernible—Section 707.6; function keys shall have
specific tactile symbols—Section 707.6.3.2; Braille instructions shall be provided for initiating
the speech mode.
34.
As noted, the 2010 Standards adopt the 2004 ADAAGs. The communication
elements of the 2010 Standards are set forth at Section 7-- including, in relevant part, the
elements which are expressly calculated to make ATMs fully accessible to, and independently
usable by, visually impaired individuals. The Section 7 communication elements became fully
effective on March 15, 2012.7
35.
Defendant owns, operates, controls and/or leases a place of public
accommodation.
36.
Defendant’s ATMs are not fully accessible to, and independently usable by, blind
individuals. Some of Defendant’s ATMs do not include functional voice guidance and suffer
from myriad additional violations of Section 7 of the 2010 Standards.
37.
Defendant does not have an institutional policy that is reasonably calculated to
ensure that its ATMs be fully accessible to, and independently usable by, visually impaired
individuals, as those terms are informed by Section 7 of the 2010 Standards.
VIOLATIONS AT ISSUE
38.
After March 15, 2012, Plaintiff visited the Subject ATM located at 3275
Northwest 79th Street, Miami, FL 33147.
39.
The Subject ATM is within the geographic zone that Plaintiff typically travels as
part of his regular activities and it is located approximately five (5) miles from his home.
7
The DOJ has consistently taken the position that the communication-related elements of
ATMs are auxiliary aids and services, rather than structural elements. See 28 CFR part 36, app. B
at 728 (2009). Thus, the 2010 Standards do not provide a safe-harbor provision for
implementation of these requirements unless compliance would cause an “undue hardship” upon
a public accommodation.
40.
When Plaintiff visited the Subject ATM, he had in his possession an ATM card,
and headphones that are compatible with the 2010 Standards, and intended to avail himself of the
banking services offered through Defendant’s ATM.
41.
At the time of the visit, the Subject ATM 2 violated Chapter 7 of the 2010
Standards in that: there was no voice-guidance feature (Section 707.5); there were no Braille
instructions for initiating speech mode (Section 707.8), and the function keys did not have the
proper tactile symbols (Section 707.6.3.2).
42.
To date, Plaintiff has not had the practical ability to use the Subject ATM,
because it is in violation of the 2010 Standards (and prior to the effective date of the 2010
Standards, the Subject ATM was not otherwise readily accessible to or independently usable by
blind individuals).
43.
Plaintiff will continue to attempt to use the Subject ATM because he wants to
identify convenient accessible ATM options within the geographic zone that he typically travels
as part of his regular activities, and he wants to increase ATM accessibility for the blind
community, generally. However, so long as the Subject ATM continues to violate Section 7,
Plaintiff will be unable to use it independently and will be, thereby, deterred from visiting it.
44.
Though Defendant has centralized policies regarding the management and
operation of its ATMs, Defendant does not have a plan or policy that is reasonably calculated to
cause its ATMs to be in timely compliance with Chapter 7 of the 2010 Standards, as is
demonstrated by the fact that its network remains out of compliance.
45.
Plaintiff uses ATMs that meet the accessibility requirements of the 2010
Standards, but these ATMs are often not conveniently located.
46.
A significant percentage of the ATMs that are located within the geographic zone
that Plaintiff typically travels as part of his regular activities do not comply with the 2010
Standards and are therefore inaccessible to blind individuals like Plaintiff.
47.
In contrast to an architectural barrier at a public accommodation, wherein a
remediation of the barrier to cause compliance with the ADA provides a permanent or long-term
solution, the addition of, or repair to, a speech enabling function (and other related accessibility
requirements) provided at the ATM of a public accommodation requires periodic monitoring to
confirm, not only that the public accommodation is in compliance in the first instance, but also
that the public accommodation remains in compliance.
48.
Without injunctive relief, Plaintiff will continue to be unable to independently use
Defendant’s ATMs in violation of his rights under the ADA.
CLASS ACTION ALLEGATIONS
49.
Plaintiff brings this action pursuant to Rules 23(a) and 23(b)(2) of the Federal
Rules of Civil Procedure on behalf of himself and all legally blind individuals who have
attempted to access, or will attempt to access, Defendant’s ATMs.
50.
The class described above is so numerous that joinder of all individual members
in one action would be impracticable. The disposition of the individual claims of the respective
class members through this class action will benefit both the parties and this Court.
51.
Typicality: Plaintiff’s claims are typical of the claims of the members of the
class. The claims of the Plaintiff and members of the class are based on the same legal theories
and arise from the same unlawful conduct.
52.
Common Questions of Fact and Law: There is a well-defined community of
interest and common questions of fact and law affecting members of the class in that they all
have been and/or are being denied their civil rights to full and equal access to, and use and
enjoyment of, Defendant’s facilities and/or services due to Defendant’s failure to make its ATMs
fully accessible and independently usable as above described.
53.
The questions of fact and law common to the class include but are not limited to
the following:
a.
Whether Defendant is a “public accommodation” under the ADA;
b.
Whether Defendant’s conduct in failing to make its ATMs fully accessible
and independently usable as above described violated the ADA, 42 U.S.C.
§ 12101 et seq.; and
c.
Whether Plaintiff and members of the class are entitled to declaratory and
injunctive relief, and also costs and/or attorneys’ fees for Defendant’s acts
and conduct.
54.
Adequacy of Representation: Plaintiff is an adequate representative of the class
because his interests do not conflict with the interests of the members of the class. Plaintiff will
fairly, adequately, and vigorously represent and protect the interests of the members of the class
and has no interests antagonistic to the members of the class. Plaintiff has retained counsel who
are competent and experienced in the prosecution of class action litigation.
55.
Class certification is appropriate pursuant to Fed. R. Civ. P. 23(b)(2) because
Defendant has acted or refused to act on grounds generally applicable to the Class, making
appropriate both declaratory and injunctive relief with respect to Plaintiff and the Class as a
whole.
SUBSTANTIVE VIOLATION
56.
The allegations contained in the previous paragraphs are incorporated by
reference.
57.
Defendant has discriminated against Plaintiff and the Class in that it has failed to
make its ATM banking services fully accessible to, and independently usable by, individuals
who are blind in violation of Section 707 of the 2010 Standards, as described above.
58.
Complying with the ADA and Section 707 of the 2010 Standards would neither
fundamentally alter the nature of Defendant’s banking services nor result in an undue burden to
Defendant.
59.
Defendant’s conduct is ongoing, and, given that Defendant has not complied with
the ADA’s requirements that public accommodations make ATM services fully accessible to,
and independently usable by, blind individuals—as specifically defined in Section 707 of the
2010 Standards, Plaintiff invokes his statutory right to declaratory and injunctive relief, as well
as costs and attorneys’ fees.
60.
Without the requested injunctive relief, specifically including the request that the
Court retain jurisdiction of this matter for a period to be determined after the Defendant certifies
that it is fully in compliance with the mandatory requirements of the ADA that are discussed
above, Defendant’s non-compliance with the ADA’s requirements that its ATMs be fully
accessible to, and independently usable, by blind people is likely to recur.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and the members of the class, prays for:
a.
A Declaratory Judgment that at the commencement of this action Defendant was
in violation of the specific requirements of Title III of the ADA described above
(specifically including Section 707 of the 2010 Standards);
b.
A permanent injunction which directs Defendant to take all steps necessary to
bring its ATMs into full compliance with the requirements set forth in the ADA,
and its implementing regulations, and which further directs that the Court shall
retain jurisdiction for a period to be determined after Defendant certifies that all
of its ATMs are fully in compliance with the relevant requirements of the ADA to
ensure that Defendant has adopted and is following an institutional policy that
will in fact cause Defendant to remain in compliance with the law;
c.
An Order certifying the class proposed by Plaintiff, and naming Plaintiff as class
representative and appointing his counsel as class counsel;
d.
Payment of costs of suit;
e.
Payment of reasonable attorneys’ fees; and,
f.
The provision of whatever other relief the Court deems just, equitable and
appropriate.
Dated:
September 20, 2013
Respectfully Submitted,
/s/ Carlos R. Diaz_______
Carlos R. Diaz (FL 832871)
cdiaz@carlsonlynch.com
CARLSON LYNCH LTD
PNC Park
115 Federal Street, Suite 210
Pittsburgh, PA 15212
www.carlsonlynch.com
(p) 412.322.9243
(f) 412.231.0246
| civil rights, immigration, family |
6fntE4cBD5gMZwczwRu4 | Daniel Low (Bar #218387)
KOTCHEN & LOW LLP
1745 Kalorama Road NW, Suite 101
Washington, DC 20009
Telephone: (202) 471-1995
Fax: (202) 280-1128
Email: dlow@kotchen.com
Attorney for Plaintiff Reese Voll and Putative Class
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
REESE VOLL,
Plaintiff,
Case No.: 5:18-cv-4943
COMPLAINT
v.
FOR EMPLOYMENT DISCRIMINATION
CLASS ACTION
DEMAND FOR JURY TRIAL
HCL TECHNOLOGIES LTD. and HCL
AMERICA, INC.,
Defendants.
Plaintiff Reese Voll brings this action on behalf of himself and a class of similarly situated
individuals to remedy pervasive, ongoing race discrimination by Defendants HCL Technologies
Limited and HCL America, Inc. (collectively, “HCL”), and alleges as follows:
NATURE OF THE ACTION
1.
HCL Technologies Limited is an Indian company that provides information technology and
consulting services to customers worldwide. HCL employs almost 118,000 employees,
approximately 12,000 of whom are located in the United States. While roughly 1-2% of the United
States population, and about 12% of the relevant labor market, is South Asian, approximately 70%
(or more) of HCL’s United States-based workforce is South Asian (primarily from India).1 As
1 As used herein, “South Asian” refers to individuals who trace their ancestry to the Indian sub-
continent. See, e.g., Fonseca v. Sysco Food Serv. of Az., Inc., 374 F.3d 840, 850 (9th Cir. 2004)
(“Under 42 U.S.C. § 1981, discrimination based on ancestry or ethnic characteristics is prohibited”
as discrimination based on race) (citation omitted).
discussed below, this grossly disproportionate workforce is the result of HCL’s intentional pattern
and practice of employment discrimination against individuals who are not South Asian, including
discrimination in hiring, promotion, and termination decisions.
2.
HCL’s employment practices violate the Civil Rights Act of 1866, as amended, 42 U.S.C. §
1981 (“§ 1981”). Plaintiff seeks, on his own behalf, and on behalf of a class of similarly situated
individuals, declaratory, injunctive, and other equitable relief, compensatory and punitive damages,
including pre- and post-judgment interest, attorneys’ fees, and costs to redress HCL’s pervasive
pattern and practice of discrimination.
PARTIES
3.
Plaintiff Reese Voll is a citizen of the United States of America, born in the United States,
and of Caucasian race. He is a resident of Texas. Plaintiff is a member of a protected class, as
recognized by § 1981.
4.
Defendant HCL Technologies Limited is an Indian multinational company that provides
technology services, products, and engineering, including business consulting and outsourcing
services, to clients located worldwide. HCL Technologies Limited is headquartered in Noida, India
and maintains its U.S. headquarters in Sunnyvale, California.
5.
Defendant HCL America, Inc. is a wholly-owned subsidiary of HCL Technologies Limited
and was incorporated in California in 1988. HCL America, Inc. has 25 offices within the United
States and is also headquartered in Sunnyvale, California. HCL America, Inc. provides business
services similar to HCL Technologies Limited, including consulting and information technology
services.
JURISDICTION
6.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and 42 U.S.C. §
1981(a).
7.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d) as this matter is a
class action with an amount in controversy of greater than $5 million, exclusive of interest and costs,
and involves at least one class member who is a citizen of a state and is brought against a foreign
corporation.
8.
This Court has personal jurisdiction over HCL because it engages in continuous and
systematic business contacts within the State of California and maintains a substantial physical
presence in this State, including the operation of offices in Sunnyvale, California (its U.S.
headquarters), Irvine, California, and Lake Forest, California.
VENUE AND INTRADISTRICT ASSIGNMENT
9.
Venue is proper in the Northern District of California pursuant to 28 U.S.C. § 1391 and 42
U.S.C. § 2000e-5(f)(3) because HCL resides in this District, conducts business in this District,
engaged in discriminatory conduct in this District, and employment records relevant to HCL’s
discriminatory pattern and practice are maintained and administered in this District. Assignment in
this Division is proper pursuant to Civil L.R. 3-2(c) because a substantial part of the events giving
rise to this matter’s claims occurred in this Division. Additionally, HCL engages in continuous and
systematic business contacts within this District, and maintains a substantial physical presence in this
District, including the operation of its United States headquarters in Sunnyvale, California.
STATEMENT OF FACTS
Overview of HCL’s Business Model
10. HCL has 25 offices in the United States and employs approximately 12,000 employees
domestically. HCL earned over $7.8 billion in revenue in the past fiscal year, and derives
approximately 63% of its revenue from the United States (HCL’s largest market).
11. HCL contracts with U.S. companies to provide IT-related services. Once HCL secures a
contract with a client, it hires individuals to fill positions to service the client. Individuals must apply
and interview for these positions. Once a position servicing a client comes to an end (or if an employee
is removed from a position), individuals are placed in an unallocated status, also known as being
“benched.” Once on the bench, individuals must again seek new positions within HCL, going through
an application and interview process, just as external applicants must.
Overview of HCL’s Discriminatory Scheme
12. HCL has engaged in a systematic, company-wide, pattern and practice of discrimination in
favor of South Asians and against individuals who are not South Asian in hiring, promotion, and
termination decisions.
13. HCL prefers South Asians in employment decisions and has instituted four corporate
practices to fulfill its discriminatory preference. First, HCL engages in a practice of securing H-1B
and L-1 visas for South Asian workers located overseas who will then be used to staff U.S. positions.
The federal government annually awards 65,000 H-1B visas (plus an additional 20,000 for individuals
with advanced degrees). These visas are awarded on a lottery basis. Given the cap on H-1B visas,
companies compete to secure visas for prospective visa workers. Each year, companies submit H-1B
visa petitions at the beginning of April for visas to be awarded later that year. H-1B visa petitions
must identify an actual job at a specific location that the prospective visa worker will fill if awarded
a visa.
14. To fulfill its employment preference for South Asians, HCL seeks to maximize the number
of visas it receives each year from the federal government. HCL submits visa petitions for more
positions than actually exist in the U.S. in order to maximize its chances of securing the highest
number of available H-1B visas from the lottery process. In this way, HCL has been able to secure
visas for far more individuals than it actually has a present need for. For example, HCL is consistently
one of the top-10 H-1B visa recipients in the U.S., and from 2015 to 2017, HCL received 10,432 new
H-1B visas and 310 L-1 visas, far more positions than could actually exist given that HCL only
employs approximately 12,000 individuals in the United States.
15. All, or substantially all, of the individuals for whom HCL secures visas are South Asian.
While both individuals already located in the U.S. and foreign individuals who are visa-ready are
considered for open positions in the U.S., as a matter of corporate practice, “visa ready” individuals
are given first – if not exclusive – preference. HCL’s explicit preference to staff visa holders in U.S.
positions minimizes or eliminates competition for the jobs from non-South Asians residing in the
U.S. Similarly, non-South Asian individuals are often displaced from their current positions in favor
of South Asian and visa-ready individuals. Non-South Asians are then disproportionately relegated
to the bench, as jobs are given to visa-holding South Asians from India.
16. Second, HCL’s discriminatory preference is fulfilled through its corporate practice of
seeking out and preferring to hire South Asians residing in the U.S. rather than non-South Asians.
For example, HCL relies on third party recruiters to supply HCL with South Asian job applicants.
The third party recruiters themselves are predominantly South Asian. HCL also sources South Asian
job applicants from internal recruiting sources. As a result, and on information and belief, HCL’s
“local hiring” (i.e., hiring of individuals who already reside within the U.S.) disproportionately favors
South Asians.
17. Third, because of its discriminatory preference for South Asians, HCL promotes South
Asians at disproportionately high rates compared to non-South Asians. Employees in the U.S. are
awarded annual appraisals, and are appraised on a five-point scale of “Distinguished Performance,”
“Exceptional Performance,” “Good Performance,” “Threshold Performance,” and “Performance
Needs Improvement.” Promotions at HCL are tied to an employee’s appraisal, and employees
receiving scores of “Distinguished Performance” or “Exceptional Performance” are more likely to
receive a promotion from HCL. On information and belief, non-South Asians are disproportionately
awarded lower appraisal scores, and thus, non-South Asians are promoted less frequently than South
Asians at HCL.
18. Fourth, HCL terminates non-South Asians at disproportionately high rates compared to
South Asians. For example, HCL has a policy to terminate employees who are on the bench for more
than four weeks. Because South Asians are given preference for new positions, and these individuals
are used to displace non-South Asians on existing projects, non-South Asians are disproportionately
relegated to the bench and unable to secure new positions within HCL. This, among other things,
leads to their termination at disproportionate rates compared to South Asians.
19. HCL’s U.S. workforce reflects the result of its discriminatory scheme. At least 70% (if not
more) of HCL’s United States-based workforce is South Asian (primarily from India), as is the vast
majority of its managerial and supervisory-level staff. By contrast, during the 2010 census, all Asian
subgroups combined made up 4.8% of the U.S. population. South Asians made up 1-2% of the U.S.
population and about 12% of the U.S. IT industry.
Plaintiff’s Experiences
20. Plaintiff Reese Voll is a highly skilled Server Systems, Network, Virtualization, Storage
Engineering, and Solutions Architect with over 25 years of professional experience supporting
Global business information systems and working in top ten global Tier 1 data centers. Plaintiff is
a Microsoft Certified Systems Engineer, a Cisco Unified Computing Technology Support
Specialist, an IBM PureSystems Certified Specialist, and also holds certifications in VMWare VSP,
VTSP, and Hatchi VSP. He is experienced in the design, configuration, installation, and support of
hardware and software on all current Intel, UNIX and compatible platforms, and specializes in
analyzing and resolving complex LAN/WAN/SAN/NAS network performance issues and outages.
Plaintiff began working for HCL in November 2014.
21. Plaintiff was hired by HCL to serve as a member of its internal Solution Architecture
Practice S.W.A.T. team. This team was designed to transition and transform the IT infrastructure
of HCL clients and to resolve issues faced by those accounts. Plaintiff worked for almost two years
in a Solution Architect / Chief Architect role servicing HCL client PepsiCo in Dallas, Texas and
was responsible for resolving infrastructure-related issues for PepsiCo as it transitioned from twelve
to five global data centers. The S.W.A.T. team was staffed with five additional HCL employees
who worked on various HCL client accounts across the United States. On information and belief,
Plaintiff was the only member of the S.W.A.T. team who was not South Asian.
22. Plaintiff reported to three HCL employees during his tenure with the company – Walter
Agar, a Director on the PepsiCo account, Ayut Patel, Senior Vice President – Head, Strategic
Engagements for HCL, and Sanjay Kohli, a Director-level employee at HCL. Both Mr. Patel and
Mr. Kohli are South Asian.
23. Approximately 250 HCL employees serviced PepsiCo in Dallas, Texas, of which, around
200 individuals were “re-badges,” i.e., employees hired directly from PepsiCo by HCL. The vast
majority of the 50 or so HCL workers not hired from PepsiCo were South Asian visa holders. On
information and belief, the contract between HCL and PepsiCo required all re-badges to be retained
by HCL for a two-year period. Upon the expiry of this two-year period, many re-badges were
replaced by HCL with South Asian visa holders and the re-badge employees from PepsiCo were
placed on the bench and subsequently terminated.
24. While servicing PepsiCo, Plaintiff observed HCL’s preference for staffing client projects
with South Asians first-hand. For instance, the vast majority of HCL employees hired to service
PepsiCo were South Asian and on multiple occasions, both Mr. Patel and Mr. Kohli informed
Plaintiff that HCL’s business plan was to bring H-1B visa holders from India to staff open positions
in the United States. Moreover, on multiple occasions, Plaintiff was asked to interview external
candidates for HCL’s S.W.A.T. team. On information and belief, the vast majority of these
candidates were visa-dependent South Asians, currently employed by other companies in the
United States on H-1B visas.
25. While performing his Solution Architect / Chief Architect role, Plaintiff was subject to a
hostile work environment by HCL employees. For example, when Plaintiff was hired to replace the
Chief Architect on the PepsiCo account, he repeatedly reached out to two of his colleagues on the
transition team to acquire information concerning PepsiCo hardware necessary to perform his job.
However, the two South Asian employees failed to respond to his emails and telephone calls
seeking this information, and failed to provide him with any guidance regarding the PepsiCo
project. Plaintiff escalated his concerns to Mr. Patel via email, and copied his two colleagues on the
communication. Instead of helping Plaintiff obtain the necessary information, or encouraging
Plaintiff’s team members to cooperate with Plaintiff, Mr. Patel chastised Plaintiff, and instead
informed him that he needed to “change his approach” when requesting information from these
employees. Plaintiff’s requests for help went unanswered for a month, until Mr. Patel finally
organized a meeting with Plaintiff and his colleagues to encourage them to work with Plaintiff on
the PepsiCo infrastructure transition and transformation project. Moreover, Plaintiff’s South Asian
colleagues routinely spoke in Hindi and other non-English languages both socially and while
discussing client-related work, precluding Plaintiff from fully participating in these conversations.
26. Despite these challenges, Plaintiff performed well in his role servicing PepsiCo and
received no verbal or written criticism regarding his performance. However, Plaintiff never
received a promotion or raise during his tenure with the company.
27. In or around July 2016, Mr. Patel called Plaintiff into his office for a meeting. After
congratulating Plaintiff for his work servicing PepsiCo, he informed Plaintiff that he was being
removed from his Solution Architect / Chief Architect position and placed on the bench. Mr. Patel
then asked Plaintiff what he intended to do next. Plaintiff informed Mr. Patel that when he started
with HCL, Mr. Patel had informed him that he would work on multiple accounts for HCL, and would
be transferred to a new client once all issues relating to PepsiCo’s infrastructure were resolved. Mr.
Patel stated that he had no accounts available for Plaintiff to service, and told him to contact Human
Resources (“HR”) in order to locate his next project.
28. Plaintiff then spoke with a member of HCL’s HR Department who informed him that he
could only remain on the bench for thirty days, after which he would be terminated by the company.
HR also referred Plaintiff to the offshore staffing team. The offshore staffing team presented Plaintiff
with two open positions, and Plaintiff applied to both roles. Plaintiff also applied to open positions
with HCL online. However, Plaintiff was never invited for an interview by HCL, and received no
further contact from HR or the offshore staffing team. When Plaintiff reached out to HCL for updates
regarding his employment, he was told that the company was checking with various managers
regarding open positions, but Plaintiff was never offered a subsequent role with HCL.
29. Plaintiff remained on the bench for approximately one month. On August 26, 2016, HCL
terminated his employment. He was not offered any severance payment by the company.
30. In 2016, Plaintiff applied online to two or three open positions with HCL. For example, in
September 2016, Plaintiff applied to a Wintel Administrator position with HCL on Dice.com. The
position was located in Dallas, Texas. On September 7, 2016, Plaintiff was contacted by Kasi Gupta,
Talent Supply Chain for HCL America, Inc., and expressed interest in the open position. However,
Plaintiff received no further contact from Mr. Gupta, and was never invited to interview for the
Wintel Administrator position. He was not hired by HCL. In October 2016, Plaintiff was again
contacted by Mr. Gupta regarding a Network Engineer position with the company in Marlborough,
Massachusetts. Plaintiff expressed interest in the position and confirmed his salary requirements
with Mr. Gupta on October 7. Again, Plaintiff received no further contact from Mr. Gupta regarding
his candidacy and was not interviewed, nor hired, for the Network Engineer position.
31. In 2017, Plaintiff applied online to at least three positions with HCL in the Dallas, Texas
area. Plaintiff received no response from HCL, was not invited to interview with the company. He
was not hired for any of the open positions, despite his excellent qualifications and considerable
experience.
32. In March 2018, Plaintiff was contacted by a recruiter from HCL regarding a Compute
Solutions Manager / Architect position with HCL America, Inc. in Frisco, Texas. Mr. Voll expressed
interest in the position and participated in three interviews with HCL employees during the month
of March. However, despite performing well in these interviews, Mr. Voll was not hired by HCL for
the Solutions Manager / Architect position.
33. On June 9, 2018, Plaintiff applied to a VMware Level 3 Administrator position with HCL
in Frisco, Texas on Dice.com. Two days later, Mr. Voll provided HCL with a copy of his resume
and various information concerning his candidacy. Following this email communication, HCL never
contacted Mr. Voll regarding the VMware Level 3 Administrator position, and he was not hired for
the role.
34. On July 3, 2018, Plaintiff applied to a Solution Architect position with HCL on Dice.com.
Mr. Voll communicated with an HCL employee regarding the position on July 13, but was never
invited to interview for the Solution Architect position with HCL.
35. In mid-July 2018, Plaintiff received a call from Sunaina Mittal, a member of HCL America,
Inc.’s Resource Management Group, regarding an OpenShift Architect position with the company.
Ms. Mittal is South Asian and located in India. Mr. Voll expressed interest in the position, but has
not been invited to interview for the OpenShift Architect role.
CLASS ACTION ALLEGATIONS
36. Plaintiff brings this Class Action pursuant to Federal Rule of Civil Procedure 23(a), (b)(2),
(b)(3), and (c)(4), seeking injunctive, declaratory, equitable, and monetary relief for HCL’s
systematic pattern and practice of discrimination against non-South Asian individuals in the United
States. This action is brought on behalf of the following class:
All individuals who are not of South Asian race who applied for positions with (or
within) HCL in the U.S. and were not hired, who were employed by HCL in the U.S.
and sought a promotion but were not promoted, and/or who were employed by HCL in
the U.S. and were involuntarily terminated.
37. Members of the class are so numerous and geographically dispersed across the United States
that joinder is impracticable. While the exact number of class members is unknown to Plaintiff, it is
believed to be in the thousands. Furthermore, class members are readily identifiable from information
and records in HCL’s possession.
38. There are numerous questions of law and fact common to members of the class. Among the
common questions of law or fact are: (a) whether HCL has intentionally discriminated against
individuals who are not of South Asian race in making employment decisions; (b) whether HCL has
intentionally favored South Asians in hiring, promotion/demotion, and retention decisions and/or
whether HCL has intentionally disfavored non-South Asians in hiring, promotion/demotion, and
termination decisions; (c) whether HCL’s policy and practice of relying on South Asian visa and local
workers is intentionally discriminatory; (d) whether HCL has violated § 1981; (e) whether equitable
and injunctive relief is warranted for the class and (f) whether compensatory and/or punitive damages
are warranted for the class.
39. Plaintiff’s claims are typical of the class. Members of the class were damaged by the same
discriminatory policies and practices employed by HCL.
40. Plaintiff will fairly and adequately protect the interest of other class members because he has
no interest that is antagonistic to or which conflicts with those of any other class member, and Plaintiff
is committed to the vigorous prosecution of this action and has retained competent counsel
experienced in class litigation to represent him and the class.
41. Plaintiff and the class he seeks to represent have suffered substantial losses in earnings and
other employment benefits and compensation as a result of HCL’s actions.
42. Class certification is appropriate pursuant to Federal Rule of Civil Procedure 23(b)(2)
because HCL has acted and/or refused to act on grounds generally applicable to the class, making
declaratory and injunctive relief appropriate with respect to Plaintiff and the class as a whole.
Members of the class are entitled to declaratory and injunctive relief to end HCL’s systematic,
common, uniform, unfair, and discriminatory policies and practices.
43. Class certification is appropriate pursuant to Federal Rule of Civil Procedure 23(b)(3) for
determination of the damages claims of individual class members because the issue of liability is
common to the class and the common nucleus of operative facts forms the central issue, which
predominates over individual issues of proof. The primary question common to the class is whether
HCL has discriminated on the basis of race in their employment practices. These questions are central
to the case and predominates over individual issues among the members of the proposed class. HCL
has engaged in a common course of discriminatory conduct in a manner that has harmed all of the
class members. Class certification under Rule 23(b)(3) would be superior to other methods for fair
and efficient resolution of the issues because certification will avoid the need for repeated litigation
by each individual class member. The instant case will be eminently manageable as a class action.
Plaintiff knows of no difficulty to be encountered in the maintenance of this action that would
preclude its maintenance as a class action.
44. Class certification is appropriate pursuant to Federal Rule of Civil Procedure 23(c)(4) to
litigate Plaintiff’s claims for prospective classwide compliance and affirmative injunctive relief
necessary to eliminate HCL’s discrimination. Certification under this rule is also appropriate to
decide whether HCL has adopted a systemic pattern and practice of racial discrimination in hiring
and employment decisions. Certification under this rule is also appropriate to determine classwide
damages, including punitive damages.
COUNT I
(Disparate Treatment on the Basis of Race)
(Violation of Civil Rights Act of 1866, as amended, 42 U.S.C. § 1981)
(On behalf of Plaintiff and the Class)
45. Plaintiff re-alleges each preceding paragraph as though fully set forth herein.
46. This claim is brought by Plaintiff on behalf of himself and the class.
47. Throughout the class liability period, HCL has engaged in a pattern and practice of
discriminating against individuals who are not of South Asian race by: (a) knowingly and
intentionally favoring individuals of South Asian race in employment decisions, including hiring,
promotion/demotion, and termination decisions, (b) knowingly and intentionally disfavoring
individuals who are not of South Asian race (including Plaintiff) in employment decisions, including
hiring, promotion/demotion, and termination decisions, (c) knowingly and intentionally creating and
maintaining an overwhelmingly disproportionate workforce in the United States consisting of
approximately 70% or more South Asian employees (primarily from India).
48. As a direct and proximate result of HCL’s intentional discrimination, Plaintiff and class
members have been denied employment, denied the fair opportunity to obtain employment, and
denied fair opportunities with regard to promotion, compensation, and/or continued employment with
HCL.
49. HCL’s actions constitute unlawful discrimination on the basis of race in violation of 42
U.S.C. § 1981.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff and the class pray for relief as follows:
a. Certification of the case as a class action pursuant to Fed. R. Civ. P. 23;
b. Designation of Plaintiff as representative of the class;
c. Designation of Plaintiff’s counsel as counsel for the class;
d. A declaratory judgment that the practices complained of herein are unlawful and violate the Civil
Rights Act of 1866, 42 U.S.C. § 1981;
e. A permanent injunction against Defendants and their officers, agents, successors, employees,
representatives, and any and all persons acting in concert with them, from engaging in unlawful
policies, practices, customs, and usages set forth herein;
f. Order Defendants to adopt a valid, non-discriminatory method for hiring, promotion, termination,
and other employment decisions;
g. Order Defendants to post notices concerning its duty to refrain from discriminating against
employees on the basis of race;
h. Award Plaintiff and the Class damages – including (without limitation) compensatory, exemplary,
and punitive damages for the harm they suffered as a result of Defendant’s violations of § 1981;
i. Award Plaintiff and the Class pre- and post-judgment interest at the prevailing rate on the
compensatory damages as a result of Defendants’ discriminating against them in violation of §
1981;
j. Award Plaintiff and the Class front- and back-pay, reinstatement, and such other equitable relief
as the Court deems just and appropriate;
k. Award reasonable attorneys’ fees, expert witness fees, expenses, and costs of this action and of
prior administrative actions; and
l. Award Plaintiff and the Class such other relief as this Court deems just and appropriate.
JURY DEMAND
Pursuant to Fed. R. Civ. P. 38, Plaintiff and the Class respectfully demand a trial by jury on all issues
properly triable by a jury in this action.
DATED: August 15, 2018
Respectfully submitted,
By: /s/Daniel Low
Daniel Low, SBN 218387
KOTCHEN & LOW LLP
1745 Kalorama Road NW, Suite 101
Washington, DC 20009
Telephone: (202) 471-1995
Email: dlow@kotchen.com
Attorney for Plaintiff Reese Voll and Putative
Class
| civil rights, immigration, family |
vE46_ogBF5pVm5zYDU2y |
Case No.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
AARON HARPER, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
2U, INC., CHRISTOPHER J. PAUCEK,
and CATHERINE A. GRAHAM,
Defendants.
Plaintiff Aaron Harper (“Plaintiff”), individually and on behalf of all others similarly
situated, by and through his attorneys, alleges the following upon information and belief, except
as to those allegations concerning Plaintiff, which are alleged upon personal knowledge.
Plaintiff’s information and belief is based upon, among other things, his counsel’s investigation,
which includes without limitation: (a) review and analysis of regulatory filings made by 2U, Inc.
(“2U” or the “Company”) with the United States (“U.S.”) Securities and Exchange Commission
(“SEC”); (b) review and analysis of press releases and media reports issued by and disseminated
by 2U; and (c) review of other publicly available information concerning 2U.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or otherwise
acquired 2U securities between February 25, 2019 and July 30, 2019, inclusive (the “Class
Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange
2.
2U is an education technology company that works with universities to provide
online graduate programs and certificates for working adults.
3.
On May 7, 2019, the Company lowered its revenue guidance for fiscal 2019 to a
range of $534 to $537 million, from prior guidance range of $546.6 to $550.8 million, due to
declining average enrollments in some of its largest graduate programs.
4.
On this news, the Company’s share price fell $15.16, or nearly 26%, to close at
$44.77 per share on May 8, 2019, on unusually heavy trading volume.
5.
On July 30, 2019, after the market closed, the Company reported a larger-than-
expected loss for second quarter 2019. The Company also revised its guidance for fiscal 2019,
expecting a net loss between $157.5 and $151.5 million, compared to prior net loss guidance
between $79.0 and $77.2 million, because it would “moderate [its] grad program launch
cadence.”
6.
On this news, the Company’s share price fell $23.70, or nearly 65%, to close at
$12.80 per share on July 31, 2019, on unusually heavy trading volume.
7.
Throughout the Class Period, Defendants made materially false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that the
Company faced increasing competition in online education and particularly regarding graduate
programs; (2) that the Company faced certain program-specific issues that negatively impacted
its performance; (3) that, as a result, the Company’s business model was not sustainable; (4) that
the Company would slow its program launches; and (5) that, as a result of the foregoing,
Defendants’ positive statements about the Company’s business, operations, and prospects were
materially misleading and/or lacked a reasonable basis.
8.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
9.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
10.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. § 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
11.
Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and
Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the dissemination of materially false and/or misleading information,
occurred in substantial part in this Judicial District.
12.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
13.
Plaintiff Aaron Harper, as set forth in the accompanying certification,
incorporated by reference herein, purchased 2U securities during the Class Period, and suffered
damages as a result of the federal securities law violations and false and/or misleading statements
and/or material omissions alleged herein.
14.
Defendant 2U is incorporated under the laws of Delaware with its principal
executive offices located in Lanham, Maryland. 2U’s common stock trades on the NASDAQ
exchange under the symbol “TWOU.”
15.
Defendant Christopher J. Paucek (“Paucek”) was the Chief Executive Officer at
all relevant times.
16.
Defendant Catherine A. Graham (“Graham”) was the Chief Financial Officer of
the Company at all relevant times.
17.
Defendants Paucek and Graham, (collectively the “Individual Defendants”),
because of their positions with the Company, possessed the power and authority to control the
contents of the Company’s reports to the SEC, press releases and presentations to securities
analysts, money and portfolio managers and institutional investors, i.e., the market. The
Individual Defendants were provided with copies of the Company’s reports and press releases
alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and
opportunity to prevent their issuance or cause them to be corrected. Because of their positions
and access to material non-public information available to them, the Individual Defendants knew
that the adverse facts specified herein had not been disclosed to, and were being concealed from,
the public, and that the positive representations which were being made were then materially
false and/or misleading. The Individual Defendants are liable for the false statements pleaded
herein.
SUBSTANTIVE ALLEGATIONS
Background
18.
2U is an education technology company that works with universities to provide
online graduate programs and certificates for working adults.
Materially False and Misleading
Statements Issued During the Class Period
19.
The Class Period begins on February 25, 2019. On that day, the Company
announced its fourth quarter and full year 2018 financial results, stating in relevant part:
Full-Year 2018 Results
Revenue was $411.8 million, an increase of 44% from $286.8 million in 2017.
Net loss was $(38.3) million, or $(0.69) per share, compared to $(29.4)
million, or $(0.60) per share, in 2017.
Adjusted net loss was $(3.5) million, or $(0.06) per share, compared to $(4.3)
million, or $(0.09) per share, in 2017.
Adjusted EBITDA was $17.7 million, compared to $11.4 million in 2017.
"The strength and resilience of 2U's business is clear from our 2018 fourth quarter
and full-year results, and reflects the continued expansion and increasing diversity
of our degree and short course portfolios, both domestically and internationally,"
Co-Founder and CEO Christopher "Chip" Paucek said. "Our commitment to
investing in sustained growth not only sets 2U apart in the education technology
industry, but will allow us to better meet the evolving needs of our partners and
the marketplace."
20.
On February 26, 2019, the Company filed its annual report on Form 10-K for the
period ended December 31, 2018 (the “2018 10-K”), affirming the previously reported financial
21.
The truth began to emerge on May 7, 2019, when the Company disclosed
declining average enrollments in some of its largest graduate programs. In connection with its
first quarter 2019 financial results, the Company lowered its revenue guidance for fiscal 2019 to
a range of $534 to $537 million, from prior guidance range of $546.6 to $550.8 million. On the
related conference call, Defendant Paucek explained that “the average enrollment for the top five
[programs] has come down[, and] the average in 2019 is projected to be 20% lower than the
average in 2017.” However, he assured that the Company is “far less dependent today on a few
large programs” because its “portfolio as a whole became stronger, more distributed, [and] more
resilient.”
22.
On this news, the Company’s share price fell $15.16, or nearly 26%, to close at
$44.77 per share on May 8, 2019, on unusually heavy trading volume.
23.
The above statements identified in ¶¶19-21 were materially false and/or
misleading, and failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that the
Company faced increasing competition in online education and particularly regarding graduate
programs; (2) that the Company faced certain program-specific issues that negatively impacted
its performance; (3) that, as a result, the Company’s business model was not sustainable; (4) that
the Company would slow its program launches; and (5) that, as a result of the foregoing,
Defendants’ positive statements about the Company’s business, operations, and prospects were
materially misleading and/or lacked a reasonable basis.
Disclosures at the End of the Class Period
24.
On July 30, 2019, after the market closed, the Company reported a larger-than-
expected loss for second quarter 2019. The Company also revised its guidance for fiscal 2019,
expecting a net loss between $157.5 and $151.5 million, compared to prior net loss guidance
between $79.0 and $77.2 million.
25.
During a conference call held to discuss these results, Defendant Paucek stated
that the Company has “tempered [its] expectations for the remainder of 2019 and widened [its]
guidance ranges” and that it would “moderate [its] grad program launch cadence . . . to support
[its] path to profitability and positive free cash flow.”
26.
Moreover, defendant Paucek detailed certain factors impacting the revised
guidance, stating:
Decline and program-specific issues we talked about so much over the past year
were masking this broader trend of the mainstreaming of online education. In
2008, there were very few high-quality online options. As we've grown the
business since then, new online options for students have expanded significantly.
Today, most schools are going online in some form.
There are now many more offerings and more competition to enroll students.
What does this mean to us? We need to shift our expectations per program, which
results in a smaller average steady-state program size than what we would
historically expect.
* * *
In the grad business, we tempered our enrollment and revenue expectations. We
expect the average program enrollment at steady-state to come down from what
we previously expected. We've accounted for the largest programs regressing
toward the mean. Some of that was program-specific issues. However, we think
it's prudent to expect fewer programs to substantially outperform these averages
long term.
27.
On this news, the Company’s share price fell $23.70, or nearly 65%, to close at
$12.80 per share on July 31, 2019, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
28.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and entities that
purchased or otherwise acquired 2U securities between February 25, 2019 and July 30, 2019,
inclusive, and who were damaged thereby (the “Class”). Excluded from the Class are
Defendants, the officers and directors of the Company, at all relevant times, members of their
immediate families and their legal representatives, heirs, successors, or assigns, and any entity in
which Defendants have or had a controlling interest.
29.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, 2U’s common shares actively traded on the
NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and
can only be ascertained through appropriate discovery, Plaintiff believes that there are at least
hundreds or thousands of members in the proposed Class. Millions of 2U common stock were
traded publicly during the Class Period on the NASDAQ. Record owners and other members of
the Class may be identified from records maintained by 2U or its transfer agent and may be
notified of the pendency of this action by mail, using the form of notice similar to that
customarily used in securities class actions.
30.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
31.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
32.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts as alleged
herein;
(b)
whether statements made by Defendants to the investing public during the Class
Period omitted and/or misrepresented material facts about the business, operations, and prospects
of 2U; and
(c)
to what extent the members of the Class have sustained damages and the proper
measure of damages.
33.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
34.
The market for 2U’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, 2U’s securities traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired 2U’s securities relying upon the
integrity of the market price of the Company’s securities and market information relating to 2U,
and have been damaged thereby.
35.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of 2U’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. The statements and omissions were materially
false and/or misleading because they failed to disclose material adverse information and/or
misrepresented the truth about 2U’s business, operations, and prospects as alleged herein.
36.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about 2U’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein when the truth was
revealed.
LOSS CAUSATION
37.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
38.
During the Class Period, Plaintiff and the Class purchased 2U’s securities at
artificially inflated prices and were damaged thereby. The price of the Company’s securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’ losses.
SCIENTER ALLEGATIONS
39.
As alleged herein, Defendants acted with scienter since Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, the Individual Defendants, by
virtue of their receipt of information reflecting the true facts regarding 2U, their control over,
and/or receipt and/or modification of 2U’s allegedly materially misleading misstatements and/or
their associations with the Company which made them privy to confidential proprietary
information concerning 2U, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
40.
The market for 2U’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, 2U’s securities traded at artificially inflated prices during the Class Period. On February
27, 2019, the Company’s share price closed at a Class Period high of $74.53 per share. Plaintiff
and other members of the Class purchased or otherwise acquired the Company’s securities
relying upon the integrity of the market price of 2U’s securities and market information relating
to 2U, and have been damaged thereby.
41.
During the Class Period, the artificial inflation of 2U’s shares was caused by the
material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about 2U’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of 2U and its
business, operations, and prospects, thus causing the price of the Company’s securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
Company shares. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
42.
At all relevant times, the market for 2U’s securities was an efficient market for
the following reasons, among others:
(a)
2U shares met the requirements for listing, and was listed and actively traded on
the NASDAQ, a highly efficient and automated market;
(b)
As a regulated issuer, 2U filed periodic public reports with the SEC and/or the
NASDAQ;
(c)
2U regularly communicated with public investors via established market
communication mechanisms, including through regular dissemination of press releases on the
national circuits of major newswire services and through other wide-ranging public disclosures,
such as communications with the financial press and other similar reporting services; and/or
(d)
2U was followed by securities analysts employed by brokerage firms who wrote
reports about the Company, and these reports were distributed to the sales force and certain
customers of their respective brokerage firms. Each of these reports was publicly available and
entered the public marketplace.
43.
As a result of the foregoing, the market for 2U’s securities promptly digested
current information regarding 2U from all publicly available sources and reflected such
information in 2U’s share price. Under these circumstances, all purchasers of 2U’s securities
during the Class Period suffered similar injury through their purchase of 2U’s securities at
artificially inflated prices and a presumption of reliance applies.
44.
A Class-wide presumption of reliance is also appropriate in this action under the
Supreme Court’s holding in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128
(1972), because the Class’s claims are, in large part, grounded on Defendants’ material
misstatements and/or omissions. Because this action involves Defendants’ failure to disclose
material adverse information regarding the Company’s business operations and financial
prospects—information that Defendants were obligated to disclose—positive proof of reliance is
not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the
sense that a reasonable investor might have considered them important in making investment
decisions. Given the importance of the Class Period material misstatements and omissions set
forth above, that requirement is satisfied here.
NO SAFE HARBOR
45.
The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of 2U who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of The Exchange Act and
Rule 10b-5 Promulgated Thereunder
Against All Defendants
46.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
47.
During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase 2U’s securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, Defendants, and each
defendant, took the actions set forth herein.
48.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to
maintain artificially high market prices for 2U’s securities in violation of Section 10(b) of the
Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the
wrongful and illegal conduct charged herein or as controlling persons as alleged below.
49.
Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about 2U’s financial well-
being and prospects, as specified herein.
50.
Defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of 2U’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about 2U and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
51.
Each of the Individual Defendants’ primary liability and controlling person
liability arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
52.
Defendants had actual knowledge of the misrepresentations and/or omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such
defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing 2U’s financial well-being and prospects from the
investing public and supporting the artificially inflated price of its securities. As demonstrated
by Defendants’ overstatements and/or misstatements of the Company’s business, operations,
financial well-being, and prospects throughout the Class Period, Defendants, if they did not have
actual knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to
obtain such knowledge by deliberately refraining from taking those steps necessary to discover
whether those statements were false or misleading.
53.
As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price of 2U’s
securities was artificially inflated during the Class Period. In ignorance of the fact that market
prices of the Company’s securities were artificially inflated, and relying directly or indirectly on
the false and misleading statements made by Defendants, or upon the integrity of the market in
which the securities trades, and/or in the absence of material adverse information that was known
to or recklessly disregarded by Defendants, but not disclosed in public statements by Defendants
during the Class Period, Plaintiff and the other members of the Class acquired 2U’s securities
during the Class Period at artificially high prices and were damaged thereby.
54.
At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that 2U was experiencing, which were not disclosed by Defendants, Plaintiff and other members
of the Class would not have purchased or otherwise acquired their 2U securities, or, if they had
acquired such securities during the Class Period, they would not have done so at the artificially
inflated prices which they paid.
55.
By virtue of the foregoing, Defendants violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder.
56.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of The Exchange Act
Against the Individual Defendants
57.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
58.
Individual Defendants acted as controlling persons of 2U within the meaning of
Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions and
their ownership and contractual rights, participation in, and/or awareness of the Company’s
operations and intimate knowledge of the false financial statements filed by the Company with
the SEC and disseminated to the investing public, Individual Defendants had the power to
influence and control and did influence and control, directly or indirectly, the decision-making of
the Company, including the content and dissemination of the various statements which Plaintiff
contends are false and misleading. Individual Defendants were provided with or had unlimited
access to copies of the Company’s reports, press releases, public filings, and other statements
alleged by Plaintiff to be misleading prior to and/or shortly after these statements were issued
and had the ability to prevent the issuance of the statements or cause the statements to be
corrected.
59.
In particular, Individual Defendants had direct and supervisory involvement in the
day-to-day operations of the Company and, therefore, had the power to control or influence the
particular transactions giving rise to the securities violations as alleged herein, and exercised the
60.
As set forth above, 2U and Individual Defendants each violated Section 10(b) and
Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their position as
controlling persons, Individual Defendants are liable pursuant to Section 20(a) of the Exchange
Act. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and other
members of the Class suffered damages in connection with their purchases of the Company’s
securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: August 7, 2019
GLANCY PRONGAY & MURRAY LLP
By: /s/ Lesley F. Portnoy
Lesley F. Portnoy (LP-1941)
230 Park Ave., Suite 530
New York, NY 10169
Telephone: (212) 682-5340
Facsimile: (212) 884-0988
Email: lportnoy@glancylaw.com
-and-
Lionel Z. Glancy
Robert V. Prongay
Charles H. Linehan
Pavithra Rajesh
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: info@glancylaw.com
Attorneys for Plaintiff Aaron Harper
8/4/2019
SWORN CERTIFICATION OF PLAINTIFF
2U, INC. SECURITIES LITIGATION
I, Aaron Harper individually, and/or in my capacity as trustee and/or principal for
accounts listed on Schedule A, certify that:
1.
I have reviewed the Complaint and authorize its filing and/or the filing of a Lead
Plaintiff motion on my behalf.
2.
I did not purchase 2U, Inc. securities that are the subject of this action at the
direction of plaintiff’s counsel or in order to participate in any private action
arising under this title.
3.
I am willing to serve as a representative party on behalf of a class and will testify
at deposition and trial, if necessary.
4.
My transactions in 2U, Inc. securities during the Class Period set forth in the
Complaint are as follows:
(See attached transactions)
5.
I have not sought to serve, nor served, as a representative party on behalf of a
class under this title during the last three years, except for the following:
6.
I will not accept any payment for serving as a representative party, except to
receive my pro rata share of any recovery or as ordered or approved by the court,
including the award to a representative plaintiff of reasonable costs and expenses
(including lost wages) directly relating to the representation of the class.
I declare under penalty of perjury that the foregoing are true and correct statements.
________________
_________________________________________
Date
Aaron Harper
Aaron Harper's Transactions in 2U, Inc. (TWOU)
Date
Transaction Type
Quantity
Unit Price
05/09/2019
Bought
1,203
$43.2200
05/10/2019
Bought
116
$43.2200
| securities |
Eb-3DIcBD5gMZwcz6ArC |
Case No.: __________________
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
Jennie Lee Anderson (SBN 203586)
ANDRUS ANDERSON LLP
155 Montgomery Street, Suite 900
San Francisco, CA 94104
Tel. (415) 986-1400; Fax. (415) 986-1474
jennie@andrusanderson.com
Garrett D. Blanchfield (Pro Hac Vice forthcoming)
Brant Penney (Pro Hac Vice forthcoming)
REINHARDT WENDORF & BLANCHFIELD
332 Minnesota Street, Suite W1050
St. Paul, MN 55101
Tel: (651) 287-2100: Fax: (651) 287-2103
g.blanchfield@rwblawfirm.com
b.penney@rwblawfirm.com
William G. Caldes (Pro Hac Vice forthcoming)
Jeffrey Spector (Pro Hac Vice forthcoming)
Mary Ann Geppert (Pro Hac Vice forthcoming)
SPECTOR ROSEMAN & KODROFF, P.C.
2001 Market Street, Suite 3420
Philadelphia, PA 19103
Tel: (215) 496-0300; Fax: (215) 496-6611
BCaldes@srkattorneys.com
JSpector@srkattorneys.com
MGeppert@ srkattorneys.com
Counsel for Plaintiff
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
MARK K. WASVARY, P.C., individually
and on behalf of all others similarly situated,
Plaintiff,
vs.
FACEBOOK, INC., a Delaware corporation.,
Defendant.
Plaintiff alleges the following on behalf of itself and others similarly situated based on the
review of public documents and information.1
INTRODUCTION
1.
This Complaint is brought on behalf of people and companies—including the
named Plaintiff—who bought advertising from Facebook at anticompetitively inflated prices.
Over the course of the past decade, Facebook devised, executed, and reaped the benefits of a
scheme to unlawfully monopolize the market for social advertising. As a direct result, Facebook
was able to (and in fact, did) charge supracompetitive prices for social advertisements to
thousands of people and businesses, including Plaintiff Mark K. Wasvary, P.C.
2.
The nature, and indeed, fact of the anticompetitive overcharge levied by Facebook
on Plaintiff and others similarly situated was not known until very recently—because Mark
Zuckerberg and his lieutenants throughout Facebook specifically worked to keep their
anticompetitive scheme under wraps. But recent revelations—including publicly-revealed
internal Facebook communications and documents—make indisputably clear that Facebook
intentionally and unlawfully monopolized the social advertising
market;
charged
supracompetitive prices to Plaintiff and other Facebook advertisers; lied about it to Plaintiff,
developers, regulators, the press, and the public; and reaped billions of dollars in inflated social
advertising revenues in the process.
3.
Facebook acquired the power to raise prices through the anticompetitive scheme
described below, and did so year after year with no competitive check.
4.
By the end of 2010, after Facebook had emerged the victor among social networks
such as MySpace and Friendster, Facebook faced a new threat from smartphones. Mobile
applications (“apps”) on smartphones for the first time allowed users to access the Internet from
1 All references to internal Facebook documents are exclusively to those published by news
organizations and other public sources, particularly NBC News. NBC’s documents were
available at https://dataviz.nbcnews.com/projects/20191104-facebook-leaked-
documents/assets/facebook-sealed-exhibits.pdf; and
https://dataviz.nbcnews.com/projects/20191104- facebook-leaked-documents/assets/facebook-
exhibits.pdf.
any location, on user interfaces controlled by touch, providing a distinct experience from desktop
or laptop computers. Special-purpose apps designed specifically for smartphones and
smartphone web browsers could not only access the Internet, but also users’ address books—a
ready-made, proto-social network from which apps could draw.
5.
The rise of smartphones immediately threatened Facebook’s advertising business,
which had plateaued as Facebook rapidly approached its initial public offering in 2012. It was
clear that the digital future was moving toward mobile platforms, and Facebook’s mobile product
was substandard. Indeed, most of the advertising market would soon be designed for mobile
platforms, and Facebook was likely to be left out. Mobile apps also threatened user engagement
on Facebook’s core product (a desktop web app), and reduced engagement would in turn reduce
the demand for Facebook’s targeted social advertising. Facebook faced a vicious negative
feedback loop that could destroy its business.
6.
That is when, according to internal Facebook documents, Facebook’s founder and
CEO, Mark Zuckerberg, as well as Facebook’s most senior executives, hatched and
executed a plan to (a) neutralize any potential competition from tens of thousands of mobile
and mobile-friendly apps built using Facebook’s own platform (called “Platform”), (b) conscript
apps on its Platform to bootstrap through large advertising purchases Facebook’s fledgling
NEKO mobile advertising product with restrictive tying agreements, and (c) acquire, kill, or
clone competitors that could rival Facebook as a source of social user data, which would in turn
threaten Facebook as a preeminent and unopposed platform for social advertising.
7.
Facebook executed its scheme with the help of spyware created by a company it
ultimately acquired, Onavo, which—by deceiving millions of mobile users into believing they
were downloading apps with utility (such as a virtual private network app)—provided Facebook
with real-time surveillance of its competitive threats. This real-time surveillance apparatus
allowed Facebook to identify mobile app developers from which to demand advertising purchases
or data sharing agreements. It also allowed Facebook to identify rapidly growing threats to its
core social networking product—such as Instagram and WhatsApp, which Facebook acquired,
and Snap, which Facebook failed to acquire and instead cloned.
8.
From 2012 through 2015, Facebook quietly executed its scheme. Its senior
lieutenants cataloged and bucketed third-party apps on its Platform according to whether they
were aligned with Facebook’s business, were competitive or potentially competitive with
Facebook, or were to be destroyed. During this same period, Facebook’s senior-most
engineers—many acting under protest— prepared to gut Facebook’s Platform of its most
important functionality.
9.
The functionality Facebook would remove from its Platform went to the heart of
the Platform itself—the application programing interfaces relied on by apps to traverse
Facebook’s network of user connections and to access user timelines and/or news feeds (the
“Core APIs”).
10.
Facebook decided to deceptively announce the scuttling of its own Platform at its
“F8” conference held on April 30, 2014. That is, out of concerns that the announcement would
cause vocal protests among developers whose business would be destroyed by the move,
Facebook planned to bury the announcement under a broader announcement about its Facebook
Login product. Internally, Facebook’s senior executives and engineers referred to this plan to
bury the change as the “switcharoo plan.”
11.
On April 30, 2014, at F8 2014, Facebook, as planned, misleadingly folded in the
announcement that the Core APIs would be removed with its announcements surrounding
Facebook’s Login product. The alleged premise of the conference and of the Login product
changes was to allow users more control over their data. Facebook did not even mention the
APIs it was withdrawing at the conference, quietly announcing the deprecation of the Core APIs
in a change log, and falsely stating in an FAQ that Facebook would be removing “rarely used”
12.
On April 30, 2015, one year after its deceptive FAQ, Facebook ejected 40,000
apps from its Platform by breaking them. At and around that time, Facebook communicated more
pretext surrounding its decision, systematically lying to developers and telling them that
Facebook’s API decisions were driven by user privacy and the need to curb privacy abuses.
Internally, however, Facebook’s most senior executives had called those reasons “False” and
“pablum.”
13.
While Facebook systematically lied to developers and the public about its
Platform change, it quietly forced deals with targeted app developers on its Platform. These
chosen developers could continue to use particular Core APIs (which Facebook told others were
“going away” for everyone), so long as they entered into agreements with Facebook to (a)
purchase large amounts of mobile advertising from Facebook, or (b) feed back their own users’
data to Facebook. The agreements between Facebook and these developers were anticompetitive
on their face.
14.
Destroying or conscripting apps on its own Platform was not the only thing
Facebook did as part of this scheme. Facebook also acquired, killed, or cloned companies that its
deceptive spyware, Onavo, had identified as having rapidly obtained user engagement and large
user bases. Most notably, Facebook acquired Instagram and WhatsApp to prevent these products
from emerging as sources of data and user engagement that could fuel a rival social advertising
platform. And when Snap rejected Zuckerberg’s $3 billion acquisition offer, Facebook cloned
Snap’s product with precision.
15.
Over the course of several years beginning in approximately 2010-2011, the net
effect of Facebook’s Platform changes, its unlawful agreements with app developers, its Onavo
spyware, and its unlawful mergers and acquisitions was that Facebook (a) coerced massive
advertising purchases from developers; (b) captured and exercised control over data that could
otherwise fuel a rival social advertising platform through whitelist and data sharing agreements;
(c) destroyed rivals not beholden to Facebook to prevent them from emerging as competing
advertising platforms or sources of social data; and (d) destroyed apps that threatened user
engagement with Facebook’s core product, and thereby Facebook’s social advertising products.
16.
Facebook rapidly became the only source for highly valuable advertising that
could precisely target networks of users in a social network. Facebook used this market power
to repeatedly raise advertising prices every year since it began its scheme. Over the course of nearly
a decade, Facebook has faced no meaningful competitive check on social advertising prices—
and it has extracted supracompetitive revenues from advertisers like Plaintiff throughout this
17.
Plaintiffs are advertisers on Facebook’s advertising platform that were injured by
paying supracompetitive prices for social advertising. Indeed, the prices they paid would have
been lower if Facebook had not unlawfully monopolized the Social Advertising Market, as those
prices would have been subject to competitive forces that would otherwise exist as a check on
Facebook’s market power and monopoly.
18.
Facebook managed to hide its anticompetitive scheme through (a) a code of
secrecy in the face of a duty to speak truthfully and fully about its Platform, (b) affirmative false
and pretextual statements to developers about the reasons for its decision to destroy its own
developer ecosystem, and (c) false and misleading statements to regulators that approved
Facebook’s acquisitions of WhatsApp and Instagram. Facebook’s ruse largely succeeded until
internal documents, which were seized by the UK Parliament in 2018, were published in full by
NBC News and other news organizations in November 2019.
PARTIES
I.
PLAINTIFF
19.
Plaintiff Mark K. Wasvary, P.C. is a Michigan corporation with its principal place
of business in Troy, Michigan. Beginning in 2019, Plaintiff purchased advertising on Facebook’s
self- service advertising platform. Until no earlier than November 6, 2019, Plaintiff did not know,
and could not reasonably have known, the truth about Facebook’s anticompetitive conduct,
including its purpose and intent to engage in anticompetitive conduct, nor could it have known
that it had been injured by paying supracompetitive prices for advertising.
20.
Plaintiff paid prices for advertising that were higher than they would have been
absent Facebook’s anticompetitive conduct and unlawfully acquired and/or maintained
monopoly. Facebook caused Plaintiff to pay supracompetitive prices for advertising as a result of
the market power it obtained and/or maintained as a result of the anticompetitive scheme
described in this Complaint.
II.
DEFENDANT
21.
Defendant Facebook, Inc. (“Facebook”) is a publicly traded company,
incorporated in Delaware. Facebook’s principal place of business and headquarters is located at
1601 Willow Road in Menlo Park, California.
22.
Founded in 2004 by Mark Zuckerberg, Facebook is a social media company that
provides online services to billions of users around the world. In exchange for providing services,
Facebook collects user data, which it uses to create and sell targeted advertising services.
Facebook’s principal revenue is from targeted social media advertising that it provides to
advertisers as a data broker.
23.
Facebook also operates as a platform for third-party applications and hardware,
and owns and operates several business divisions:
Facebook. Facebook’s core application, which bears the company’s name, is,
according to Facebook’s filing with shareholders, designed to enable “people
to connect, share, discover, and communicate with each other on mobile
devices and personal computers.” The Facebook core product contains a
“News Feed” that displays an algorithmically ranked series of stories and
advertisements individualized for each person.
Instagram. Instagram is a photo-sharing application that allows users to share
photos, videos, and messages on mobile devices. Instagram was acquired in
April 2012 and at present, Facebook operates Instagram as a separate
application from its core Facebook product.
Messenger. Facebook’s Messenger application is a multimedia messaging
application, allowing messages that include photos and videos to be sent from
person to person across platforms and devices.
WhatsApp. WhatsApp is a secure messaging application used by individuals
and businesses. WhatsApp was acquired by Facebook in 2014 for $21.8
billion, and at the time had approximately 450 million users worldwide.
Oculus. Oculus is Facebook’s virtual reality hardware line of business, which
Facebook acquired in March 2014 for approximately $2 billion.
24.
Facebook’s revenue as of year-end 2019 was $70.70 billion (up 27% from the
previous year), with net income from operations of $23.99 billion. Almost all of this revenue
came from advertising, particularly mobile advertising. As of year-end 2019, Facebook
maintained $54.86 billion in cash and cash-equivalent securities. Facebook employed 44,942
people around the world at the end of 2019 (up 26% from the previous year).
25.
For the 2019 fiscal year, Facebook reported to investors that on average it had 1.66
billion daily active users of Facebook and Messenger (“DAUs”) (up 9% from the previous year)
and 2.50 billion monthly active users (“MAUs”) (up 8% from the previous year). Facebook also
reported that on average it had 2.26 billion daily active people (“DAP”) who used any Facebook
product (up 11% from the previous year) and 2.89 billion monthly active people (“MAP”) (up
9% from the previous year).
JURISDICTION AND VENUE
26.
This action arises under Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2)
and Sections 4 and 16 of the Clayton Act (15 U.S.C. §§ 15, 26). The action seeks to recover
treble damages, interest, costs of suit, equitable relief, and reasonable attorneys’ fees for damages
to Plaintiff and members of the Classes resulting from Defendant’s restraints of trade and
monopolization of the Social Advertising Market described herein.
27.
This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 (federal
question), 1332 (class action diversity jurisdiction), and 1337(a) (antitrust); and under 15 U.S.C.
§ 15 (antitrust).
28.
Venue is appropriate in this district under 15 U.S.C. § 15(a) (Clayton Act), 15
U.S.C. § 22 (nationwide venue for antitrust matters), and 28 U.S.C. § 1391(b) (general venue
provision). Facebook transacts business within this district, and it transacts its affairs and carries
out interstate trade and commerce, in substantial part, in this district.
29.
The Court has personal jurisdiction over Facebook as it is subject to general
jurisdiction in the State of California, where it maintains its headquarters and its principal place
of business. The scheme, conspiracy, and monopolization alleged in this Complaint was targeted
at individuals throughout the United States, causing injury to persons in the United States,
including in this district.
INTRADISTRICT ASSIGNMENT
30.
This action is properly assigned to the San Francisco Division of this District,
pursuant to Civil Local Rule 3-2(c) and (d), because Facebook is headquartered in San Mateo
County (which is served by the San Francisco Division), and a substantial part of the events or
omissions that give rise to the claims occurred there.
FACTS
III.
FACEBOOK EMERGES AS THE DOMINANT SOCIAL NETWORK
A.
The Last Social Network Standing
31.
Facebook’s meteoric rise since its founding in 2004 is well documented. The
company— started in the dorm room of its CEO Mark Zuckerberg as “the facebook”—rose to
prominence in the face of fierce competition from several social networks. Initially an exclusive
service for elite universities throughout the United States, Facebook eventually expanded its
network to encompass a general audience of users throughout the United States and worldwide.
32.
Between 2004 and 2010, Facebook vanquished a number of rivals to emerge as
the dominant social network in the United States.
33.
Facebook’s first chief competitor was MySpace. Founded in 2003 (a year before
Facebook), MySpace targeted the same audience, provided largely the same services, and rapidly
attracted an enormous number of users. By 2005, MySpace had 25 million active users, and was
acquired by NewsCorp for $580 million. In 2006, MySpace registered 100 million users, passing
Google as the most visited website in the United States.
34.
However, the next three years featured a steady downward spiral for MySpace—
and countervailing growth by Facebook. In 2008, Facebook passed MySpace in worldwide
active users and continued to grow, reaching 307 million active users across the globe by April
2009. In May 2009, Facebook passed MySpace in United States, 70.28 million to 70.26 million
monthly active users.
35.
MySpace never came close to Facebook again. By 2010, MySpace had mostly
exited the market, leaving the business of social media for good. MySpace’s CEO capitulated in
November of 2010: “MySpace is not a social network anymore. It is now a social entertainment
destination.” In September 2010, MySpace reported that it had lost $126 million, and in June
2011, NewsCorp sold the company for $35 million—$545 million less than it had paid just six
years earlier. By then, its user base had dwindled to just 3 million monthly visitors.
36.
During the same time period, several other social networks also met their demise,
including Google’s Orkut, AOL’s Bebo, and Friendster, which failed to scale rapidly enough to
compete with MySpace and Facebook.
37.
By 2009 and through 2010, Facebook emerged as the only peer-to-peer social
media network to exist at scale, and no other network or company rivaled Facebook’s massive
user base. On March 2, 2010, Adweek reported that Facebook had booked revenues of up to $700
million in 2009 and was on track for $1.1 billion in 2010—almost all from advertising to its
newly won users. Facebook had been roughly doubling its revenues every year up until that
point—$150 million in 2007, $280-300 million in 2008, and $700 million in 2009.
38.
Time Magazine heralded Zuckerberg as its 2010 Person of the Year.
39.
Time’s cover story set out the stakes—the scope of the newly assembled social
network was unprecedented and staggering:
What just happened? In less than seven years, Zuckerberg
wired together a twelfth of humanity into a single network,
thereby creating a social entity almost twice as large as the
U.S. If Facebook were a country it would be the third largest,
behind only China and India. It started out as a lark, a
diversion, but it has turned into something real, something
that has changed the way human beings relate to one another
on a species-wide scale. We are now running our social lives
through a for-profit network that, on paper at least, has made
Zuckerberg a billionaire six times over.
40.
By 2010, Facebook was unrivaled and dominant in a way no company since
Microsoft had been in post-personal-computer history. And it had done so by riding the currents
of powerful network effects.
B.
A New Market of Its Own Creation
41.
By the beginning of the millennium’s second decade, Facebook was the
indisputable king of an entirely new market—a market built not on hardware or operating system
dominance, but one built on a network of people, with its power and value directly derived
from their engagement with that network. The more data users fed into Facebook by
communicating and interacting with each other, posting their pictures, and publishing their
content, the more valuable the Facebook network became to third parties, who could advertise
to Facebook’s users by targeting them using the very information they provided to Facebook’s
network.
42.
Data about what information users shared on their personal pages; the photos and
profiles they viewed; their connections to others; what they shared with others; and even what
they put in messages to other users all allowed targeted advertising on a scale that had never
before existed. Unlike search advertising, Facebook’s advertising platform allowed advertisers
to target Facebook’s user base by their attributes and behavior, not by a query entered into a
search box. More importantly, unlike in search, user identity was not only discoverable, it was
willingly provided by users—as was the identity of those users’ closest friends and family
members. These identities could be tracked and targeted throughout the Internet.
43.
This social data created by Facebook’s network of engaged users could be
monetized in a number of ways. The data could be resold for targeted advertising and machine
learning; Facebook’s machine learning algorithms mined patterns in the data for advertisers,
which allowed advertisers to reach precisely the right audience to convert into sales, user signups,
or the generation of sales leads. The data also could be sold by commercializing access—for
example, by providing application developers, content generators, and advertisers with direct
access to the information embedded in Facebook’s network, such as the interconnection between
users, user attributes, and user behavior. That data then could be mined by these third parties.
44.
All of the methods of monetizing social data were based on selling that data, but
such data could be packaged, structured, or mined differently depending on the application for
which it was being sold. For advertisers, Facebook’s network presented advertisers and Facebook
itself with entirely new social signals, such as relationships, events, friendships, and granular
interests. Movies, music, and books were inherent parts of a user’s profile. The amount of
information in Facebook’s network that could be mined as social data was unprecedented—and
Facebook received all that data daily from its millions of users in the United States and
worldwide.
45.
The data Facebook collected was uniquely social, derived from the engaged
interactions and strong identity of Facebook’s users. Twitter, a public-facing social network,
loosely enforced identity and never required users to disclose granular details about themselves.
Facebook stood alone in this regard, with a clear product emphasis on individuals and their
connections to others. In 2010, Google, Yahoo, and the other major online advertising sources
competed in an entirely different market—one based on search data. The data Facebook had at
its disposal was not fungible with search data—it was actionable data about individual users,
with their identities fully ascertainable.
46.
By 2010, Facebook stood alone as the dominant player in the newly emergent
market for social advertising—a market in which Facebook’s own users provided Facebook with
a constant stream of uniquely valuable information, which Facebook in turn monetized through
the sale of advertising. Advertisers, finding no substitute from any other company, paid top dollar
for Facebook’s powerful targeting and actionable data, and some of those advertisers—wittingly
or not—even fed crucial data about themselves, their products, and the efficacy of their targeting
back to Facebook’s network.
47.
As Facebook itself explained to third-party developers in May 2007, Facebook’s
core value proposition and business model was “providing access to a new kind of data—social
data, which enables you to build applications that are relevant to users.” With respect to that data,
Facebook told developers: “You are on a level playing field with us. You can build robust apps,
not just widgets. Complete integration into the Facebook site.” By 2010, it was clear that
Facebook’s entire business was selling this new form of “social data” and that it would do so by
selling access to developers and selling advertisements targeting Facebook’s network of engaged
and active users.
C.
The Social Data Barrier to Entry
48.
As Facebook’s dominant position emerged in 2010, powerful network effects and
feedback loops took hold and solidified that position. Data provided by users made Facebook’s
network more valuable, thereby attracting more users to the network. As a typical use case, a
Facebook user would invite his closest friends and family, who would then invite and engage
with other friends and family members who existed on the network. A familiar feedback loop—
a virtuous circle—emerged, rapidly growing Facebook’s user base.
49.
The content generated by this user base, in turn, increased the value of the
Facebook network. With each photograph, relationship status, check-in, or post by a Facebook
user, the Facebook network became more valuable, not just as a means of communicating with
directly connected acquaintances, but as a means of learning about more remotely connected
50.
As Samuel Lessin, then Facebook’s VP of Product Management, explained to
Mark Zuckerberg in an internal email on October 26, 2012, the data Facebook collects makes
Facebook progressively more proficient at collecting and monetizing data:
One of the things that puts us currently in a very defensible place
is the relationship we have created between the people using
Facebook all the time, and us having the information we need to
make Facebook a better product. This is the fundamental insight in
something like coefficient. We know more about what people want
to see because people look at more stuff on our platform. In this
respect, while there are other ways to get close, it feels viscerally
correct that there is an ROS dynamic at play, the more people that
use the system, the more information we have on how to make
more people use the system.
(emphasis added).
51.
A barrier to entry emerged from this feedback loop. To compete with Facebook,
a new entrant would have to rapidly replicate both the breadth and value of the Facebook
network—a task a mere clone of that network could not accomplish. Indeed, to compete with
Facebook, a competitor would not only have to build its own vast network, but would have to
draw active social engagement on a massive scale—which likely would require drawing a vast
quantity of Facebook users away from that platform. The costs to switch would be massive: an
entrant-competitor would have to present an overall value proposition to users that not only
exceeded that of Facebook’s entrenched network, but one that did so handily. Moreover, to
compete with Facebook’s virtuous circle, the value delivered by an entrant- competitor platform
would have to facilitate social data mining that would create even more value for users,
developers, and advertisers. This barrier to entry is referred to throughout this Complaint as the
Social Data Barrier to Entry (“SDBE”).
52.
The SDBE protects Facebook’s ability to control and increase prices in the Social
Advertising Market without the pressures of price competition from existing competitors or new
entrants. Because of its monopoly power in the Social Advertising Market and the SDBE,
Facebook has been able to consistently increase the price it charges for social advertising. And
this is exactly what Facebook has done since it obtained its dominant position in 2010.
53.
From 2011 to 2012, for example, Facebook massively increased the prices it
charged for its advertisements—one of the primary sales channels for its social data. That year,
costs per thousand impressions (CPM) on Facebook increased by 41%, with a 15% increase in the
last quarter of 2011 alone. Cost per click (CPC), which is a measure of advertising costs paid on
a by-click basis, rose 23% that same year. Facebook increased prices for social advertising as it
also grew the number of advertisements it displayed on its site, indicating monopoly power in the
Social Advertising Market.
54.
Facebook maintained that power over its prices through 2013, with a 2.9x
increase in CPMs year over year. The increase came as overall advertising revenues increased
yet again—that year by a staggering 83% over the last.
55.
These price increases would not be possible without the SDBE. If a rival network
existed with comparable social data available for sale through advertising, Facebook’s price
increases would have been met with customer migration to the comparable rival. But Facebook
had no such rival and was unfettered in its ability to increase process, even while rapidly
increasing its supply of data for sale through advertisement.
56.
Once Facebook had achieved dominance in the Social Advertising Market, its
position only improved – and became more entrenched. The more advertising Facebook sold,
and the more social data Facebook collected and packaged for sale, the more effective Facebook
became at selling advertising, targeting users, and commercializing direct access to its users’
social data (e.g., through APIs). This, in turn, made entry by a new rival impossible or
prohibitively costly, thereby allowing Facebook to increase prices and make additional
investments that deepened the SDBE moat surrounding its business.
D.
Google’s Failed Entry into the Social Advertising Market
57.
In 2010, Google became desperate to enter the Social Advertising Market. It had
tried several times to do so before, but each foray was met with failure. Google’s Orkut social
network, which was launched days before Facebook, was quickly overtaken. Wave, Google’s
social communication platform, never achieved any traction with users. And Google’s Buzz
social network—built on the back of its highly successful Gmail product—imploded quickly in
early 2010.
58.
Google’s next attempt to enter the market attacked Facebook’s functionality
head-on, which meant attempting to penetrate the powerful SDBE protecting Facebook’s
business. Google made a massive, unprecedented investment of resources into building a product
with enough value to lure users away from Facebook’s broad, highly engaged social network.
59.
In 2010, Google’s Vic Gundotra became the company’s Chief Architect. Gundotra
pitched a new social network to Larry Page, Google’s cofounder, who returned as CEO of the
company in 2011. Gundotra repeated an ominous refrain, “Facebook is going to kill us. Facebook
is going to kill us,” which frightened Page into action.
60.
Page greenlit a new product, Google+. Initially, Google+ sought to leverage
Google’s YouTube product to build its social network, requiring a Google+ account for access
to certain key features of YouTube. In the face of significant user resistance, Google backed
away from that requirement. Nonetheless, Google attempted, through Google+, to build out a
“social graph” that would leverage a common user identity across Google products, including
YouTube and Gmail.
61.
In early 2011, Google began what insiders now refer to as “the 100-day march”
toward launch of Google+. The product Google planned to deliver was, by any fair account,
largely undifferentiated from what Facebook offered in terms of product features and
functionality. By the summer of 2011, the planned features for Google+ included a continuous
scroll product called the “stream” (a clone of Facebook’s “feed” product); a companion feature
called “sparks,” which related the “stream” to users’ individual interests; and a sharing app called
“Circles,” a purportedly improved way to share information with one’s friends, family, contacts,
and the public at large.
62.
Unlike Google’s past products, Google+ was not designed to organically grow
and scale from small beginnings. From the outset, Google invested massive amounts of resources
to bring a finished, full-scale social network to market. Calling the project “Emerald Sea,”
Google conscripted almost all of the company’s products to help build Google+. Hundreds of
engineers were involved in the effort, which remained a flagship project for Page, who had
recently reassumed the Google CEO role. Google’s Gundotra was quoted explaining that the
product that would become Google+ was a transformation of Google itself: “We’re transforming
Google itself into a social destination at a level and scale that we’ve never attempted—orders of
magnitude more investment, in terms of people, than any previous project.”
63.
The amount of resources Google brought to bear stood in stark contrast to its
previous attempts at penetrating the Social Advertising Market. Google had dedicated barely a
dozen staff members to its previous failed social network product, Buzz. At its peak, Google+
involved 1,000 employees from divisions across the country. Google, for example, ripped out its
elaborate internal video conferencing system and forced employees to use the Google+ Hangouts
video chat feature, which one internal employee described as “janky.” Employee bonuses were
tied to the success of Google+. And the entire project was confined to a level of secrecy never
before seen at Google.
64.
Google+ was released on June 28, 2011. The product included the “stream,” the
“Circles” app, the “Hangout” video chat and messaging product, and a photo sharing product.
The resemblance to Facebook was striking. As one internal Google employee commented: “this
looks just like Facebook. What was the big deal? It’s just a social network.” Another Google
employee was quoted as saying, “All this fanfare and then we developed something that in the
end was quite ordinary.” One thing was indisputable: with the release of Google+, Google had
challenged Facebook head-on by effectively cloning Facebook’s product.
Because Google’s user base was already massive, the Google+
product attracted millions of users shortly after launch. But though
these users signed up for Google+, Google quickly found out they
were not using the product. As one former Google employee
explained:
It was clear if you looked at the per user metrics, people weren’t
posting, weren’t returning and weren’t really engaging with the
product. Six months in, there started to be a feeling that this isn’t
really working.
65.
The problem for Google+ was the powerful network effect that reinforced the
SDBE that protected Facebook. Google’s clone of Facebook did not present enough new value to
overcome massive network-based switching costs—the cost to Facebook users of shifting away
from an existing networked product in which the users had actively invested their social data for
66.
Paul Adams, a former Google+ user-experience team member, summed it up
succinctly when asked why Google+ had failed:
What people failed to understand was Facebook and network
effects. . . .
It’s like you have this grungy night club and people are having a
good time and you build something next door that’s shiny and new,
and technically better in some ways, but who wants to leave?
People didn’t need another version of Facebook.
67.
By 2014, Google+ was declared a failure and Gundotra, its founder, eventually
left Google. Within just a few years, Google—with all of its resources, developers, and existing
user base— failed entirely to overcome the SDBE protecting Facebook. As long as Facebook
controlled the data derived from an engaged and active user base, it could continue to keep that
user base active and engaged.
68.
The only way to disrupt this virtuous circle was with a rival product that provided
significantly more or different value than Facebook, and that itself was propelled to scale by
powerful network effects.
IV.
A THREAT TO FACEBOOK’S MONOPOLY: THE RISE OF
SMARTPHONES AND MOBILE APPS
A.
The Mobile App Revolution
69.
In 2009 and 2010, as Facebook emerged the undisputed winner of the social media
wars, another new market had begun to take hold. The launch of the Apple iPhone in 2007 created
a market for a new type of cellular phone: one with a user interface capable of robust Internet
connectivity and messaging. No longer constrained by numeric keypads for texting—or clunky,
permanent alphanumeric keyboards attached to phones, such as with the Treo or Sidekick cellular
phones—the iPhone dynamically displayed a multi-touch keyboard and came equipped with a
full-featured web browser that rendered complete web pages.
70.
By the summer of 2008, Apple’s newest iPhone, the iPhone 3G, was released with
onboard GPS and other hardware upgrades. Accompanying the release of the new iPhone was a
new store for third-party applications that would run natively on the iPhone: the Apple App Store,
which opened for business on July 10, 2008, the day before the release of the iPhone 3G.
71.
Developers who launched their third-party applications via the App Store reaped
huge rewards. There were approximately 500 apps available at the App Store’s initial launch.
Games using the iPhones accelerometer became immediate successes, some quickly earning
hundreds of thousands of dollars by selling downloads for just a few dollars each. Applications
that exploited the new GPS functionality in the iPhone also quickly became popular. By
September 2008, the Apple App Store had racked up 100 million downloads, and by 2009, it hit
1 billion. iPhone apps had become a new means to deliver scaled value to countless users.
72.
Google also launched what became its Play Store (initially known as Android
Market) in 2008. It soon overtook Apple’s App Store in terms of overall volume, with 82% growth.
The mobile app revolution had begun.
73.
Mobile apps rapidly proliferated, with huge opportunities for further growth—as
the lion’s share of cell phone activity by 2010 had become something other than making phone
calls. For example, a 2010 Pew Research survey showed that taking pictures and sending text
messages had become the most common uses for cellular phones among adults, with more than a
third of adult cell phone users accessing the Internet, playing games, emailing, recording video,
or playing music through their cell phones. At the same time, 29% of adult cell phone users had
used a downloaded app.
74.
A 2010 Nielsen survey showed that games, news/weather, maps and navigation,
and social networking were the most popular apps on cellular phones.
75.
Notably, mobile apps resonated most strongly with the demographics that had
recently adopted social media and were providing their data to Facebook in droves. App users
the age of 20 and another 41% between the ages of 30 and 49. These were the same demographics
that were rapidly adopting social media as part of their lives and providing Facebook with the
social data that built and maintained the SDBE that protected its business.
76.
Many of the mobile apps that were rapidly attracting users were doing so because
they presented their own specialized value propositions. These apps had to be specialized because
cellular phone screens were smaller, particularly in 2010, and mobile traffic was driven by
specialty software, often designed for a single purpose. Users signed up for these apps with their
e-mail addresses and personal information and interacted directly with the apps.
77.
As WIRED Magazine described in 2010, a typical user moved from app to app,
each with some specialized use:
You wake up and check your email on your bedside iPad—that’s one app.
During breakfast you browse Facebook, Twitter, and the New York
Times—three more apps. On the way to the office you listen to a podcast
on your smartphone. Another app. At work, you scroll through RSS feeds
in a reader and have Skype and IM conversations. More apps. At the end
of the day, you come home, make dinner while listening to Pandora,
play some games on Xbox Live, and watch a movie on Netflix’s
streaming service.
78.
In 2010, Morgan Stanley projected that within five years, the number of users
who accessed the Internet from mobile devices would surpass the number who accessed it from
PCs. The Internet was at an inflection point—the World Wide Web was no longer the dominant
way to access information. Users were obtaining their information from specialized walled
gardens, and Facebook’s own walled garden was one app away from being superseded.
79.
The years leading up to 2010 saw the rise of streaming apps, such as Netflix and
Pandora, and e-book readers, such as Kindle and iBooks. Apple’s 2010 list of top-grossing
iPhone apps included mobile games such as Angry Birds, Doodle Jump, Skee-Ball, Bejeweled
2 + Blitz, Fruit Ninja, Cut the Rope, All-in-1 GameBox, the Moron Test, Plants vs. Zombies,
and Pocket God. Facebook’s mobile app topped the list of free downloads in the App Store, along
with Words with Friends, Skype, and the Weather Channel App.
B.
Facebook Recognizes the Looming Threat Presented by Mobile
Applications
80.
By 2011, Facebook realized that it had fallen behind. Facebook had just debuted
its new “Timeline” product, a controversial modification of the Facebook feed that generated
dynamic content for each user rather than a static series of posts visible to the user. Facebook
had spent the last eight months prioritizing its desktop experience and its new Timeline product.
But while it did so, mobile applications continued their meteoric rise.
81.
Facebook’s own mobile application was built on a technology called HTML5,
which at the time was good for building web pages but not for building mobile apps native to
iOS and Android smartphones. As a result, Facebook’s mobile app was buggy, prone to crashes,
and painfully slow. As Zuckerberg would lament years later about HTML5, “We took a bad bet.”
82.
Zuckerberg reflected in 2018 that Facebook had fallen behind when mobile apps
emerged:
One of my great regrets in how we’ve run the company so far is I feel
like we didn’t get to shape the way that mobile platforms developed as
much as would
be
good,
because
they
were
developed
contemporaneously with Facebook early on. I mean, iOS and Android,
they came out around 2007, we were a really small company at that
point – so that just wasn’t a thing that we were working on.
83.
As mobile apps rose, Facebook’s desktop product acquired users at a slower pace.
All of this occurred as Facebook was planning its initial public offering. Facebook knew that its
position was eroding and that if mobile growth continued, its IPO debut would be in the midst
of material changes to its business, undermining Facebook’s financial and qualitative disclosures
to public investors.
84.
But there was no avoiding the issue. Facebook held its IPO on May 18, 2012. By
the time Facebook released its first annual report, the trend was unmistakable—the transition to
mobile devices from desktop web-based applications posed an existential threat to Facebook’s
business. In its 2012 Form 10-K, Facebook disclosed this risk to shareholders as one of the factors
that affected its bottom line:
Growth in the use of Facebook through our mobile products as a
substitute for use on personal computers may negatively affect our
revenue and financial results.
We had 680 million mobile MAUs in December 2012. While most of our
mobile users also access Facebook through personal computers, we
anticipate that the rate of growth in mobile usage will exceed the growth
in usage through personal computers for the foreseeable future and that the
usage through personal computers may decline or continue to decline in
certain markets, in part due to our focus on developing mobile products
to encourage mobile usage of Facebook. For example, during the fourth
quarter of 2012, the number of daily active users (DAUs) using personal
computers declined modestly compared to the third quarter of 2012,
including declines in key markets such as the United States, while mobile
DAUs continued to increase. While we began showing ads in users’ mobile
News Feeds in early 2012, we have generated only a small portion of our
revenue from the use of Facebook mobile products to date. In addition, we
do not currently offer our Payments infrastructure to applications on
mobile devices. If users increasingly access Facebook mobile products as
a substitute for access through personal computers, and if we are unable
to continue to grow mobile revenues, or if we incur excessive expenses in
this effort, our financial performance and ability to grow revenue would
be negatively affected.
C.
The Facebook Platform
85.
Although Facebook faced a looming threat from mobile applications, it
maintained an important source of leverage: its social data. Facebook possessed (and continued
to receive) vast quantities of information about its massive user base, including how each user
was connected to others. This information was valuable to both new and existing mobile
applications, which could leverage Facebook’s social data to obtain new users and to build novel
social features, functions, and apps.
86.
Facebook referred to its network as its “Graph,” coined after a mathematical
construct that models connections between individual nodes. The Facebook Graph contained
user “nodes,” with connections and information exchanged among nodes as “edges.” Facebook
coined the term “Open Graph” to describe a set of tools developers could use to traverse
Facebook’s network of users, including the social data that resulted from user engagement.
87.
Importantly, Open Graph contained a set of application programming interfaces
(“APIs”) that allowed those creating their own social applications to query the Facebook network
for information. As Facebook explained in its 2012 Form 10-K:
Open Graph. Our underlying Platform is a set of APIs that developers
can use to build apps and websites that enable users to share their
activities with friends on Facebook. As Open Graph connected apps
and websites become an important part of how users express
themselves, activities such as the books people are reading, the movies
people want to watch and the songs they are listening to are more
prominently displayed throughout Facebook’s Timeline and News
Feed. This enables developer apps and websites to become a key
part of the Facebook experience for users and can increase growth and
engagement for developers.
88.
Open Graph, along with other Facebook products, such as its NEKO advertising
and Payments products, comprised Facebook’s Platform. The Platform was vital to Facebook’s
business because it ensured that engagement continued on Facebook. Without the Platform,
Facebook would be required to build applications that increased the value of its network itself—
meaning that Facebook would have to try to predict what applications users wanted; design, code,
and scale those applications across its user base and network; and bear the risk and resource drain
of guessing wrong and making mistakes.
89.
Facebook did not have the resources to do this, so it decided instead to allow third
parties to build applications for the Platform. As Mark Zuckerberg observed in a February 2008
email to Facebook’s VP Engineering for Platform Michael Vernal, a senior Zuckerberg lieutenant
who was in part responsible for creating Open Graph:
Platform is a key to our strategy because we believe that there will
be a lot of different social applications And we believe we can’t
develop all of them ourselves. Therefore . . . . It’s important for us
to focus on it because the company that defines this social platform
will be in the best position to offer the most good ways for people
to communicate and succeed in the long term.
90.
Put simply, Facebook could either speculate on new social applications by
building them itself or it could provide a platform for others to do so. For years, Facebook opted
to provide a platform until it was able to develop its own social applications.
91.
But Facebook also recognized that developers on its Platform could potentially
pose a competitive threat. In its 2012 annual report, Facebook disclosed the following significant
risk factor to its operations:
In addition, Platform partners may use information shared by our
users through the Facebook Platform in order to develop products or
features that compete with us. As a result, our competitors may
acquire and engage users at the expense of the growth or
engagement of our user base, which may negatively affect our
business and financial results.
92.
Thus, Facebook knew that competition could come from its own third-party
application developers. But Facebook nevertheless actively sought developers to build
applications on its Platform because of the potential to extract profits from the applications these
developers built and the users they attracted to, and engaged on, Facebook’s network.
93.
As Facebook explained to its investors in 2012, maintaining a Platform on which
developers could build applications meant more engagement and therefore greater ad revenues
for Facebook:
Engagement with our Platform developers’ apps and websites can
create value for Facebook in multiple ways: our Platform supports
our advertising business because apps on Facebook create
engagement that enables us to show ads; our Platform developers
may purchase advertising on Facebook to drive traffic to their apps
and websites; Platform developers use our Payment infrastructure
to facilitate transactions with users on personal computers; Platform
apps share content with Facebook that makes our products more
engaging; and engagement with Platform apps and websites
contributes to our understanding of people’s interests and
preferences, improving our ability to personalize content. We
continue to invest in tools and APIs that enhance the ability of
Platform developers to deliver products that are more social and
personalized and better engaged people on Facebook, on mobile
decides and across the web.
94.
Facebook’s Platform was valuable to Facebook in several important ways.
95.
First, the Platform meant that new applications would be built on Facebook’s
network, increasing the value of Facebook’s network as the applications became more popular.
The increased engagement with Facebook as a result of these new applications translated to
better-targeted content and higher advertising revenues.
96.
Second, Facebook would not need to spend significant resources to develop new
applications or test new business models—third parties would do that instead. Facebook could
merely wait for an application built for its Platform to gain widespread adoption, then either
build a competing application or passively glean the benefits of that popular application’s user
engagement, including valuable new social data for Facebook and its network.
97.
Third, access to Facebook’s network was itself valuable to third-party developers,
so Facebook could charge developers—most notably, through API access and advertising
purchases—to access Facebook’s Platform and the social data it collected from Facebook’s
massive number of engaged users.
D.
The Profitable Open Graph Platform and Mobile Install Business
98.
Facebook continued to struggle to catch up with the new onslaught of mobile
applications, but it recognized that the new apps required aggressive user growth to be profitable.
Among other things, Facebook’s APIs allowed mobile app developers to query the friends of a
person’s friends, which allowed mobile applications to find other users who might be interested
in using their apps.
99.
Mobile apps also could use Facebook to communicate across Facebook’s network,
either directly with a user’s friends or with others not directly connected with the user. A mobile
payment application, for example, could enable two strangers to pay each other, even if they
were not directly connected on Facebook—so long as both of them existed somewhere on
Facebook’s Platform. A user of a dating application, such as Tinder, could use Facebook’s APIs
to find a compatible date, either in the extended network of one’s friends or beyond—anywhere
on Facebook’s Platform.
100.
Facebook quickly realized it could monetize the value of its network through
third-party mobile applications, and it moved aggressively to do so, beginning with games built to
run on Facebook’s Platform. Those games, many of which were social games that allowed users
to play with and against each other, sought above all else new users to increase their adoption.
Facebook’s Vernal sought to obtain a beachhead with these applications, monetizing each
additional game install that resulted from the use of Facebook’s Platform or from Facebook’s
advertising product, NEKO.
101.
For example, Facebook included ads as “stories” on user timelines that indicated
whether the user knew other users who were playing a particular game. Facebook then monetized
such advertisements when the game obtained new users from them. As Vernal explained in a
May 2012 e- mail:
The biggest/most efficient market segment for advertising on mobile
today is driving app installs. This is at least partly because it’s the
most measurable—if you know that you get $0.70 from every game
you sell, then in theory you can afford to pay up to $0.69/install. This
kind of measurability allows for maximal bidding.
So, what we’re trying to do is kickstart our sponsored stories
business on mobile by focusing on one particular type of story (is-
playing stories) and one market segment (games), make that work
really well, and then expand from there.
102.
Facebook thus leveraged its most valuable asset—the information it had about its
users, their interests, and most importantly, their friends—to make money from the proliferation
of mobile games.
103.
Games like Farmville, a mobile application that allowed players to create their
own simulated farms, quickly took off because of Facebook’s Platform. Facebook increasingly
recognized that it could obtain engagement from users through the game itself.
104.
This strategy led to a broader one, in which Facebook drove app installs by
allowing developers to advertise to its user base and traverse Facebook’s social network through
the Facebook APIs. Facebook collected a fee for each app install that resulted from its network.
Vernal outlined the plan in detail.
1/ Create new iOS + Android SDKs, because the current ones are
terrible. Ship Thunderhill so we get even broader adoption of our
stuff.
2/ Wire them up to make sure we know when you’re playing a
game (so we can generate the same kind of is-playing stories we
can on canvas).
3/ Generate a bunch of effective, organic distribution for these
games via our existing channels (news feed, net ego on both
desktop + mobile). Ship send-to-mobile, which allows us to
leverage our desktop audience to drive mobile app traffic.
4/ Create an even better app store than the native app stores (our app
center) and make a lot of noise about it, so developers know that
they should be thinking about us to get traffic to their mobile apps.
5/ Introduce a paid offering, probably cost-per-install (CPI) based,
where you can pay us to get installs from your mobile app. Primary
channels for this paid distribution are News Feed and App Center
(on desktop + mobile) as well as RHC on desktop.
105.
The strategy was clear, not just for gaming, but for mobile apps. Facebook would
make money by allowing app developers to leverage its user base. Facebook would advertise
social games to its users by plumbing their social data—including data about when they played
games and which of their friends played them—and in exchange, Facebook would receive some
amount of money per install, which would be the app developer’s cost-per-install (CPI). The same
plan would work for mobile applications generally.
106.
By the end of 2011 and the beginning of 2012, Facebook began discussing other
ways to monetize its Platform, including its Open Graph APIs. One way was to sell API access
based on usage. Zuckerberg and top executives at Facebook extensively debated a tiered
approach to API access. Facebook deliberated over a pricing model for API access, and internally
decided that it would be possible to sell API access to third-party developers. Facebook also
decided that it could bundle API access with the ability to advertise on Facebook. However, as
explained below, Facebook gave up the profits it could glean from API access for the chance to
dominate the Social Advertising Market entirely, excluding competitors (both actual and
potential) and leveraging network effects to achieve and maintain monopoly power.
V.
FACEBOOK
WEAPONIZES
ITS
PLATFORM
TO
DESTROY
COMPETITION
A.
Facebook Makes Plans to Remove Vital Friends and News Feed APIs
and Refuses to Sell Social Data to Competing Application Developers
107.
Although Facebook had made significant amounts of revenue and profit selling
access to its social data through its APIs and its NEKO advertising system and had planned to
expand that business, it chose not to, sacrificing those significant profits.
108.
By the end of 2011 and the beginning of 2012, Zuckerberg along with Facebook’s
Vice President of Growth, Javier Olivan, its VP of Product Management, Samuel Lessin, and
Michael Vernal internally debated a plan to prevent third-party developers from building their
own competing social networks that could be capable of generating engagement and social data
independent of Facebook’s Platform.
109.
Emerging mobile applications such as Line, WeChat, and Instagram were
creating their own vast user bases with identity and login features separate from the Facebook
Platform. Their increasing ubiquity posed an existential threat to Facebook’s core business,
which relied heavily on engagement from its user base. These applications provided
quintessentially social applications, such as image sharing, messaging, and payments—a direct
threat to Facebook’s own applications, including Facebook’s own fledgling Messenger
application.
110.
Mobile applications were rapidly eating away at Facebook’s dominance, which
relied heavily on its web-based desktop product. Zuckerberg openly acknowledged that its
desktop applications were not the future and that native phone apps would dominate the mobile
web in the future.
111.
Zuckerberg therefore sought to consolidate core applications into its own
centralized Facebook application, noting in a March 2012 Q&A with employees that Facebook
was “building towards social Facebook versions where you can use the individual app or the
Facebook version.” That is, users could “replace whole parts of your phone with these Facebook
apps and [they] will be a whole package for people.”
112.
Beginning in the fall of 2011 and well into 2012, Mark Zuckerberg and his
chief lieutenants, Lessin and Vernal, planned to address the looming mobile applications threat.
Their solution was a scheme to disrupt the massive growth of mobile applications by attracting
third-party developers to build for Facebook’s Platform and then remove their access to the APIs
that were most central to their applications. They would accomplish this by leveraging
Facebook’s “Friends” and “Timeline” APIs, as well as other vital APIs, including those relating
to messaging.
113.
The Friends APIs let third-party developers traverse the Facebook Graph,
searching through a user’s friends as well as the friends of their friends. Zuckerberg and his
executives proposed modifying the APIs to deny third-party developers access to information
about a user’s friends (and the friends of their friends) unless that developer’s application was
already installed by a user’s friends to begin with. This ensured that new applications could not
obtain new users or use Facebook’s social data to increase the value of their application.
114.
Facebook also foreclosed developers from continuing to extract information about
a user’s friends from their timeline or news feed. Thus, third-party applications that relied on the
stream of information that flowed through a user’s news feed, such as a post about a friend of
the user getting engaged or sharing a news article, would be abruptly left with none of the social
data they needed to function.
115.
Removing access to these APIs halted the growth of tens of thousands of third-
party applications that relied on these essential APIs and were, in Facebook’s view, threatening
Facebook’s dominance by eroding the SDBE that protected Facebook’s business.
116.
Facebook’s plan prevented any competitive third-party application from buying
social data from Facebook, either through its Platform APIs or through its advertising Platform.
As Vernal explained to Lessin in August of 2012, Facebook would “not allow things which are
at all competitive to ‘buy’ this data from us.”
117.
Facebook thus refused to sell its social data to any competitive third-party
developer, sacrificing significant short-term profits in exchange for a competitive advantage in
the Social Advertising Market. If not for the prospect of driving these competitors out of the
markets in which Facebook competed, the decision to refuse to sell social data to third-party
developers made no economic, technical, or business sense.
118.
Third-party developers with successful applications increased the value of
Facebook’s overall network by increasing engagement and generating the very social data
Facebook sold through its targeted advertising channels, including to developers. As Zuckerberg
had observed years earlier, Facebook itself could not broadly develop new third-party apps or
anticipate what apps would be successful, so it relied on third parties to do so. Refusing API and
social data access to third parties meant that they could not develop the applications that were
vital to Facebook’s growth, engagement, and advertising revenue. Facebook decided to
deliberately sacrifice the value its third-party developers provided to secure dominance in the
Social Advertising Market.
B.
Facebook’s Social-Data Heist
119.
In May 2012, Zuckerberg decided to use the threat of blacklisting from its
Platform to extract precious social data from some of Facebook’s competitors. He instructed his
executives to quietly require “reciprocity” from major competitors that used Facebook’s Platform.
The reciprocity Zuckerberg demanded was the very lifeblood of these competitors’ businesses—
the social data harvested from user engagement on their competing networks.
120.
By the middle of 2012, Facebook began to block some of its competitors from
using its Platform and thereby obtaining Facebook’s social data. Facebook had already blocked
Google, including its competing social network Google+, from access to Facebook’s APIs and
advertising platform. With respect to Twitter, Instagram, Pinterest, and Foursquare, Facebook
would demand “reciprocity” or blacklist them. Reciprocity, of course, meant that these
competing social networks would have to hand over their most valuable asset—their social
data—to their rival Facebook.
121.
If rivals did not comply with Zuckerberg’s demands to hand over their social data
to Facebook, Facebook would simply take it. In May 2012, Vernal directed his subordinates,
Douglas Purdy (Director of Engineering for Platform) and Justin Osofsky (VP of Global
Operations), to build “our own hacky scraper” and a “bunch of scrapers” to crawl rival sites like
Twitter and Instagram and harvest their social data—with or without their consent. If Twitter or
Instagram refused to agree to Zuckerberg’s “reciprocity” proposition, Facebook would use the
scrapers to obtain the data instead.
122.
In August 2012, Facebook considered broadening its list of companies to shake
down for social data—or to block entirely from Facebook’s Platform. That month, Facebook’s
then VP of Business and Marketing Partnerships, David Fischer identified other potential product
categories and competitive companies in each category to block:
I’d expect that a large part of the market for our network will come
from current and potential competitors. Here’s the list that Jud
worked up of what we’d likely prohibit if we were to adopt a ban on
“competitors” using a broad definition:
Social network apps (Google+, Twitter, Path, etc.)
Photo sharing apps (Picasa, Flickr, LiveShare Shutterfly,
etc.)
Messaging apps (WhatsApp, Viber, Imo, KakaoTalk, etc.)
Local apps (Google+ local, Google Offers, Yelp, yp, etc.)
Social search apps (HeyStaks, Wajam, etc.)
Platforms (Google Play, Amazon, etc.)
123.
Facebook thus identified its direct, horizontal competitors for social data,
including those competitors that had, or could create, rival social advertising platforms. These
categories of competing applications, particularly on mobile platforms, threatened Facebook’s
business because they created social networks independent of Facebook, each capable of
generating their own valuable social data. If Facebook lost control over these companies, it would
lose access to the social data they generated, which meant Facebook’s own product could not
drive engagement and sell advertising.
124.
In August 2012, Facebook gave a presentation to its Board of Directors that
included various revenue models to monetize its Platform, including its APIs. The Board
understood that Facebook could monetize its Platform by charging per company, per application,
per user, or per API call.
125.
But Facebook opted to do none of those things. Instead, it decided to sacrifice those
profits in the short term to obtain complete control over the growing mobile application and
advertising markets, thereby maintaining and furthering its dominance of social data and the
Social Advertising Market.
126.
Facebook’s plan was to instead block competitors from using its Platform,
thereby preventing them from eroding the SDBE that protected Facebook’s business. In the case
of a select few companies with social data that Facebook needed to maintain and grow its own
business, however, Facebook would coerce them into agreements to share their most valuable
social data with Facebook. If they refused, Facebook would blacklist them and take it from them
anyway with its own crawling software that would scrape their public-facing site for information.
127.
In September 2012, Zuckerberg formalized his order to shut down the Friends
and News Feed/Timeline APIs and to coerce rivals into providing their valuable data to Facebook
on pain of blacklisting. On October 30, 2012, Vernal notified his subordinates of Zuckerberg’s
decision:
We are going to dramatically reduce the data we expose via the Read
API . . . . We are going to change friends.get to only return friends
that are also using the app Since friends.get will only returned
other TOSed users’data [data from users that agreed to an
application’s terms of service], that means we no longer need the
friends’ permissions. We are going to remove/whitelist access to the
Stream APIs [the News Feed API]. We are going to limit the ability
for competitive networks to use our platform without a formal deal in
place We are going to require that all platform partners agree to
data reciprocity.
128.
This decision meant several things: (1) when a third-party application called the
Friends APIs, it could not obtain information about a user’s other friends unless those friends
already had installed the application; (2) the News Feed APIs would no longer provide information
about a user’s connections; (3) access to those API could be “whitelisted” for third-party
developers that were offered—and agreed to—data reciprocity; and (4) reciprocity would be
required for any access to the APIs.
129.
In November 2012, Osofsky, who was then head of Facebook’s Platform,
summarized the policy changes required by the decision:
Policy changes: define competitive networks + require they have a
deal with us, regardless of size. Maintain size-based thresholds for
all other developers to force business deals. Require data
reciprocity for user extended info to ensure we have richest
identity.
130.
Facebook knew that these changes would eliminate the “growth channel used by
23% of all Facebook apps” and that 89% of the top 1,000 iPhone apps relied on the full friends
list API, with 75% of the top 1,000 iPhone apps relying on the Friends permissions APIs.
Facebook determined that popular applications on its platform with millions of customers would
break as a result of the decision including FarmVille, ChefVille, CityVille, Skype, Spotify,
Xobni, Texas Holdem, Yahoo, Trip Advisor, Microsoft’s Birthday Reminders, Samsung’s clients,
Glassdoor and dozens of others.
131.
On November 19, 2012, Zuckerberg broadly announced his decision to block
competitors or require full data reciprocity for continued access. Facebook’s COO Sheryl
Sandberg immediately ratified the decision, adding that “we are trying to maximize sharing on
Facebook, not just sharing in the world,” with the note that the distinction was a “critical one” and
the “heart of why.”
132.
Facebook began preparing its 2013 plan for its mobile advertising business, which
included the launch of a new version of its Platform, version 3.0. Platform 3.0 would (according
to Facebook) facilitate Facebook’s transition from its desktop advertising business to a mobile
advertising business. A central element of the transition plan was the implementation of
Zuckerberg’s decision to remove the Friends and News Feed APIs.
133.
Vernal explained Zuckerberg’s decision to other Facebook employees in
November 2012, noting that he believed the amount of data that Facebook required from
competitors was “crazy”:
[A company must share] every piece of content by that user that
can be seen by another user. What Mark is saying is he wants
certain partners (I assume not all) to give us news feeds on behalf of
their users, which is kind of crazy.
134.
Facebook continued to formalize its plan to require the right to crawl the sites of
its competitors as a condition of access to its Platform. In November 2012, Facebook’s Group
Product Manager, Rose Yao explained the scheme:
We also reserve the right to crawl a partner website for the user’s
data. Partners cannot blacklist or block Facebook from crawling
your site or using the API. If they do, Facebook reserves the right
to block the partner from using our APIs The theory behind
Action Importers was that we needed to balance the leverage. You
can call our APIs and access our data, as long as we can call your
APIs (if you have them) or crawl your web site (if not) and access
your data. It’s one thing to drag your heels, but if we’re the ones
doing the work then we force you to make a decision—either you
allow us access to your data, or you block us. If you block us, then
it’s really easy/straightforward for us to decide to block you.
What’s changed? When we first started discussing this, we were
talking about doing this only for top partners. I think a lot of folks
interpreted this as just a negotiation tactic—we’d just threaten to
do this if they didn’t cooperate. What’s changed between then and
now is that this is now very clearly not a negotiation tactic—this is
literally the strategy for the read-side platform.
(emphasis added.)
135.
Thus, what began as a negotiation strategy to extract social data from rivals
became the foundation of Facebook’s Platform strategy. For competitors that posed enough of a
threat to create their own rival network, Facebook required them to hand over the only leverage
they had—the social data they derived from their users’ engagement.
136.
For some rivals that directly competed, no amount of data would justify access to
Facebook’s Platform, and for nascent threats that relied on Facebook’s platform that did not have
any useful data to extract, Facebook’s decision was to simply cut off their access to the Friends
and News Feed APIs, killing their businesses almost immediately.
137.
Vernal expressed concern about the strategy to Zuckerberg in November 2012,
noting that he was skeptical that competitors such as Pinterest would allow Facebook to take their
social data. If they, as well as others, did, Facebook would become a central exchange for data
collected among competitors. That is, competitors would share the data to Facebook and Facebook
would then share that data back to the competitors that participated in the scheme. Facebook
would become a data-passthrough mechanism.
138.
In December 2012, despite recognizing that API access, particularly when
bundled with Facebook’s NEKO advertising platform, was profitable, Facebook decided not to
charge for API access and began full implementation of Zuckerberg’s decision.
139.
Although Facebook had planned to announce its decision not to allow access to
Friends data through its Friends and News Feed APIs in a public blog post, Zuckerberg vetoed
that decision in December 2012. Instead, Zuckerberg decided to enforce the decision selectively
and covertly after deliberately analyzing Facebook’s competitors. Some competitors would be
blocked entirely from the APIs, while some select few would be blocked only if they did not
provide their own social data to Facebook.
C.
Facebook Targets Its Competitors for Reciprocity or Denial of API
Access
140.
Beginning in January 2013, Facebook began an internal audit of all of the
applications that relied on its Platform. It immediately identified competitors to shutdown entirely
from accessing Facebook’s APIs or advertising platform. Specifically, Zuckerberg ordered that
WeChat, Kakao, and Line be restricted from using the Friends and News Feed APIs and even from
advertising on Facebook’s NEKO and other platforms.
141.
Facebook’s David Fischer balked at the decision, noting that blocking competitors
even from the advertising platform was irrational and unworkable:
I continue to believe we should allow ads from competitors for
several reasons: We should be secure enough in the quality of our
products to enable them to compete effectively in the open
marketplace It looks weak to be so defensive. This will be a
challenge to enforce. We have many competitors and the list will
grow in time. How will we judge retailers and e-commerce sites as
we grow Gifts, since they arguably are competitors too?
142.
Fischer was right. The decision made no rational economic or business sense. The
sole purpose of refusing to sell social data as part of the Facebook Platform or through advertising
was to shut out competition and allow Facebook to dominate the Social Advertising Market. Aside
from that anticompetitive purpose, the decision to refuse to sell social data or advertisements even
at full price was so facially irrational that Facebook’s own employees who may not have been
fully privy to the anticompetitive scheme protested at the irrationality of the decision.
143.
That same month Facebook’s Osofsky pleaded with Vernal to make an
announcement that would send a clear signal to developers, but Vernal responded that Zuckerberg
had already rejected that approach. As Vernal explained, telling developers about the decision
means bearing the “very real cost” of “changing the rules,” including the “PR cost” of betraying
developers that Facebook had induced to build for Facebook’s APIs and Platform.
144.
That same month, Facebook continued to implement Zuckerberg’s decision to
blacklist competitors. He ordered that Facebook competitor Vine be “shut down” from
Facebook’s API and Platform, including from advertising. Facebook had again sacrificed the
profits it would glean from increased engagement and advertising revenue as a result of Vine’s
use of Facebook’s Platform in exchange for the exclusion of Vine from the competitive landscape.
145.
Indeed, Facebook’s mobile advertising platform was growing rapidly, and
blocking large companies from using it made no economic sense other than to effectuate
Zuckerberg’s scheme to prevent rivals from competing with Facebook. In a January 20, 2013 email,
Facebook’s then-Director of Product Management and Platform Monetization team, Deborah Liu
reported: “Neko grew another 50% this week! Hit a high of $725k Friday (see charge below). We
are now 5% of total Ads revenue and 21% of mobile ads revenue.”
146.
Lessin responded to the news: “The neko growth is just freaking awesome.
Completely exceeding my expectations re what is possible re ramping up paid products.”
147.
Liu was clear, however, that the increased revenues occurred notwithstanding the
blacklisting of formerly large spenders, such as WeChat: “WeChat and other competitive
networks are no longer advertising on Neko based on policy.”
148.
In February of 2013, Facebook shut down Yahoo’s access to key APIs, resulting
in direct negotiations between Yahoo’s Marissa Mayer and Facebook’s Sheryl Sandberg in order
to restore Yahoo’s access to the Facebook Platform.
149.
In March 2013, Facebook’s key Platform employees began to voice concern that
the approach taken by Facebook of shutting down access and then coercing “data reciprocity”
was problematic. They instead encouraged making an upfront announcement that the APIs would
be unavailable and then negotiating a deal for access to Facebook’s Platform. In an e-mail that
month from Purdy to other Facebook employees and executives, he wrote:
I have been thinking about the challenges around reciprocity and
competitive enforcement (friends.get, etc.) and fact that it is all post
facto. The way we are structured today, you build an app on FB and
then launch and then we may just shut you down, harming users and
the developer. I wonder if we should move as quickly as possible
to a model in product where all you get from platform is login
(basic info) and sharing without approval. All other APIs are
available in development, but have to be approved before the app
launches to real users (basically all apps using friends.get have to
have that capability approved). We are roughly on course to
deliver this as part of unified review, save for the more granular
approval for things like friends.get? What I love about this too is
we could make our whitelists so much cleaner by making each
capability an approval thing. Marie: I think makes your
“deprecations” much easier. Thoughts?
150.
Although Facebook moved towards full deprecation of the APIs with the
exception of those with whitelisting agreements, it continued its campaign of quietly shutting
down competitors’ access to the APIs and then asking them to make a reciprocity deal. Indeed,
Facebook soon thereafter shut down three competing Amazon apps, resulting in Amazon
protesting that the decision “will break 3 of our live integrations.”
151.
That same March in 2013, Facebook used API and Platform access as leverage to
acquire rival Refresh.io. Facebook internally decided that it would threaten Refresh.io with denial
of access to the APIs unless it sold its business to Facebook. That same form of leverage would
be used to acquire other rivals—either they sold to Facebook or they saw their business ejected
from Facebook’s Platform.
152.
In 2013, Facebook also began using mobile spyware company Onavo to secretly
track application usage on customers’ phones. Onavo, through deceptive terms of service, tracked
app usage in real time, and Facebook used that data to target specific competitors. By April 2013,
Olivan was using Onavo to track Snapchat, Pinterest, WhatsApp, Tumblr, Foursquare, Google,
Path, vine, Kik, Voxer, MessageMe, Viber, GroupMe, Skype, Line, and Tango. One internal
Olivan presentation contained detailed usage data for these applications from August 2012 to
March 2013.
153.
By July 2013, Onavo data was providing detailed intelligence to Facebook on 30
million Onavo users. Among all of the apps, the data showed the meteoric rise of WhatsApp, a
direct competitor to Facebook’s own fledgling product, Messenger.
154.
Armed with detailed intelligence about its competitors—both on and off the
Facebook Platform—Facebook ordered a detailed audit of Facebook applications that relied on
the Friends and News Feed APIs.
155.
Facebook’s Director of Developer Platforms & Programs, Konstantinos
Papamiltiadis, reported back that there were 40,000 apps using the APIs that were to be restricted,
with 7% of them being photo or video sharing apps.
156.
Facebook then began to categorize these third-party applications into three general
categories: (1) developers that “may cause negative press” if their access to APIs were shut down;
(2) applications that “provide strategic value”; and (3) applications that were “competitive” or
“not useful to FB. Application developers that would experience “a Major Business
Disruption/Kill” as a result of the restriction of API access received a “PR flag.”
157.
In response to the categorization, Lessin immediately ordered his subordinates to
“shut down access to friends on lifestyle apps . . . because we are ultimately competitive with all
of them.” (emphasis added).
158.
As Facebook continued its analysis of the applications that relied on the Friends and
News Feed APIs, it became clear that Facebook’s plan would result in the deprecation of the
“majority of the API surface”—namely, the APIs that were the most essential parts of the
Facebook Platform.
D.
The Decision to Remove Developer Access to the Friends, News
Feed and Other Crucial APIs Lacked Any Legitimate Justification
159.
The engineers tasked with implementing Zuckerberg’s decision to restrict access
to the APIs were baffled. The decision made no technical sense whatsoever. Indeed, there was no
justification for it other than to squelch competitors who threatened Facebook’s dominant position
and SDBE.
160.
As Facebook engineer, David Poll, had written to all Platform Engineers earlier in
2011, the decision would mean gutting the Facebook Platform of functionality used—and
needed—by some of the most important mobile apps built on Facebook’s Platform:
I was thinking about the Platform 3.0 friend list change a bit as I
was using my Android phone tonight and realized that two for the
apps that most impact my day-to-day mobile experience will be
completely, irrevocably broken by this change In both of these
cases, the apps are adding real value to my experience, and in both
of those cases, I have zero expectation that any of my friends will be
using the app. The fundamental problem I’m having with this
change is that my friend list is my information—it’s part of who I
am, and for Facebook to shut down this access primarily comes
across to me as FB intruding upon and shutting down my own access
to my own information.
161.
Poll concluded, “No matter how you slice it, this change is going to have a
significant negative impact on my day-to-day smartphone experience.
162.
Poll was correct. The change meant breaking applications that added significant
value to Facebook’s network and increased valuable user engagement on Facebook’s core
product. The decision to deliberately break these applications had only one plausible purpose—to
strengthen the SDBE and to ensure that competitors could not create rival social networks that
could compete with Facebook.
163.
That proposition was entirely obvious to those responsible for Facebook’s
Platform. In an August 2013 e-mail, senior Platform engineer Bryan Klimt wrote to Ilya Sukhar,
Facebook’s Head of Developer Products and Senior Engineer working on its APIs, and others
working on Facebook’s Platform, stating that the reason for the decision to block access to the
Friends and News Feed APIs was to exclude competitors and that all other reasons were simply
false and pretextual. To begin with, Klimt was clear that the removal of the APIs was “ridiculous”
because they were so essential to the Facebook Platform:
I’m trying to write a post about how bad an idea it would be to
remove the api that lets you get a list of user’s friends from Facebook
Platform. In order to illustrate my point, I’d like to satirically suggest
removing some API that is so core to the developer experience and
that removing it would be ridiculous on its face. For example,
removing the Windows API method that lets you create a new
window. Or removing the Twilio API method that lets you send a
text message. Both suggestions are utterly insane. The problem is,
for Facebook Platform, removing the method to let you get a list of
friends literally is already that ridiculous. I can’t think of an
example more ridiculous to parody it with.
164.
Klimt then dispelled any notion that the APIs were being removed for any
technical or functionality-driven reason:
Before we discuss in more detail, I’d like to clear up some
misconceptions about the deprecations. I’ve heard some rumors
floating around about why we are doing this. But many of them are
clearly pablum designed to make engineers think this decision has
solid technical reasons. It does not. 1/ This API can be abused so we
can remove it. False. That is a non-sequitur. Lots of APIs can be
abused. Our whole product can be abused. That’s why we have one
of the best teams in the industry at detecting and stemming abuse.
That team, plus Unified Review, is more than sufficient to deal
with any theoretical abuse coming from this API. Even if this were
true, who wants to be in that classroom where the whole class is
punished for transgressions of a few?
165.
Klimt also was clear that the APIs were not being removed in favor of new or
different APIs providing the same features:
2/ It’s okay to remove because we’ve provided alternatives for
common uses. False. If you think that’s true, then I don’t think you
realize why developer platforms exist. If we wanted to limit
Facebook to the set of use cases we’ve already imagined, we could
just do that ourselves, and not even have a Platform. The purpose of a
Platform is to let people build new things on top of it. It’s to enable
the whole universe of ideas that anyone in the world could think of.
Developers out there will have all sorts of crazy ideas. We want them
to build those crazy ideas on top of Facebook. Do you know why
Facebook was originally built for the WWW instead of being part
of CompuServe or AOL’s proprietary networks? It’s because the
web is an open and extensible platform. It lets developers make their
craziest become reality.
166.
Klimt then explained that the real reason was to hurt Facebook’s competitors and
prevent them from competing with Facebook:
So, if neither of those reasons explains why we are doing this,
what’s driving it? The only reason I’ve heard that makes sense is
that we are worried about people “stealing the graph”, we are doing
this as a protectionist grab to make sure no one else can make a
competing social network by bootstrapping with our social graph.
Okay, so let’s assume for a minute that the social graph does belong
to us, and not to our users. And let’s even go so far as to assume
that this is a real problem, although, I’m not convinced it is. I mean,
concerns that other companies will steal our friend graph may just
be paranoia. But for the sake of argument, let’s say it’s not. Then
what? We’re removing the core API in our developer platform.
Out of concerns that someone will steal our social network
product. That sends a clear message to developers: Facebook
Platform comes second to Facebook the Social Network Product.
This has been a criticism all along with our Platform. When you go
read the blog posts critical of our Platform, they all hit on this same
point. When our APIs are subjugated to the whims of our other
products, they can’t be stable. And an unstable platform isn’t really
a platform at all. So then you are left with 2 big problems. 1/ How
do you convince external developers to build on a platform where
the most basic core APIs may be removed at any time? I mean, the
only big value we bring to the table right now is in distribution and
discovery, and that’s going to encourage developers to do only the
most superficial integration with Facebook. Basically, they’re
going to do just enough to be able to use Neko ads. 2/ How do you
convince internal developers to work on Platform knowing it’s
only ever going to play second fiddle to the rest of the company? I
mean why should any of us work on a product that could be
crippled at any time to benefit another team? If I worked on
Platform, I would be seriously reconsidering my options if the API
gets deprecated.
(emphasis added).
167.
Klimt was clear—the decision to remove the APIs lacked any technical or business
justification other than to prevent a competitor from creating a competing social network, eroding
the SDBE protecting Facebook’s business. Any proffered justification by anyone at Facebook to
the contrary was entirely pretextual.
168.
Moreover, the decision to remove the APIs permanently destroyed the value of
Facebook’s Platform. If developers could not trust Facebook to maintain the APIs as stable parts
of its Platform, they would not risk writing apps for the Platform in the future. The decision meant
scuttling Facebook’s valuable Platform for the ability to prevent a rival social network from
taking hold.
169.
Sukhar responded to Klimt, noting that he agreed and that he “talks about this every
single meeting.” His pleas to Vernal, Purdy and Zuckerberg to reverse their decision fell on deaf
ears. The decision had been made and Klimt and Sukhar would have to implement it.
170.
Facebook continued its audit of apps that relied on the APIs. Most of the Apps
were important to the Facebook ecosystem. Indeed, Facebook acknowledged they “are not
spammy or crap, but apps users like a lot.” Nonetheless, Facebook’s Papamiltiadis concluded that,
among others, apps like Sunrise, Yahoo, IFTT, Friendcaster, MyLife, Sync.me, YouTube,
Contacts+, and Bitly “overlap with Facebook products” and “could compromise our success in
those areas.”
171.
Facebook’s careful monitoring of competitive apps continued well into 2013, and
given its heavy reliance on data secretly collected by Onavo, Facebook purchased Onavo on
October 14, 2013. Facebook used that data to determine which apps competed with its social
network and thus posed a threat to the SDBE. It then targeted those companies for withdrawal of
API access and coerced data reciprocity agreements.
172.
In October 2013, Facebook’s Purdy reported that Facebook was dividing apps into
“three buckets: existing competitors, possible future competitors, developers that we have
alignment with on business model.” Facebook’s Eddie O’Neil believed that the “separation
between those categories doesn’t feel clean” and that the overlap was problematic. As O’Neil
observed, “apps can transition from aligned to competitive and will ultimately make us sad that
we leaked a bunch of data to them when they were aligned.”
173.
Sukhar objected to the entire exercise, noting that he had been speaking to many
dozens of developers “who will get totally fucked by this and it won’t even be for the right reason.”
Sukhar explained that his “engineers think this plan is insane and I’m not going to support an all
hands [meeting] to convince them otherwise.” (emphasis added).
174.
As Sukhar noted, the decision to withdraw the Friends and News Feed APIs from
the Platform made no technical sense whatsoever, and Sukhar could not bring himself to tell his
engineers— who saw through the ruse—otherwise. It was obvious that Facebook was seeking to
squelch potential competition—namely, by preventing user growth and engagement for
competitive apps. As one Facebook engineer commented about the obvious purpose of the plan to
remove the APIs: “I understand we want to make it hard for a developer to grow a new app.”
175.
The review of apps continued and specific decisions with respect to certain highly
sensitive competitors were escalated to Mark Zuckerberg. As one internal Facebook e-mail
explained:
We maintain a small list of strategic competitors that Mark
personally reviewed. Apps produced by the companies on the list
are subject to a number of restrictions outlined below. Any usage
beyond that specified is not permitted without Mark level signoff.
176.
In December 2013, Klimt complained to Sukhar about the audit and categorization
process:
So we are literally going to group apps into buckets based on how
scared we are of them and give them different APIs? How do we
ever hope to document this? Put a link at the top of the page that
says “Going to be building a messenger app? Click here to filter
out the APIs we won’t let you use!”
And what if an app adds a feature that moves them from 2 to 1. Shit
just breaks? And messaging app can’t use Facebook login? So the
message is, “if you’re going to compete with us at all, make sure
you don’t integrate with us at all.”? I am just dumbfounded.
177.
As Poll recognized in response to Klimt’s complaint, the changes to Facebook’s
Platform were “more than complicated, it’s sort of unethical.” Klimt agreed with the assessment,
noting that the API removal “feels unethical somehow It just makes me feel like a bad person.”
E.
Facebook Prepares to Announce Removal of the APIs
178.
Zuckerberg decided to announce the API removal under the cover of a major
change to the Facebook Platform, codenamed PS12N, which would be announced at the next
Facebook F8 Developer Conference. Facebook’s engineers were accordingly instructed in
September 2013 to bury the changes to the API and announce them quietly along with the changes
that would be announced at the conference.
179.
In the run-up to its API withdrawal announcement, Facebook continued its audit
of applications on its platform that were using the APIs. During that process Facebook continued
to classify potential competitors, including LinkedIn and AirBnB, as companies that would be
denied access with no whitelist exception.
180.
Although Facebook knew that the APIs were going to be removed by the next F8
conference, it continued to tell developers to rely on them. As a Facebook Platform evangelist noted
about one particular document frequently shared with developers, “the language in here around
friend permissions is very counter to our upcoming platform simplification efforts” and “feels
against the spirit of where we are headed.”
181.
That was, however, precisely what Facebook wanted—to continue to entice
developers to build their software and their businesses on APIs that made them dependent on
Facebook. The use of the APIs meant that competitors could be abruptly shut out of the market,
useful apps could be extorted for valuable social data, and the rest could simply be destroyed.
182.
By October 2013, Facebook required certain application developers it chose to
whitelist to sign Private Extended API Agreements, which obligated them to purchase large
amounts of advertising or to provide their own valuable social data to Facebook in exchange for
continued access. That month, for example, Facebook whitelisted Royal Bank of Canada’s
application in exchange for the purchase of social data through Facebook’s NEKO advertising
platform.
183.
Facebook catalogued and tracked developers on its platform that would likely
complain about the decision, creating negative press. Facebook’s internal employees tasked with
crafting a PR message explained the undertaking in a December 2013 e-mail:
In prep for Platform Simplification, we’re putting together a list of
developers who we think could be noisy and negative in press
about the changes we’re making: Primarily we think it will be a list
of the usual suspects from past policy enforcements. We’d love to
pull from your historic knowledge on the topic. Is there anybody
you’d add to the list below? We’re going to build plans around how
we manage and communicate with each of these developers. There
are also comms plans in the works for working with developers
who are high ad spenders and friends of Mark/Sheryl.”
184.
Facebook planned to manage its message carefully, as its decision likely would
alienate even those developers who were making large purchases of social data from Facebook
through ads and/or who were friends of Facebook’s two most senior executives, Zuckerberg and
Sandberg. Those developers were identified and the message to them was carefully crafted to avoid
a PR disaster. For most application developers, however, the decision would result in the complete
exclusion of their applications from Facebook’s ecosystem—which would likely be fatal to their
businesses.
185.
Facebook targeted potentially “noisy” or “negative” developers individually,
including, but not limited to, the following applications and developers: iLike, Rock You, Zynga,
Path, Flipboard, Slide, Social, Fixer, SocialCam, Viddy, BranchOut, Vince, Voxer, Message Me,
Lulu, Anil Dash, Super Cell, Kabam, Washington Post, Guardian, The Wall Street Journal, Jason
Calacanis, Cir.cl, Bang with Friends, Tinder, Social Roulette, App Wonder, Ark, Vintage Camera,
and Girls Around Me.
186.
Facebook also used call-log data secretly collected by Android users to target
developers and applications to be shut down.
187.
The entire process led Facebook engineer George Lee to lament:
We sold developers a bill of goods around implicit OG [Open
Graph] 2 years ago and have been telling them ever since that one
of the best things they could do is to a/b/ test and optimize the
content and creative. Now that we have successes. . . . We’re
talking about taking it away [Developers] have invested
a lot of time to establish that traffic in our system . . . . The more I
think about this, the more concern I have over the pile of asks
were [sic] making of our developers this year. PS12N is going to
require them to alter how they deal with APIs (and for limited
value).
188.
Thus, as Facebook continued to prepare its API withdrawal announcement,
Facebook’s own executives recognized that Platform developers had been conned into relying on
Facebook’s APIs. Facebook knew full well that it intended to remove the APIs, but it allowed
and encouraged developers to build entire businesses on and around them. As Lee put it, they
were sold a “bill of goods.”
189.
By 2014, it was clear that with the exception of a few apps and developers, most
would be denied access entirely to the Friend and News Feed APIs.
190.
In January 2014, Zuckerberg debated denying API access to dating apps.
Facebook decided that it would whitelist Tinder and other anointed dating apps and shut down the
rest, clearing the way for the selected apps to dominate the dating market. Zuckerberg reasoned
that although Facebook would ultimately create its own dating app, it would let Tinder and a
select few others to survive until Facebook’s competing app was ready:
I’ve been thinking a lot about Tinder and other people
recommendation apps since about 10% of people in many countries
are using a Tinder now. People recommendations seems like
something that should be right up our alley, but it’s currently
something we’re not very good at. Tinder’s growth is especially
alarming to me because their product is built completely on
Facebook data, and it’s much better than anything we’ve built for
recommendations using the same corpus . . . . I think this is a big
and important space and it’s something we should have a team
working on— probably to develop people recommendation Hunch
sections for now.
191.
Zuckerberg became increasingly involved in assessing whether individual apps
would be whitelisted when the APIs were removed. Facebook’s senior-most executives
accordingly prepared recommendations for his consideration. In a January 2014 presentation
entitled, “Slides for Mark,” for example, Facebook employees summarized the results of the
ongoing app audit. The presentation observed that the changes would make it “impossible to build”
an app without a whitelist agreement with Facebook. The presentation made special
recommendations for apps that purchased large amounts of social data through Facebook’s
NEKO platform or whose developers were friends with Zuckerberg or Sandberg. The bulk of
the 41,191 apps that relied on the Friends or News Feed APIs, however, would be shut out and, as
a result, completely destroyed .
192.
Although the effect on these apps was clear, Facebook continued to evangelize the
APIs to developers. In January 2014, Facebook’s George Lee sounded the alarm to Purdy and
Vernal, which fell on willfully deaf ears:
[P]artner managers are still selling products that we ask them to sell, so
when it comes to feed integration, we’re still telling people to use [Open
Graph]. The last f8 was all about implicit [Open Graph], so while we may
have decided amongst ourselves that this is no longer the future without an
alternative we don’t have anything to tell current [developers] (so partners
continue to tell them to use [Open Graph] and they continue to integrate
it).
193.
The plan to quietly take away the APIs in favor of a new crippled developer
platform was called the “switcharoo plan” by Facebook’s engineers. It was clear to all involved
that the announcement of the changes to the platform at the upcoming F8 conference was cover for
the radical changes Facebook planned to make to its platform—namely, the removal of the Friends
and News Feed APIs.
194.
During March 2014, Facebook’s engineers and employees continued to be baffled
by the upcoming decision. As one employee noted:
It seems a bit odd that we block other developers from doing things
on our platform that we’re ok with doing ourselves. Do we consider
ourselves exempted? That seems a little unfair especially when our
stance on some of these policies is that they’re about ensuring trusts
and a great experience. My mental model on how platform is a level
playing field could be way off though.
195.
The decision made no sense to Facebook’s own employees, particularly because
Facebook itself needed the APIs to make their own competing applications, including Facebook’s
Messenger application. Facebook’s executives ignored all of the concerns raised by their
employees, including their API engineers, and continued to drive towards the announcement of
the removal of the APIs at F8.
196.
The real reason for the removal of the APIs was kept tightly under wraps. In April
2014, right before the announcement, Vernal warned Sukhar that if any mention was made of
the competitive reasons for the removal of the APIs (as Sukhar wanted), there would be a “high
likelihood of breaking into jail.”
F.
The Announcement at F8
197.
On April 30, 2014, Facebook announced “The New Facebook Login and Graph
API 2.0” on Facebook’s website. Facebook heralded changes to its new Login system for several
pages. Buried in the announcement was a quiet statement about the Platform’s most important
APIs—the Friend and News Feed APIs: “In addition to the above, we are removing several rarely
used API endpoints; visit our changelog for details.”
198.
These APIs were not rarely used at all. Tens of thousands of third-party apps were
actively using and building on the APIs. Internal Facebook engineers likened them to essential APIs
in Microsoft’s Windows and were outraged at the removal. Five of the top ten Facebook Apps
surveyed in December 2012 relied heavily on them. The announcement was entirely false and
was deliberately buried beneath other API announcements to avoid drawing attention to the
competition-crippling effect of the decision. In fact, today, the changelog referred to in the
announcement is no longer accessible on Facebook’s page even though years of other changes are.
199.
When Mark Zuckerberg took the stage at F8 days later for his keynote speech,
there was no mention of the removed APIs. Instead, Zuckerberg emphasized the “stability” of
Facebook’s mobile platform just as Facebook quietly removed some of the most heavily relied-
upon and necessary APIs in Facebook’s Platform.
200.
At the twenty developer sessions preceding the announcement, not one mention
was made of the API removal or that the upcoming changes would simply break nearly all of the
more than 40,000 third-party apps that relied on the APIs. After April 30, 2015, the APIs were no
longer part of any available version of Facebook’s Platform.
201.
Facebook thus had successfully destroyed any application that could possibly
create a product that could threaten the SDBE that protected Facebook’s dominant position and
market power. A select few would be required to hand over their most valuable resource—their
social data—to their behemoth competitor in exchange for continued access.
VI.
THE WHITELIST AND DATA SHARING AGREEMENTS
202.
After the announcement and through the full removal of the APIs in April 2015,
Facebook continued to make a series of agreements that forced certain competitors to hand their
data over to Facebook. For example, Facebook forced certain third-party developers that it
identified as competitive threats with valuable social data to sign Private Extended API
agreements—referred to throughout this Complaint as “Whitelist and Data Sharing Agreements”
or simply “the Agreements”—in order to obtain access to the Friends and/or News Feed APIs.
203.
Facebook’s Whitelist and Data Sharing Agreements, as of January 2015, included
a provision that acknowledged that the APIs they covered are not available to the general public.
An exhibit to each Whitelist and Data Sharing Agreement listed the specific Facebook APIs to
which a particular developer was being granted access.
204.
These Agreements were only offered in exchange for massive purchases of
Facebook’s social data through mobile advertising and/or through the provision of the
developer’s own social data back to Facebook (so-called “reciprocity”).
205.
As Facebook executives and engineers understood and acknowledged in internal
communications, this scheme allowed Facebook to serve as a “data pass-through” among
competitors. Competitors with Whitelist and Data Sharing Agreements provided social data to
Facebook, which sold data obtained from one competitor to another whitelisted competitor.
206.
If a developer refused to participate in the scheme, it was excluded entirely from
Facebook’s Platform because the most important APIs—the Friends and News Feed APIs—
would not be available to it.
207.
In January 2015, Facebook provided Whitelist and Data Sharing Agreements to the
dating apps Tinder and Hinge, because of the value of the social data those applications produced.
208.
In February 2015, when Airbiquity (another third-party developer) sought a
Whitelist and Data Sharing Agreement, Facebook lied to them, telling Airbiquity that the specified
APIs “won’t be available to anyone” after April 30, 2015, and that “all similar integrations will
be subject to the same deprecations/restrictions.”
209.
That same month (February 2015), Facebook secretly signed Whitelist and Data
Sharing agreements with other third-party developers, including Netflix, Nissan, and Lyft.
210.
In April 2015, Facebook’s manager of strategic partnerships, Ime Archibong,
internally celebrated the fruition of Facebook’s three-year plan to eliminate its competition
through Platform changes: “Three years coming, but the ‘Platform Simplification’ initiative
finally lands this week.”
211.
Also in April 2015—as Facebook finally cut off all public access to the Friends and
News Feed APIs—Facebook continued to receive requests for Whitelist and Data Sharing
Agreements from companies such as Microsoft, Hootsuite, and Walgreens.
212.
Facebook had already extracted valuable social data from dozens of competitors,
including Foursquare and Pinterest, in the run-up to the announcement and ultimate removal of
the APIs. Without discovery, the precise number and identity of those who entered into Whitelist
and Data Sharing Agreements with Facebook cannot be known for certain, but publicly available
information indicates that dozens of app developers entered into such Agreements with Facebook.
213.
Absent the Agreements and Facebook’s overall anticompetitive scheme to exclude
third- party developers, other companies could have created their own social data through the
proliferation of their own competing social networks. The engagement on their competing
networks and the social data generated from that engagement would have increased the value of
their networks because of network effects. As the amount of social data generated and monetized
on these competing networks increased, Facebook’s SDBE would erode, potentially driving more
users to new platforms.
214.
None of that could happen as long as Facebook could coercively demand all of
the valuable social data generated on any competing platform. The Whitelist and Data Sharing
Agreements ensured that competitive threats such as Foursquare could not accumulate enough
social data to create their own feedback loop in—and perhaps come to dominate, through network
effects—any market in which Facebook anticipated competing or actually competed.
215.
The Agreements also ensured that Facebook’s decision to destroy forty thousand
applications built on the Friends and News Feed APIs would be effective—and remain so. If
Facebook did not control the supply and sale of social data, excluded developers could simply
build their applications on another platform. But by entering into a network of Whitelist and Data
Sharing agreements, Facebook ensured that no such competing platform could arise. The
Agreements strengthened and preserved the SDBE and/or prevented the proliferation of rival
generators of social data and third-party developer platforms.
216.
In a world where no such Agreements existed, a rival such as Pinterest or
Foursquare would obtain more engaged users, resulting in more social data that those competitors
could monetize through their third-party or advertising platforms. The thousands of developers
denied access to Facebook’s Platform would therefore build their applications on Foursquare or
Pinterest instead of simply going out of business or changing their products/businesses
dramatically to survive. By forcing those and other similarly situated companies to hand over their
social data, Facebook made sure its Platform would be the only viable platform upon which a third-
party social application could be built.
217.
As explained in the next section, the only remaining threat to Facebook’s Social
Advertising dominance was from a completely independent competitor that did not rely on
Facebook’s Platform, and thus could not be extorted into handing over its data in exchange for
API access. For such companies, Facebook would pay any price to remove them from the
market—and use their assets to strengthen Facebook’s SDBE.
218.
But first, Facebook had to identify such threats to its market dominance. Enter
Onavo.
VII.
THE
SURVEILLANCE
AND
ACQUISITION
OF
COMPETITIVE
THREATS
219.
To ensure that its scheme to maintain and expand its market power would work,
Facebook had to control an important source of competition: independent social networks and
producers of social data. Although Facebook could simply destroy any competition that relied on
its Platform by denying access to essential APIs, this would do nothing to stop a competitor that
was growing its network of engaged users entirely independent of Facebook.
220.
To detect such threats before they became too formidable, Facebook sought a way
to covertly surveil millions of mobile users to determine what applications they were using, and
how. Mobile applications were particularly important—and concerning—to Facebook, as desktop
engagement was shrinking while mobile apps rapidly proliferated. By 2012, it was clear to
Zuckerberg and to Facebook that any threat to its dominance would come from a mobile
application. As explained in this section, Facebook used mobile spyware on an unprecedented
scale to surveil, identify, and eventually remove from the market through acquisition competitors
that independently threatened Facebook’s dominance and/or the SDBE protecting its monopoly,
market power and business.
A.
Facebook Relies on Onavo’s Surveillance of Facebook’s
Competitors, and Acquires and Uses Onavo’s Assets
221.
Onavo was an Israeli mobile web analytics company founded by Roi Tiger and Guy
Rosen in 2010. The company designed spyware designed to surveil users as they used their mobile
devices. To obtain extensive information on a user’s usage of mobile applications and of
bandwidth, Onavo cloaked its spyware in virtual private networks (“VPNs”), data compression,
and even in mobile privacy apps.
222.
Onavo sold the mobile usage data it collected to Facebook, which in turn used the
real- time information it received from Onavo to determine which mobile applications posed a
threat to Facebook’s dominance and to the SDBE protecting Facebook from new entrants and
competition. Facebook used Onavo data to: (a) identify and target competitors from which
Facebook could demand Whitelist and Data Sharing Agreements; (b) identify and target
competitors to whom Facebook would completely deny Platform access; and (c) identify and
target competitors that Facebook would remove from the competitive landscape entirely through
acquisition.
223.
Facebook received Onavo information in real time, which included the two most
important metrics for competing mobile applications—their reach and engagement. Reach
measures the size of an application’s user base, and “engagement” measures the extent to which
users actively engage with the application. An application with high reach but low engagement
cannot generate the sort of social data that Facebook needs to feed its advertising platform with
actionable targeting data. Conversely, an application with high engagement but low reach doesn’t
generate social data from enough people to attract a broad base of advertisers. The greatest threat
to Facebook’s business would come from an application that exhibited strong reach and strong
engagement—and especially one that showed rapid growth in both metrics, indicating the
development of network effects.
224.
As the potential threat to its market dominance from mobile applications
continued to grow, Facebook sought to obtain exclusive control over Onavo’s surveillance data—
and over its mobile spyware code and installed base. On October 13, 2013, Facebook acquired
225.
On its blog, Onavo’s CEO Guy Rosen and CTO Roi Tiger, announced that Onavo
would continue as a standalone brand: “When the transaction closes, we plan to continue running
the Onavo mobile utility apps as a standalone brand. As always, we remain committed to the
privacy of people who use our application and that commitment will not change.”
226.
Facebook, however, had other plans. It immediately began integrating Onavo’s
applications into both its business operations and its acquisition strategy. Facebook, for example,
began analyzing data secretly collected from Onavo’s Protect software, which was a massive
surveillance and data collection scheme disguised as VPN software. Billed as a way to “keep you
and your data safe,” Onavo Protect in fact monitored all web and mobile application traffic on a
user’s mobile device.
227.
When an Onavo Protect user opened a mobile app or website, Onavo software
secretly redirected the traffic to Facebook’s servers, where the action was logged in a massive
database. Facebook product teams then analyzed the aggregated Onavo data to determine which
apps and features people were using in real time, how frequently they used the apps, and for how
long. If the data in an app was not encrypted, this information was as specific as (for example)
the number of photos the average user likes or posts in a week in that app.
228.
Based on a 2017 estimate, Onavo’s mobile apps were downloaded an estimated
twenty- four million times, and Facebook collected, compiled, and leveraged all of the collected
data. By February 2018, Onavo apps had been downloaded thirty-three million times across both
iOS and Android.
229.
As the former chief technologist for the Federal Trade Commission remarked to
the press, Onavo was being leveraged against user interests to stifle competitive innovation:
Instead of converting data for the purpose of advertising, they’re
converting it to competitive intelligence . . . . Essentially this
approach takes data generated by consumers and uses it in ways
that directly hurts their interests—for example, to impede
competitive innovation.
230.
Since 2011 and through the present, Onavo products have provided Facebook with
real time data about mobile users on a breadth and scale not available through any other service or
app. Using Onavo data, Facebook was able to determine which potential competitors it could
target for its Whitelist and Data Sharing agreements; which competitors it could destroy by
denying access to crucial APIs; and which competitors is needed to remove from the market
through acquisition to preserve its monopoly position and SDBE.
231.
Moreover, by monitoring potential threats, Facebook ensured that it had no blind
spot— any application that posed a threat to its dominance was dealt with through anticompetitive
and unlawful Whitelist and Data Sharing Agreements, destruction by denial of access to vital APIs
on Facebook’s platform, or by acquisition.
232.
By acquiring Onavo, Facebook obtained exclusive access to the only real-time and
high- quality source for mobile app user metrics at scale. Because of the acquisition of Onavo,
Facebook strengthened the SDBE by ensuring that any threat to its dominance of the Social
Advertising Market was dealt with at the earliest possible stage. Indeed, through Onavo, Facebook
was able to (and did) track mobile app usage and trends essentially from launch. If a potential
Facebook killer was on the rise, Facebook had a unique tool to identify it before anyone else
could—and Facebook used it.
233.
In the years after it acquired Onavo, Facebook continued to aggressively leverage
the company’s codebase in deceptively labeled apps that facilitated maximum surveillance and
data collection of mobile users. For example, Facebook placed Onavo spyware in apps whose
stated purposes required privileged access to user’s mobile devices (in some cases, super-user
privileges), allowing Facebook to gather data on virtually every aspect of a user’s mobile device
234.
The abuses by Facebook were so flagrant that on August 22, 2018, Apple banned
Facebook’s Onavo app from its App Store. Apple ejected Facebook’s app from its marketplace
because it violated Apple’s rules prohibiting apps from using data in ways far beyond what is
required to run the app and provide advertising. In other words, because Onavo Protect was
leveraging far more data than any VPN could conceivably need, it was clear that the true purpose
of the app was to spy on Onavo users, and Apple would not allow it.
235.
Indeed, the amount of surveillance was jaw-dropping. Facebook’s Onavo Protect
app reported on users’ activities whether their screens were on or off; whether they used WiFi or
cellular data; and even when the VPN was turned off. There was simply no rational relationship
between the data collected and the purported purpose of the application. Put simply, a VPN that
collected data even when the VPN was off was an obvious subterfuge for blatant spying on user
behavior.
236.
Undeterred, Facebook repackaged its Onavo spyware as a Facebook Research
VPN app. Facebook sidestepped the App Store by rewarding teenagers and adults when they
downloaded the Research app and gave it root—superuser—access to network traffic on their
mobile devices. Facebook has been leveraging its Onavo code in similar ways since at least 2016,
administering the program under the codename “Project Atlas”—a name suited to its goal of
surveilling app usage on mobile devices in real time.
237.
When the news broke in January 2019 that Facebook’s Research apps were
repackaged Onavo apps designed to spy on users, Facebook immediately withdrew the programs
from the Apple App store.
238.
Apple again concluded that Facebook had tried to violate its policies. Using
Apple’s Enterprise Developer Program, which allows the installation of a certificate or policy
that provides root access to an iPhone or iPad, Facebook obtained a level of administrative
privilege designed for a company’s internal IT department. Thus, using a system that allowed
organizations to manage their internal mobile devices, Facebook provided its spyware super user
access to regular people’s iPhones and iPads. Apple balked at the abuse. An Apple spokesman
stated:
We designed our Enterprise Developer Program solely for the
internal distribution of apps within an organization. Facebook has
been using their membership to distribute a data-collecting app to
customers, which is a clear breach of their agreement with Apple.
Any developer using their enterprise certificates to distribute apps
to consumers will have their certificates revoked, which is what we
did in this case to protect our users and their data.
239.
U.S. Senator Mark Warner immediately called for new legislation to prevent the
sort of abuse which Facebook had engaged in. U.S. Senator Richard Blumenthal issued a fierce
statement rebuking Facebook’s repackaging of the Onavo spyware app as “research”:
“Wiretapping teens is not research, and it should never be permissible.”
240.
In addition to Onavo’s Protect app, Facebook has attempted to deploy its
surveillance software as other forms of utility applications that require extensive or privileged
access to mobile devices. For example, Facebook released the Onavo Bolt app, which locked
apps behind a passcode or fingerprint while it covertly surveilled users—and sent Facebook the
results. Facebook also shut that app down the very day that its surveillance functionality was
discovered. The Onavo Bolt app had been installed approximately 10 million times.
241.
Facebook continues to possess Onavo’s code base and is likely, as it has done
before, to repackage its surveillance software into yet another app. Facebook can also easily
incorporate surveillance code into any of its mobile applications that enjoy massive installed
bases and reach, including Instagram and WhatsApp. Without deterrence or divestiture, Facebook
will continue leveraging the surveillance software, infrastructure, and analysis that it acquired as
part of its acquisition of Onavo.
B.
Facebook Identifies Instagram as a Threat and Acquires the Company
242.
Data from Onavo reported a significant threat on the horizon likely as early as
2011 (and certainly by 2012): a photo-sharing mobile application called Instagram. That app had
its origins when founder Kevin Systrom, then 27, learned to code over nights and weekends.
Systrom developed an app called Burbn, which allowed users to check in, post plans and share
photos. The photo sharing feature immediately became the app’s most popular.
243.
After meeting venture capitalists from Baseline Ventures and Andreesen
Horowitz, Systrom received $500,000 of funding. Systrom soon after met co-founder Mike
Krieger—then 25 years old—who focused on the user experience of the app.
244.
Seeing the positive reception to the photo sharing aspect of the Burbn app, Krieger
and Systrom decided to pivot their business to focus on that feature. They studied their rivals in
the category, including an app called Hipstamatic, which included photo-editing features,
including the ability to add filters to photos. Hipstamatic, however, had no social capabilities.
245.
Seeking to bridge the gap between Hipstamatic photo features and Facebook’s
elements, Systrom and Krieger stripped Burbn down to its photo, comment, and like capabilities.
They then renamed the app Instagram, containing the words “instant” and “telegram.”
246.
Systrom and Krieger worked tirelessly to polish the user experience of their new
application, designing Instagram to streamline the process of taking photos on mobile devices
and uploading them to a social platform. The app had a minimalist focus, requiring as few actions
as possible from the user. After eight weeks of fine-tuning, the app entered its beta phase and the
founders prepared to launch it on iOS.
247.
On October 6, 2010, Instagram launched on iOS. That very day it became the top
free photo-sharing app on Apple’s App Store, racking up twenty-five thousand downloads.
Instagram’s founders were stunned at the response. As Systrom noted after the launch: “First off,
we have to say that we never expected the overwhelming response that we’ve seen. We went from
literally a handful of users to the #1 free photography app in a matter of hours.”
248.
By the end of the first week, Instagram had been downloaded 100,000 times, and
by mid- December 2010, its total downloads had reached one million. The timing of the app was
impeccable, as the iPhone 4, with its improved camera, had launched just a few months earlier in
June 2010.
249.
With Instagram on the rise, investors clamored for a stake. In February 2011,
Instagram raised $7 million in Series A funding from a variety of investors, including Benchmark
Capital, which valued the company at around $25 million. In March 2011, Jack Dorsey, the CEO
of Twitter, pursued the idea of acquiring Instagram, and Twitter made an offer of approximately
$500 million dollars for the company. Systrom declined.
250.
By March 2012, the app’s user base had swelled to 27 million. That April,
Instagram was released on Android phones and was downloaded more than one million times in
less than one day. At the time, the company was also in talks to receive another $500 million
funding round.
251.
Internally, Facebook carefully tracked Instagram’s meteoric rise, including
through the intelligence it received from Onavo’s data collection. Instagram clearly posed a
competitive threat to Facebook’s dominant position, including in the rapidly expanding market
for mobile-based social applications.
252.
Unlike Instagram’s streamlined approach to photo sharing, Facebook’s photo-
sharing was onerous. As Facebook internally recognized, mobile devices were changing how
users uploaded and shared photos and it was causing severe problems for Facebook’s business.
As an internal Facebook presentation explained:
Before phones, people would take their digital cameras out for
special events, vacations, etc. Then, they would post a bunch of
photos at once— after uploading them to their computer. With
phones, people take and share more photos more often. They share
them individually (rather than waiting to upload a bunch at once).
253.
This resulted in a large drop in bulk photo uploads on Facebook’s core social
networking product—a 29% decline from 2012 to 2014. Facebook also observed that text posts
were “tanking” 26% because of “migration to phones with cameras.” The data was clear—
Facebook had to shut down the looming threat from the new photo-sharing app. If Facebook did
nothing, Instagram’s user base would imminently eclipse Facebook’s at its current growth rate,
eroding and perhaps even destroying Facebook’s SDBE. An independent app with no ties or
reliance on Facebook, Instagram could become not only a competing mobile-based social app,
but a social network unto itself that could rival Facebook in the amount of engagement and social
data it could produce and monetize.
254.
After direct talks with Mark Zuckerberg, Facebook made Instagram an offer to
the company for $1 billion in April 2012, with the express promise that the company would
remain independently managed. Facebook consummated the deal immediately prior to its IPO.
255.
Facebook’s own Onavo data, which was obtained and published by Buzzfeed,
made clear that Instagram posed an existential threat to Facebook. By February 2013, Instagram
had grown to 34% of the total user reach among all social apps.
256.
With its Instagram acquisition, Facebook’s share of mobile photo sharing app
users ballooned as Facebook added Instagram’s 34% user reach to Facebook’s own 72% user
257.
Although Instagram had not at the time of the merger meaningfully monetized its
user engagement and social data, Facebook quickly did so. By the end of 2013, Facebook had
begun showing ads on Instagram. Since then, Instagram has become an ever-increasing
proportion of Facebook’s advertising revenue and a large share of Facebook’s user growth.
258.
In 2017, Instagram generated $2 billion, or about 15 percent, of Facebook’s $13
billion in ad revenue.
259.
By the end of 2018, Instagram had a billion users and was estimated to generate
$8 billion to $9 billion in revenue for Facebook in 2018.
260.
Instagram also accounts for the bulk of Facebook’s new revenue since the
acquisition.
261.
Instagram allowed Facebook to grow its social network as Facebook’s desktop
and core mobile application began to stagnate. Together, Facebook and Instagram captured and
monetized the social data generated across both apps.
262.
The Instagram acquisition ensured that Instagram could not become a rival social
network that could generate enough social data to erode the SDBE protecting Facebook’s business.
It also ensured that Instagram could not build and grow its own developer platform, which would
threaten Facebook’s scheme to dominate the Social Advertising Market by denying and/or
leveraging social-data dependent applications’ access to essential APIs. The acquisition
accordingly also ensured that Facebook rivals required to enter into Whitelist and Data Sharing
Agreements had no other platform choice—and thus no option but to hand over their social data
to Facebook.
263.
At the time of its IPO in 2012, Facebook struggled to grow its mobile product, let
alone to meaningfully monetize the social data it collected through advertising. By 2019,
Facebook had achieved an 83% share of the Social Advertising Market by leveraging its
Instagram mobile application and its Facebook mobile and desktop applications. No other
company comes close in market share.
264.
Instagram was instrumental to Facebook’s explosive growth in the Social
Advertising Market. From the fourth quarter of 2010 until the first quarter of 2011, Facebook’s
revenue was flat. From 2011’s holiday cycle to 2012’s opening three months (right before its
IPO), Facebook actually shrank. Facebook then experienced a sudden reversal after its acquisition
of Instagram, as mobile revenue began to account for a significant share of revenues, and
Instagram allowed Facebook to grow with the rise of mobile applications.
265.
Notably, Facebook’s acquisition of Instagram also allowed Facebook to exclude
third- party apps that provided photo and video sharing functionality from its Platform. If an
image sharing or video app contained an important feature, Facebook cloned it, thus paving the
way for excluding a competitive rival from its Platform, while simultaneously taking away that
rival’s share of users.
266.
For example, when Snap, the maker of the app SnapChat, rejected Zuckerberg and
Facebook’s $3 billion offer to purchase the company and its product, Facebook flagrantly copied
key features from Snap and built it into its Instagram product. Thus, when the SnapChat’s “stories”
feature—which allows a user to post a connected series of images and video—rapidly grew in
popularity, Instagram simply cloned it. By late 2016, Instagram had launched a product that
mooted one of Snapchat’s most popular features.
267.
Facebook’s own clunky mobile app’s clone of the “stories” feature did not have
nearly the same traction with users. It was Instagram that provided Facebook the platform to
compete head-on with a looming threat among social photo- and video-sharing apps. Without
Instagram, Facebook would have faced direct competition. Instead, it leveraged Instagram to
obtain and maintain its dominance among social mobile apps and the lucrative social data they
generated.
268.
Put simply, the acquisition of Instagram dramatically increased Facebook’s
market share of the Social Advertising Market and strengthened the SDBE protecting Facebook’s
business.
C.
Facebook Acquires WhatsApp
269.
In February 2009, Jan Koum and Brian Acton left Yahoo and founded a new
company called WhatsApp. Koum had an idea for a mobile application that displayed user
statuses in an address book on a smartphone—indicating, for example, whether a user was on a
call, had low battery, or was at the gym. The pair enlisted the help of a Russian developer, Igor
Solomennikov, to build the app. Koum spent days writing backend code for the app to allow it to
sync with any phone number in the world.
270.
Although the app—named WhatsApp—was initially unsuccessful, a June 2009
development changed everything. That month, Apple introduced “push notifications” for iPhone,
allowing developers to ping app users even when they weren’t using the app. Koum immediately
updated WhatsApp to ping a user’s entire network of friends when their status changed.
271.
The feature eventually became a form of instant messaging. Because messages
sent through WhatsApp instantaneously notified other users even if the phone was not running
the app in the foreground, it became ideal for broadcasting messages to connections within a
user’s social network, which was built on their phone’s contact list.
272.
At the time, WhatsApp’s only significant competition for this sort of instant
messaging was BlackBerry’s BBM—which was exclusive to BlackBerry’s proprietary
hardware platform. WhatsApp, on the other hand, tapped into the vast network of app-enabled
consumer smartphones that had emerged, particularly Apple’s iPhone.
273.
WhatsApp continued to innovate, including by introducing a double checkmark
that showed when a message was read by another user. Wanting more from text messaging,
including the limited MMS protocol used by cellular networks, WhatsApp set out to build a
multimedia messenger system to send messages across a social network in real time to mobile
devices.
274.
Because WhatsApp’s messaging used the mobile phone’s Internet connection
rather than text messages, the app allowed users to avoid text messaging fees entirely. In some
countries, text messages through cellular providers were metered. WhatsApp’s ability to send
messages to any user with a phone using the Internet was its most sought-after feature.
275.
In December 2009, WhatsApp updated its app for the iPhone to send photos. User
growth spiked, even when WhatsApp charged users for its service. Having created a unique
combination of image and messaging apps as one socially powered app, WhatsApp decided to
stay a paid service and grew while generating revenue.
276.
By early 2011, WhatsApp was one of the top twenty paid apps in Apple’s U.S. App
Store. The company attracted the attention of venture capital firm Sequoia, and WhatsApp agreed
to take $8 million of additional funding in addition to its original $250,000 seed funding.
277.
Two years later, in February 2013, WhatsApp’s user base had ballooned to 200
million active users. That moth, WhatsApp raised additional funds—another $50 million from
Sequoia, at a valuation of $1.5 billion.
278.
Internally, Facebook had carefully tracked WhatsApp’s rapid rise. Engagement
data from Facebook’s Onavo spyware reported that WhatsApp was rivaling Facebook’s own
Messenger product, and held third place in terms of user reach among mobile messenger apps for
iPhone in the U.S as of April 2013.
279.
The broader picture was even more threatening to Facebook. As Buzzfeed recently
reported, Onavo had tracked messages sent through WhatsApp and the number dwarfed
Facebook’s own mobile product by more than twofold.
280.
The same Onavo data reported by Buzzfeed showed massive engagement among
WhatsApp users, placing it in fifth place behind Facebook’s own core product; Facebook’s newly
acquired Instagram; Twitter; Foursquare; and Snapchat.
281.
WhatsApp, although lacking Facebook’s market reach, was drawing from the
same pool of limited attention. Given Facebook’s own fledgling Messenger App, WhatsApp
exposed a massive vulnerability in Facebook’s business model. WhatsApp was built on a social
network derived directly from a smartphone user’s contact list. It did not require Facebook’s
graph network for growth and could not therefore be shut down by revoking access to Facebook’s
APIs. Nor could Facebook demand that WhatsApp enter into a Whitelist and Data Sharing
agreement.
282.
WhatsApp posed a direct threat to Facebook’s business, including the SDBE
protecting its dominance. WhatsApp allowed for statuses, image sharing, and texting—all of the
principal features of Facebook’s core products. By 2013, the size of WhatsApp’s network and the
user engagement in that network made WhatsApp the most direct threat to Facebook’s market
dominance—and because of Onavo, Facebook knew it.
283.
To ensure that it maintained its SDBE, and thereby its dominance of the Social
Advertising Market, Facebook sought to remove WhatsApp as a competitor. As The Wall Street
Journal reported, Facebook’s Vernal internally commented in 2013: “Whats App launching
a competing platform is definitely something I’m super-paranoid about.” Vernal understood that
if WhatsApp created a rival platform, Facebook’s own scheme to exclude rivals by leveraging its
Platform would fail—developers would migrate to the competing platform provided by
WhatsApp.
284.
Knowing about WhatsApp’s size, its engagement, and its unique potential to erode
the SDBE protecting Facebook market dominance, Facebook moved aggressively to remove this
existential threat from the competitive landscape. In late 2013, Facebook made an initial bid of
$16 billion in stock for WhatsApp. During negotiations in early 2014, Facebook raised its price to
$19.6 billion—adding $3.6 billion to the original price as compensation to WhatsApp employees
for staying on board at Facebook. When all was said and done, Facebook ultimately paid close to
$22 billion for WhatsApp.
285.
But for the value of containing and shutting down the growth of WhatsApp’s
competing social network and platform, the transaction made no possible economic sense to
Facebook. WhatsApp’s revenues were a meager $10.2 million in 2013. Its six-month revenue
for the first half of 2014 totaled $15.9 million, and the company had incurred a staggering net
loss of $232 million in that same period. Facebook had paid twenty billion dollars—thousands of
times WhatsApp’s revenues—to acquire a money-losing company that created software
functionality Facebook itself already had as part of its own products, and could easily build from
scratch for a fraction of the cost of the acquisition if it wanted to.
286.
At the time of the WhatsApp acquisition, Facebook’s user reach and user base and
engagement was already massive—and unrivaled by any competing messaging app—but the
addition of WhatsApp’s user base further solidified Facebook’s dominance in the Social
Advertising Market. More importantly, however, Facebook had removed a serious threat to its
SDBE. If WhatsApp and its nascent social platform were allowed to compete on the merits,
Facebook would not have been able to leverage its Platform into continued dominance of the
Social Advertising Market, including by using API access to shut down competing third-party
apps and to demanding access to other apps’ most valuable social data as a condition for their
existence.
287.
Moreover, because the reach and engagement on WhatsApp generated (and
generates) significant social data that Facebook could (and can) leverage and monetize through
its mobile advertising channel, Facebook’s SDBE strengthened as a result of the WhatsApp
acquisition, fortifying Facebook’s unrivaled dominance in the Social Advertising Market, and
strengthening Facebook’s ability to exclude potential entrants to this market from gaining a
foothold with a rival messaging or photo- sharing app.
VIII. THE RELEVANT MARKET
288.
Plaintiff is a consumer and purchaser in the relevant market at issue in this case—
the Social Advertising Market. Plaintiff is a direct purchaser of advertising products from
Facebook and was anticompetitively harmed as a participant in the Social Advertising Market.
A.
The Social Advertising Market
289.
The Social Advertising Market is a submarket of online advertising, the latter of
which includes banner ads, search-based ads, and advertising on social networks. Social
advertising, however, is not fungible or interchangeable with these other forms of online
advertising. Indeed, social advertising allows advertisers to granularly target groups of users for
ads by their attributes, including by the attributes of their networks.
290.
Thus, because of the extensive ability to target advertisements to users on social
media sites like Facebook, search and banner advertising are not reasonable substitutes.
291.
Several relevant factors indicate that the Social Advertising Market is a distinct
submarket of online advertising and more general advertising markets:
292.
Industry or public recognition of the submarket as a separate economic entity.
Social advertising is broadly considered to be distinct from other forms of advertising by market
and industry participants. For example, the advertising company Outbrain describes the
differences between social ads on its blog as follows:
Paid social ads are served via algorithms that define what the user
might be interested in, based on past activity in their social accounts,
such as likes, shares, and comments. Unlike search, which is a
focused, goal-oriented activity, browsing on social is more relaxed.
Think cat memes, vacation snaps, and fun quizzes. Nevertheless,
the social platform has accumulated masses of data about every
specific user, which can be leveraged to target specific audiences
with ads that are likely to be of interest to them.
293.
Outbrain explains that social ads are considered useful for a distinct purpose:
Social ads are best for targeting audience segments who may be
interested in your product or services, based on a range of targeting
criteria—location, age group, gender, hobbies, interests. Social
networks, such as Facebook, have advanced targeting capabilities,
which means you can fine-tune your targeting criteria to reach a
very specific, high-quality audience.
294.
Outbrain explains that search ads are different, as they “are great for targeting
customers when they are already looking for you (i.e., they search your company name or
product), or if they are searching for a specific product, service, or piece of information that you
can provide.” Outbrain also distinguishes social advertising from other forms of online
advertising, like discovery advertising.
295.
Moreover, providers of business statistics such as statista.com also provide
information as to social media advertising as a distinct submarket of online and general
advertising.
296.
As another example, in March 2015, leading advertising publication AdAge
referred to Facebook’s Custom Audience targeting, which is unique to social advertising, as
“potentially different and more special because they have this richer level of data.”
297.
Likewise, industry publication Marketing Land reported in an October 14, 2019
article that media agency Zenith, which is owned by Publicis Media, predicted growth in the
social media advertising segment as distinguished from search and television advertising, with
social media ads coming in third behind television and paid search advertising.
298.
Even academic articles, including those published in the Journal of Advertising,
have analyzed the market for social media advertising as a distinct segment, with well-defined
engagement characteristics.
299.
The product’s peculiar characteristics and uses. Social advertising has a distinct
purpose from other forms of advertising. Social advertising has different applications than other
forms of online advertising. Namely, social advertising allows granular targeting based on user
attributes, user interests, and group attributes. Moreover, because of the detailed amount of
information that can be collected about users as they engage on social media platforms, social
advertising can seek out other users with similar behavioral characteristics.
300.
Facebook, for example, describes its own targeting capabilities as follows:
Facebook ads can be targeted to people by location, age, gender,
interests, demographics, behavior and connections. You can also
use more advanced targeting tools like Lookalike Audiences, which
lets you target people similar to the people who already engage
with your business, or you can layer your targeting options to select
a more specific audience.
301.
Facebook allows advertisers to create Lookalike audiences. Thus, unlike search or
other forms of advertising where the ad is created and placed to reach a preexisting audience,
Facebook is able to algorithmically combine a subset of its users to fit an advertisement. This
capability is unique to social advertising.
302.
As Facebook explains on its website:
When you create a Lookalike Audience, you choose a source
audience (a Custom Audience created with information pulled from
your pixel, mobile app, or fans of your page). We identify the
common qualities of the people in it (for example, demographic
information or interests). Then we deliver your ad to an audience of
people who are similar to (or “look like”) them.
303.
Because of the level of granular data Facebook collects from its users, it can
provide targeting flexibility like no other advertising medium. As Facebook explains:
You can choose the size of a Lookalike Audience during the
creation process. Smaller audiences more closely match your
source audience. Creating a larger audience increases your
potential reach, but reduces the level of similarity between the
Lookalike Audience and source audience. We generally
recommend a source audience with between 1,000 to 50,000 people.
Source quality matters too. For example, if a source audience is
made up of your best customers rather than all your customers, that
could lead to better results.
304.
Social advertising is also marked by the ability to algorithmically refine
advertising targeting as users interact with the ads. For example, Facebook allows users to place
a pixel on their website that is pulled off Facebook’s servers when the site is accessed. Facebook
is thus able to determine the efficacy of ads run on Facebook once the user transitions to an
advertiser’s own website. Over time, Facebook’s advertising becomes more targeted and more
effective in terms of particular advertising goals, such as lead generation or online purchases.
305.
Other social networks, such as Twitter, provide similar targeting abilities. Twitter,
for example, allows targeting based on location, language, device, age, and gender, but also
allows for the targeting of audience types, including algorithmically tailored and custom-created
audiences.
306.
These targeting features, which are available on social advertising platforms, are
not comparably available as part of other forms of online advertising, such as display and banner
ads or search ads.
307.
Unique production facilities. Social advertising requires data collected from users
on an inherently social application. A user’s search history, for example, will not provide enough
data to create highly targeted advertising features, such as Facebook’s Lookalike Audiences.
Likewise, passive advertising, such as banner ads, or even general magazine or publication ads,
provides little granular data that can then be used to further refine the targeting of advertising.
308.
Providers of social advertising require specialized means of production because
they must rely on data harvested from engagement among networks of users to facilitate highly
targeted advertising. Platforms capable of delivering social advertising must therefore provide
functionality such as image and video sharing, messaging, matchmaking, content sharing, and
other inherently social features in order to obtain the data needed to allow for granular user and
user network targeting.
309.
Because social advertising allows iterative refinement of target audiences, a
provider of social advertising must employ machine-learning or artificial intelligence algorithms
that are trained on data collected from users as they interact and engage with content and
advertising. As Facebook’s head of its Applied Machine Learning Group, Joaquin Quiñonero
Candela, told Wired magazine (emphasis in original):
Facebook today cannot exist without AI. Every time you use
Facebook or Instagram or Messenger, you may not realize it, but
your experiences are being powered by AI.
310.
Other forms of advertising generally do not require sophisticated machine learning
or artificial intelligence. For years prior to the advent of modern machine learning techniques,
search engines such as Yahoo and Google used far less sophisticated algorithms to match user
searches with suggested websites and, in turn, advertisements. Traditional advertising, such as
magazine or television ads, require no algorithms at all, let alone artificial intelligence.
311.
Distinct customers. Social advertising customers are distinct from search
advertisers and passive display advertisers. Moreover, social advertising is generally more
effective at targeted advertising rather than reaching a massive number of people.
312.
Customers advertising on search engines are generally seeking priority among the
search results returned given a particular keyword. Customers advertising on social media
platforms are searching for users that fit a particular, predefined profile or set of characteristics.
Small businesses that do not generally have the budget to bid on coveted search results are
nonetheless able to bid on granularly defined audiences on a social media platform like Facebook.
313.
Distinct prices and sensitivity to price changes. Social advertising prices are
distinct from other forms of advertising. In search-based advertising, certain search keywords are
bid up by many advertisers seeking to have their ads displayed as part of search results. This
means that prices in certain categories, such as legal or home improvement, will be significantly
higher on search-based platforms than on social advertising platforms like Facebook. For
example, legal ads are on average $1.32 on a cost-per-click basis on Facebook, whereas they are
$6.75 on a cost-per-click basis on the Google Ads platform. Likewise, consumer services ads are
on average $3.08 on a cost-per-click basis on Facebook’s platform vs. $6.40 on Google Ads.
314.
Because bidding on Google Ads and other search-based advertising is zero sum,
meaning only a certain number of ads can be coupled with a particular set of search keywords,
pricing is more sensitive to changes in demand.
315.
Social advertising, however, allows granular targeting, avoiding much of the zero-
sum nature of other forms of advertising bidding. Moreover, social advertisers like Facebook can
tailor audiences, reducing the likelihood that advertisers will have to compete for the same display
opportunity at any given point in time.
316.
Other general forms of advertising such as television and print are even more zero-
sum, as there are limited time slots or available pages in a newspaper or magazine. Pricing is thus
more sensitive to demand in these forms of advertising.
317.
Social advertising is thus entirely distinct. Because of the ability to target
audiences to advertising, pricing is proportional to the generality of the targeting, not simply to
the general demand for a limited search term, key word, or periodical placement.
318.
Moreover, Facebook has been able to consistently raise its prices in almost every
year it has sold advertising without facing price pressures from competitors. On a cost per mille
(CPM)—or cost per thousand advertising impressions—basis, Facebook’s advertising prices grew
90 percent year over year according to a report at the end of 2019. In 2018, Vox reported that
CPM prices on Facebook had increased 122 percent year over year. In 2017, Facebook’s CPMs
increased 171%. Facebook raised prices in prior years as well.
319.
Specialized vendors. The Social Advertising Market has its own distinct and
specialized vendors, namely advertising agencies such as Lyfe, Thrive, Volume Nine, Sociallyin,
and Firebelly Marketing, all of which boast a specialization in social media advertising and
provide specialized social media management products. There are many such specialty
advertising agencies that specialize in creating social media advertising campaigns. Moreover,
specialized social media analytics vendors also exist, such as Socialbakers, which provides
aggregated analytics across social media platforms. There is an entire ecosystem of vendors
specializing in social advertising—an indicator that the Social Advertising Market is its own
distinct submarket of online advertising, requiring its own unique tools and expertise.
320.
Facebook’s revenue share of the Social Advertising Market is approximately 80%.
Its share has been above 70% since 2015.
321.
Facebook’s advertising revenue has steadily grown both in the United States and
globally. Facebook reported advertising revenues totaling $17.383 billion as of Q3 2019.
Approximately $8.3 billion of that advertising revenue came from the United States.
322.
From 2014 to 2016, Facebook’s advertising revenues grew from $2.9 billion to
$6.436 billion. During that period, and even before then, Facebook was one of the few social
networks that significantly monetized its network by selling advertising. Other competitors did
not come close, and Facebook established unrivaled dominance in the Social Advertising Market
and maintains that dominance to this day.
323.
Twitter, one of Facebook’s only competitors to sell significant social advertising
during the same period Facebook generated revenue in the Social Advertising Market, has never
exceeded $800 million in advertising revenues. Revenues in Q1 2012 were approximately $45
million, growing to $432 million in Q4 2014, and standing at $702 million as of Q3 2019.
324.
LinkedIn, another competitor that sells social advertising, generated roughly $2
billion in overall annual revenue by the end of 2018, with some portion of that coming from
advertising.
325.
Considering the revenue generated by LinkedIn and Twitter, Facebook’s
advertising revenue accounts for approximately 86% of the total revenue share across the three
largest firms competing in the Social Advertising Market. Excluding the contributions from
minor competitors that monetize their social networks, the HHI of the Social Advertising Market
is approximately 7,685, well beyond what the DOJ considers a highly concentrated market.
B.
Barriers to Entry
326.
The Social Advertising Market is protected by the Social Data Barrier to Entry
that prevents Facebook’s competitors from entering the market. Without a critical mass of social
data, market participants in the Social Advertising Market cannot generate revenue.
327.
Moreover, without adequate social data and engagement with the social network,
market participants cannot display content to users that would provide enough value to generate
engagement and additional social data.
328.
Likewise, without a critical mass of social data, advertising targeting will not be
possible or will be substantially diminished in effectiveness, thus reducing revenues in the
advertising sales in the Social Advertising Market.
329.
A firm’s market power in this market therefore depends on obtaining a critical
mass of social data. Because of network effects, users will not use a social network that lacks
enough social data to provide targeted content or to provide valuable connections to other users.
However, once a certain amount of social data is obtained by a market participant, a feedback loop
may form as a result of network effects, further increasing the amount of social data generated by
the social network.
330.
A new entrant must therefore expend significant amounts of investments in
capital, technology and labor to create a network large enough to create the network effects
necessary to compete with dominant firms in the market.
331.
Because of the large amount of capital and social data required to successfully
enter the Social Advertising Market, the SDBE effectively excludes entry by a new competitor,
even a well-funded one. Indeed, the SDBE prevented Google from successfully entering the
market for social data and the Social Advertising market with its Google+ social networking
product.
332.
Although Google+ had successfully replicated Facebook’s core functionality and
even added additional functionality to its software, its entry failed because it lacked the critical
mass of social data that is required to reverse the network effects protecting Facebook. Without
that critical mass, users will not incur the costs of switching from Facebook’s social network to a
new entrant’s social network. That is, a new entrant will not be able to provide a valuable network
of engaged users upon entry to justify a Facebook user to change social networks.
333.
That is precisely what happened to Google. Although it had a massive user base, it
lacked engagement, which meant it did not provide a sufficient amount of social data that could be
used to target content and advertising to users. This, in turn, reduced the value of the entrant social
network and accordingly the attraction of switching from Facebook’s social network to Google’s.
334.
The SDBE continues to reinforce Facebook’s dominant position. In fact, by
excluding rivals and potentially competing social networks through the anticompetitive scheme
described in this Complaint, Facebook strengthened the SDBE, providing it a larger share of
social data and a stronger monetization channel through social advertising. The additional amount
of social data increases the value of its network, and the revenue from social advertising increases
the cost of entry for a new rival.
335.
Other barriers to entry in the Social Advertising Market include, but are not limited
to, the high cost of development, data management, talent acquisition and retention, server
infrastructure, development infrastructure, software technology, software libraries, and a brand
and marketing presence sufficient enough to attract an engaged user base.
C.
Relevant Geographic Market
336.
The relevant geographic market is the United States Social Advertising market.
337.
For the social data that fuels a social advertising product, social data must be
compatible with the customers purchasing that data. Thus, social data about a foreign market may
be of little use for a U.S.-based advertiser. The data may be collected in a different language, may
involve interests more pertinent to a particular geographic region (e.g., American Football vs.
Rugby), and may contain a demographic of users that share a common culture or merely a close
proximity.
338.
The same is true for the Social Advertising Market. An advertiser seeking to sell
products designed for consumption in the United States may not have any use for a platform’s
advertising targeting capabilities outside of the United States. In the U.S., Facebook enjoys a
higher market share of the Social Advertising Market than it does worldwide (which is already very
high, as described in subsection VI.A). In short, Facebook enjoys an even more dominant share of
the U.S. Social Advertising Market than it does globally.
339.
In the U.S., Facebook’s market share of the social data generated by users is even
greater than its global market share. Services such as WeChat are geared towards Asian markets,
particularly China, and do not generally compete in the U.S. market with Facebook’s Messenger,
Instagram, and core social networking product. Thus, Facebook’s U.S.-based market share is even
higher than its global market share referenced above in VI.A, which is already a dominant share
of the Social Advertising Market.
IX.
HARM TO COMPETITION AND ANTITRUST INJURY
340.
Facebook’s anticompetitive scheme had the purpose and effect of monopolizing
the Social Advertising market in the United States. Facebook’s conduct allowed it to maintain the
monopoly and market power it had obtained by 2010 in the Social Advertising Market, and/or
Facebook intended and attempted to acquire such a monopoly through its anticompetitive
scheme.
341.
Specifically, Facebook engaged in a series of acts in furtherance of its scheme,
including, but not limited to: (a) the removal of important and necessary APIs from its Facebook
Platform for the intended purpose of destroying competition in the Social Advertising Market;
(b) the targeting of competitors for coercive Whitelist and Data Sharing Agreements on pain of
denial of access to Facebook’s Platform and APIs; (c) the use of secret surveillance software to
identify and destroy potential competitive threats; (d) the acquisition of rivals with the purpose
and effect of strengthening the SDBE and increasing Facebook’s market share and market power
in the Social Advertising market; and (f) misleading developers about the stability of Facebook’s
Platform to induce them to become dependent on Facebook’s social data.
342.
Facebook engaged in this conduct while possessing, and/or acting intentionally to
obtain, market power in the Social Advertising Market. Facebook enhanced and/or maintained its
market power and monopoly through this scheme and then used it to exclude rivals and potential
entrants from the Social Advertising Market (both directly and indirectly, by controlling supply
and output of social data, a critical input for social advertising).
343.
Facebook’s anticompetitive scheme also reduced consumer choice by stifling
innovation among nascent and established competitors that relied on Facebook’s Platform for
their products and business and by entering into agreements that strengthened the SDBE.
344.
In the alternative, Facebook’s scheme had the purpose and effect of achieving a
dangerous probability of a monopoly in the United States Social Advertising Market.
345.
Facebook’s decision to remove the Friends and News Feed APIs excluded
horizontal and/or direct competitors and rivals from the social data needed to fuel social
advertising. Once a potential threat to Facebook or Facebook’s SDBE is eliminated, that entity
cannot (a) monetize social data by selling advertising; (b) accumulate social data sufficient to
create a competing platform; and/or (c) even purchase social data from Facebook at full price.
346.
The above decision allowed Facebook to monopolize and/or maintain a monopoly
in the Social Advertising Market. Facebook’s scheme allowed it to force chosen Platform
developers to buy large amounts of advertising on its struggling mobile platform, NEKO, in
exchange for continued access to some or all Core APIs. At the same time, Facebook’s demand
for these developers’ social data in exchange for continued access—including from competing
social networks such as Pinterest and Foursquare—ensured that no rival social advertising
platform could emerge, as Facebook would have a superset of its competitors’ users’ data. By
gaining control over its competitors’ social data—a critical resource for social advertising—
Facebook was able to dominate the Social Advertising Market, gaining a monopoly share and
sufficient market power to consistently and dramatically raise prices year after year.
347.
Facebook sacrificed short-term profits in the Social Advertising Market for the
sole purpose of executing its scheme and excluding competition. It made no rational business
sense for Facebook to exclude from its Platform the very entities that, if successful, would likely
be the most ardent consumers of Facebook’s monetized social data and social advertising. Yet this
is exactly what Facebook did by leveraging API access in a manner that excluded nearly all
Platform developers. As Facebook’s own executives and managers admitted in internal
communications, Facebook did this strictly for competitive dominance. Put simply, Facebook put
the prospect of long-term dominance ahead of short- term profit.
348.
Facebook knew that once its competitors were foreclosed from the Social
Advertising Market by its anticompetitive scheme, Facebook would be free to charge monopoly
prices for social data and social advertising without facing any competitive price or quality
pressure. In fact, Facebook has reduced the value it provides to users through privacy and feature
innovation throughout and after it executed its anticompetitive scheme without sacrificing any
significant marginal demand—a clear sign of its market power in the Social Advertising Market.
Likewise, Facebook has increased the price of its targeted advertising throughout the period of its
anticompetitive scheme and to the present, also a sign of its market power in Social Advertising
Market.
349.
Facebook’s Whitelist and Data Sharing agreements ensured that Facebook would
control competitive threats to its platform and extract their most valuable asset—their social data.
Facebook, by requiring Whitelist and Data Sharing agreements by competitors, ensured that these
competitors, some of which were competing social networks, could not become alternative
platforms for developers. That meant that when Facebook excluded other developers from the
market, they were completely foreclosed and would have no reasonable alternative.
350.
After excluding applications that competed with it from obtaining social data or
from the Social Advertising Market, Facebook was left with competition from entirely
independent apps, which did not rely on Facebook’s social data, APIs, or advertising. Rather than
compete on the merits with these competitors, Facebook secretly spied on users using the Onavo
data and the Onavo assets that it acquired, identifying potentially competitive threats and then
acquiring the companies that built those threatening products, often at economically irrational
351.
Facebook used the Onavo data and Onavo-based spyware it owned or had in its
possession to track Instagram use. When Instagram’s engagement and user reach indicated that it
was a potential competitive threat to Facebook, Facebook acquired Instagram and operated it
alongside its products, and presently seeks to complete integration of the product with Facebook’s
other major properties.
352.
Likewise, Facebook secretly tracked mobile users’ use of WhatsApp, and when
Facebook determined that WhatsApp threatened to become a platform entirely independent of
Facebook’s network and social data, it purchased WhatsApp—at an economically irrational price
of thousands of times the company’s revenue.
353.
By acquiring potential threats independent of its platform, particularly WhatsApp
and Instagram, Facebook ensured that such companies could not be (a) alternative platforms upon
which developers excluded by Facebook’s API removal could build their apps; (b) alternative
sources of social data that could be monetized through Social Advertising; or (c) alternative social
networks that would attract users, developers, and advertisers, thereby weakening the SDBE
protecting Facebook’s business.
354.
Facebook’s past integration of these acquired assets and its continuing effort to
integrate these acquired assets has continuing anticompetitive effects, and threatens to increase
and/or maintain Facebook’s dominance in the Social Advertising Market.
355.
Facebook also used Onavo and the Onavo assets to maintain a real-time view of
users’ mobile application use and mobile traffic. Facebook used that real-time information to
monitor, punish, or acquire any competitive threats. Indeed, Facebook used Onavo surveillance
data to target threats for denial of access to crucial APIs; for Whitelist and Data Sharing
Agreements; or for targeted removal from the market through acquisition.
356.
The net effect of Facebook’s scheme was to, inter alia, strengthen and maintain the
SDBE, protect its monopoly in the Social Advertising Market, prevent market entry by a potential
rival, and reduce consumer choice.
357.
Facebook’s scheme also ensured that there would be no competition by a rival
social advertising platform on non-price bases, such as, for example, increased privacy, more
features, higher quality features, new features, more valuable social connections, reduced
advertising to users, or new use cases. The scheme also foreclosed new or alternate business
models by competitors or potential competitors, including the business model Facebook itself
forwent and sacrificed for anticompetitive purposes—charging developers and competitors for
API / Platform access or advertising.
358.
Facebook’s anticompetitive scheme has also allowed it to raise prices for social
advertising during and after the execution of the scheme. Facebook continues to be one of the only
sources for targeted social advertising in the United States and in most of the world. As evidence
of its market power in the Social Advertising Market, Facebook has raised prices without
sacrificing any demand.
359.
Facebook’s anticompetitive scheme excludes developers and would-be
competitors from the Social Advertising market; commandeers and restricts output of social data,
a critical resource for social advertising; and strengthens the SDBE protecting Facebook’s
business. All of this has resulted in sustained and increasing supracompetitive prices for Facebook
advertisements. Plaintiff (and the persons, entities, and companies in the proposed Classes) bought
Facebook advertisements at supracompetitive prices inflated by Facebook’s anticompetitive
scheme.
360.
Plaintiff therefore was, and is, harmed in its business and property: it was
overcharged for advertising as a result of unlawful, anticompetitive conduct by Facebook.
CONCEALMENT AND TOLLING
361.
Until no earlier than November 6, 2019, Plaintiff did not know, and could not
reasonably have known, the truth about Facebook’s anticompetitive conduct, including its
purpose and intent to engage in anticompetitive conduct and the resulting price inflation, as
alleged in this Complaint.
362.
As set forth below, Facebook, its executives, officers, and senior employees
affirmatively acted to prevent the disclosure of the truth, including through (a) enforcing a strict
code of silence within the organization, (b) preventing disclosure to developers and the public
during and after the scheme, (c) continuing to evangelize the Core APIs knowing that they were
slated for removal for competitive reasons, (d) misleading developers and the public about the
reasons for the removal through pretextual explanations, including by falsely stating that the APIs
were being removed to provide users more control over their data or out of concern for user
privacy, and (e) misleading regulators and the public about acquisitions, including of WhatsApp
and Instagram. This conduct individually and taken together ensured that the levee would not
break and that developers and advertisers would not pursue claims for fraud or anticompetitive
conduct.
363.
In fact, the levee did not break for years. It was not until internal documents came
to light revealing the true, non-pretextual reasons for Facebook’s anticompetitive conduct,
including the purported removal of the APIs as well as the lack of legitimate technical or business
purpose for the purported removal; the anticompetitive effect and existence of the whitelisting
agreements made in exchange for advertising purchases or user data; the capture, clone, or kill
strategy implemented by Facebook; and the anticompetitive effects of its acquisitions of
WhatsApp and Instagram, including the intended use of these assets, which was hidden from
regulators and the public to obtain regulatory approval.
A.
Facebook Made False Statements About the Availability of the API
Functionality and Omitted from Those Statements that Facebook
Had Internally Decided to Remove the APIs
364.
During the period from September 2011 through April 2014, Facebook repeatedly
told developers and the public that the functionality of the Core APIs as well as other functionality
removed in April 2015 was available to them to be used as part of their applications. These false
statements, omissions, and half-truths created a duty to speak fully and truthfully. As explained
below, Facebook never did so—not even after it removed the Core APIs from its Platform.
365.
During training sessions, hackathons, meetups, and conferences, many of which
were posted on Facebook’s public YouTube channel, Facebook’s employees and executives
evangelized the Core APIs to developers and other viewers. Facebook did so to ensure that
developers and the public would not learn of the truth—that Facebook had internally begun the
process of auditing apps to be slated for destruction. If the truth were known, developers would
have fled the platform, destroying Facebook’s ability to anoint winners in various app categories
and to destroy their actual and potential competitors by exploiting their reliance on the platform.
For example:
(a) On June 20, 2012, Cox presented the Ticketmaster app as a case study for what
developers could do on Facebook’s platform. Specifically, Cox noted that the
Ticketmaster app would allow users to see “which night your friends were
going to the concert,” but the very API this app would have relied on was slated
for deprecation with respect to any developer that would not ultimately enter
into an agreement with Facebook for data or advertising.
(b) On October 20, 2013, Zuckerberg gave a speech that touted photo sharing by
developer apps and stated that it was an opportunity for developers to monetize
their apps. The APIs that were required for such an app, however, had already
been restricted as of the date of his statements. During the same speech,
Zuckerberg claimed that developers would have access to user photos for their
own apps, but at the time he made the statement, Facebook had already planned
to remove that functionality from its platform.
(c) On February 28, 2013, in a developer video published on Facebook’s public
YouTube channel, entitled “Getting started with Facebook SDK for iOS,”
Facebook’s Product Manager of the Mobile Platform, Eddie O’Neil, taught
developers how to build applications that access a user’s friends’ data by
building one with the developers in the audience. He showed how to make a
request to “get back photo albums from five friends” and then towards the end
shows the finished application stated: “Here are all my friends . . . As I scroll
here, you see that we haven’t brough all the friend pictures in yet, but as we
bring them in we’ll stick them in that cache and hold on to them . . . when we
come back to display this it’s instantaneous,” meaning that the app can show all
the friends’ photos in as single request to make it very easy for developers to
use this data in their applications. The presentation, including statements about
the demonstrated functionality, was false and misleading, as Facebook had
internally already begun the process of removing the very functionality that was
being evangelized.
(d) At a developer conference in Moscow, which was posted on Facebook’s
developer YouTube page on February 28, 2013, and entitled “Introduction to
the Facebook Platform,” Simon Cross of Facebook demonstrated the use of
several of the APIs, including the Friends and News Feed APIs that were slated
for removal by Facebook at the time of the demonstration and while the
presentation remained on the YouTube developer page. Cross never mentioned
Facebook’s internal plans to remove the very functionality he advertised to
developers. If he had told the truth, developers would have fled the platform
and Facebook’s anticompetitive scheme would have unraveled.
(e) At the same February 28, 2013 conference, another Facebook employee, Tom
Elliot, demoed the publishing of information from a mobile app to a user’s
timeline as well as to the timeline of a user’s friends, noting that Facebook’s
Graph API allowed posts from a mobile app “on the timeline of the user and the
news feed of the friend of the user—these are people who have never used your
app before.” This is precisely the functionality that would require the Friends
and News Feed APIs, yet Facebook and its employees never once mentioned
that they were internally planning to remove that functionality with respect to
certain apps that either (i) did not provide advertising or data to Facebook in
exchange for continued use or (ii) were slated for destruction after Facebook’s
audit of apps on its Platform.
(f) At Facebook’s Mobile Developer Day in November 2012, Facebook again
evangelized the ability to use the Friends and News Feed APIs as part of mobile
applications. Indeed, the presentation displayed the ability to traverse a user’s
friends as part of the test app and to post to a defined audience of friends, as well
as to the news feed. The presentation was false and misleading because the
functionality being demonstrated was slated for removal with respect to most of
the apps on Facebook’s Platform. Developers who viewed presentations like
the one at the Developer Day conference would be allowed to build their entire
business on functionality that Facebook knew it planned to remove.
(g) In a June 26, 2013 video posted on Facebook’s public YouTube page for
developers, Facebook touted the work done by one of its partners, Fab.com,
which again demonstrated Friends and News Feed API functionality that was
slated for removal. The video features a Fab.com employee stating that using
the Graph API, they were able to “take everything they have in the catalog and
narrowly target to a customer” to “see a product on Facebook and then share with
their friends.” Again, Facebook omitted that it was planning to remove the very
APIs that made the featured functionality possible and did so because
revelation of the truth would have prematurely ended its anticompetitive
scheme before it could be completed.
(h) Facebook was consistently misleading about the functionality available to
developers through the News Feed and Friends APIs. On June 20, 2013, Simon
Cross, in a training video published on Facebook’s YouTube Channel, entitled
“Getting Started with Graph API,” presented “[a]n introduction to Facebook’s
Graph API which is the primary way to programmatically integrate with
user—their details, their likes and interests and friends.” The video referenced
Facebook’s posted developer documentation, and notably featured the
following false and misleading statements about the functionality provided by the
Graph APIs, including the Friends and News Feed APIs:
Graph API Explorer make it really easy to get started . . .
Placed, Pages, Photos, Events and News Feed stories as
well as Users are all considered objects in the graph We
can go deeper and deeper into the graph. We can also
request the picture connection on each returned User object.
This would allow me to show the profile picture of each of
my friends and to get all of this data in a single request.
366.
These statements identified above were false and misleading not only because they
were designed to induce developers to build for functionality that was slated for selective removal,
but because the statements maintained the secrecy needed for the anticompetitive scheme’s
success. Facebook knew that if developers found out the truth, they would flee the Platform and
cease making apps that increased the value of Facebook. Without the proliferation of apps on its
Platform, Facebook could not choose the “winners” among them for continued access while
eliminating any actual or potential competitors when it eventually removed the APIs.
367.
These false statements from the end of 2011 through the removal of the APIs in
April 2015 created a clear duty to speak fully and truthfully. When Facebook finally announced
and purported to remove the APIs, it breached that duty, preventing developers and the public
from learning the true reasons for the purported removal of the APIs.
B.
Facebook and Its Employees Maintained a Code of Silence about the
Scheme in the Face of a Duty to Speak
368.
Facebook senior executives, including Mark Zuckerberg, acted internally to
ensure that the purported removal of the APIs, the reasons for the purported removal, and the
overall anticompetitive scheme was kept a secret.
369.
For example, when Facebook senior executives began plans to announce
Zuckerberg’s decision to remove the APIs and to enforce reciprocity, Zuckerberg vetoed the
decision in December 2012.
370.
When Sukhar raised the need to inform developers of Facebook’s internal plans
for the APIs—namely, their removal for competitive reasons—Vernal told him that any mention
of the competitive reasons for the purported removal would mean a “high likelihood of breaking
into jail.” Sukhar did not at any point reveal the truth to developers or the public, even though he
internally observed that he had been speaking to dozens of developers “who will get totally fucked
by this and it won’t even be for the right reason.” In fact, he acquiesced to the scheme, referring to
it as the “switcharoo plan” when speaking to other Facebook engineers.
371.
Facebook’s George Lee raised the fact that Facebook was continuing to mislead
developers about the APIs, even on the eve of the announcement of their purported removal,
stating to Purdy and Vernal that “partner managers are still selling products that we ask them to
sell, so when it comes to feed integration, we’re still telling people to use [Open Graph].” He
noted that Facebook had “decided amongst ourselves that this is no longer the future” but that
developers were being told something different. Vernal, Purdy, and Lee all knew that Facebook
was going to purport to remove the Friends and News Feed APIs, but none of them stopped
Facebook from telling developers or the public otherwise. These systematic and knowingly false
statements to developers and the public created a duty to speak fully and truthfully, but Facebook
never did so.
372.
All of this conduct instilled in Facebook’s employees a need for secrecy. Even
when they raised issues with their superiors, none of them would correct the systematic false
statements Facebook was making to developers and the public contemporaneously with their
internal execution of the scheme to remove the APIs for competitive reasons, including the
internal audit of apps. They failed to correct those statements notwithstanding that their false
statements about the Platform and its available functionality created a duty to speak fully and
truthfully. For example, as described fully above, in internal e-mails to other Facebook executives
and employees, Sukhar recounted conversations with developers during which he did not disclose
the truth about the APIs.
///
C.
Facebook Lied to Developers and the Public About the Reasons for
the Purported Removal, Offering False, Misleading, and Pretextual
Reasons Instead of the Truth
373.
At the April 30, 2014 Facebook F8 developers conference, Facebook misleadingly
downplayed the announcement of its purported removal of the APIs by folding it into its
announcement of new Facebook authentication features, including changes to Facebook’s Login
system. Zuckerberg never mentioned during his keynote or any time during the conference that
the most central APIs on the Platform, the Friends and News Feed APIs, were purportedly being
removed. Instead, the announcement was buried at the bottom of a public FAQ released during
the conference. The FAQ falsely stated that “we are removing several rarely used API endpoints;
visit our changelog for details.”
374.
This public statement was false because Facebook had internally surveyed the apps
relying on the APIs and found that thousands of them relied on those APIs. They were not in any
sense “rarely used.” The false statement was made to avoid drawing attention to Facebook’s
radical decision to announce the purported removal of the Friends and News Feed APIs. By
making a public false statement about the reasons for the purported removal of the APIs, Facebook
assumed a duty to speak fully and truthfully on the subject. It did not do so.
375.
Facebook’s public announcement of the purported removal of the Friends and
News Feed APIs was deliberately designed to mislead, as it was announced as part of a broader
Facebook Login announcement that was supposedly intended to increase user control over data.
Indeed, in a public blog post made on the day of the announcement, Facebook’s Jeffrey Spehar
stated that the changes were made because “people want more control over sharing their personal
information” and because “[w]e’ve heard from people that they’re often surprised when a friend
shared their information with an app.”
376.
Facebook never mentioned that it had internally audited apps to determine whether
they were competitive and that senior executives had internally stated that the decision was
being driven by competitive reasons, not legitimate business or technical reasons. Indeed,
Facebook never mentioned that its own engineers thought the removal of the Friends and News
Feed API was beyond parody and “insane.” The statements about user feedback as the reason for
the decision were pretextual and misleading.
377.
Between the announcement and the removal of the APIs in April 2015, Facebook
continued to make false and misleading statements and omissions to developers and the public
about the purported removal of the APIs, including about the reasons for the purported removal.
378.
For example, Facebook told developers and others who inquired that the APIs were
“going away.” Indeed, Konstantinos Papamiltiadis told developer Airbiquity on March 30, 2015,
precisely this: “there are certain things that are going away on 4.30 that we can’t provide
extensions for,” naming the Friends and News Feed APIs explicitly in an e-mail to Airbiquity’s
product manager. At no time did Papamiltiadis or anyone else at Facebook tell the full truth—
that it was secretly making deals with countless developers it had hand-selected for continued use
in exchange for their social data and other compensation.
379.
On March 30, 2015, Papamiltiadis also told Microsoft the same thing: that the
APIs were going away after April 30, 2015. Again, he never mentioned that in fact Facebook had
made secret deals with certain developers.
380.
These statements indicate that Facebook’s statements were broad and systematic,
designed to mislead developers and the public into thinking that Facebook had evenhandedly
applied its policy to all developers alike. If the truth were known, developers (and other interested
parties, including members of the press) would have not only complained, but pursued the true
reasons for Facebook’s purported withdrawal, which is why Facebook was careful to make false
statements to developers and other interested parties whom Facebook had not selected for
continued use.
381.
Even in a blog post from April 30, 2015, the date the APIs were purportedly
removed, Facebook claimed that “Facebook is migrating all apps to v2.0 of the Graph API with
the goal of giving people more control over the information they share with apps.” That was not,
however, the goal of the purported API withdrawal. Facebook had internally made the decision
for competitive reasons and had no legitimate technical or business justification for the decision.
Indeed, documents during the several years Facebook and its senior executives planned and
executed the scheme reflect that the APIs were being purportedly withdrawn for competitive
reasons, not for increasing user control over shared information.
382.
Facebook continued to mislead developers and the public by offering pretextual
reasons for the purported withdrawal of the APIs. Simon Cross frequented developer message
boards, including the widely-read public message board Stack Overflow, and referred developers
and others asking questions about the APIs to Facebook’s public documentation and FAQ. The
FAQ stated:
Why are you deprecating the permissions to get information about
people’s friends?
To put people first. This update was in response to feedback from
people who were uncomfortable knowing that a friend could share
their information with an app. With Graph API v.2.0, we wanted
to make sure the people had more control over their information.
383.
The reasons offered by the public FAQ were false and misleading and omitted
material information. Namely, the FAQ’s statement that the purported removal of the APIs was
in response to user feedback was false, and mere pretext designed to mislead developers and the
public as to the real reasons for the purported withdrawal of the APIs. In fact, Facebook had made
the decision approximately three years earlier, as part of Zuckerberg’s mandate that a policy of
reciprocity be enforced as to developers and that competitive apps be prevented from using
Facebook’s APIs. Indeed, Facebook had used information gleaned from spying on users to
measure their engagement with apps, and had performed an internal audit to determine which
apps were competitive or potentially competitive with Facebook so that they could be marked for
destruction. Facebook’s internal executives, including Sukhar, lamented that the purported
removal of the APIs was not based on any legitimate technical reason, and Facebook’s own
engineers opposed the decision. None of these executives and employees contemporaneously
cited user feedback as even a purported reason for the removal of the APIs.
384.
Moreover, by speaking partially, falsely, and misleadingly to the public about the
reasons for the purported API withdrawal, Facebook was under a duty to speak fully and truthfully
on the subject. It did not do so. Instead, it omitted (a) that the plan to purportedly deprecate the
APIs had been made years prior to the announcement by senior executives, (b) that the reasons for
the purported removal were competitive, not because of user feedback, and (c) that Facebook had
hand selected certain apps for continued use of the APIs. Indeed, Facebook not only omitted that
it was broadly entering into extended API agreements, it made false and misleading statements to
the contrary in its public FAQ, including that “[w]e’ve removed access to friends data in v.2.0”
without any mention of the extended API agreements it was entering with certain app developers.
385.
The announcement, FAQ, documentation, and posts to developer message boards
misled developers and the public. They accepted the pretextual reasons for the purported API
removal after reading or otherwise consuming Facebook’s communications (including
documentation, message board answers, and videos) posted after the announcement. If they had
known the truth, they would have inquired further into the real reasons for the withdrawal (and
so would the press), but Facebook’s false statements successfully prevented any further inquiry.
386.
Facebook was careful even when it referenced the purported April 2015 withdrawal
of the Friends and News Feed APIs to continue to offer a false, misleading, and pretextual
rationale for the decision. Indeed, when Facebook announced additional Platform changes on
March 26, 2018, senior executive Ime Archibong referenced the purported API withdrawal and
an investigation into apps that had access to a large amount of information before the purported
withdrawal as part of a broader initiative to prevent “misuse” of user data and to implement
“additional measures to protect data” and give “people more control of their information.” That
was not, however, the real reason for the purported withdrawal of the APIs in April 2015, and
Facebook again failed to mention the real reasons for doing so despite undertaking a duty to speak
fully and truthfully, including when it again spoke publicly on the subject in March 2018.
387.
Even after certain internal Facebook documents became public after the UK
Parliament used its legal powers to seize them on November 24, 2018, Facebook continued to
make false and misleading statements to conceal from developers, the public, and the press the
real reasons for the purported API withdrawal.
388.
In a public blog post by the company posted on December 5, 2018, Facebook stated
falsely and misleadingly that extended API agreements to access the purportedly withdrawn APIs
were granted to developers in the “short term” and “only used to prevent people from losing access
to specific functions as developers updated their apps.” The blog post also stated that the changes
to the APIs were made to prevent the improper access to user data that occurred as part of the
Cambridge Analytica scandal. That was not, however, the reason Facebook purported to remove
the APIs. In fact, Facebook continued to allow broad access to user data for hand-selected apps
that entered into agreements with Facebook to provide their social data back to Facebook or
provide other compensation, such as large advertising purchases.
389.
On November 6, 2019, NBC News posted the full trove of documents seized by
the UK Parliament on its website. For the first time, Facebook’s statements to developers and the
public were revealed to have been false, misleading, or having omitted material information. This
was the first time any developer or advertiser—or anyone in the public—could have learned the
real reason for the purported withdrawal of the APIs: anticompetitive reasons. It was also the first
time developers, advertisers, and the public could learn (1) that Facebook internally viewed the
purported withdrawal as lacking any legitimate business or technical justification, and (2) that
the scheme had broad impact on competition.
D.
Facebook Misled Regulators and the Public About Its Integration of
Instagram and WhatsApp with Its Facebook Product
390.
At the beginning of this year, Facebook scrambled to integrate the backends of its
Facebook products with its acquired products, WhatsApp and Instagram. Until that integration,
Facebook had largely maintained the separateness of the products, but in response to threats of
divestiture from antitrust regulators, Facebook began an aggressive effort to integrate the
backends—the brains of each product—reneging on promises to regulators to keep the products
separate and to frustrate any divestiture ordered.
391.
When it acquired WhatsApp, Facebook publicly stated that it would operate
WhatsApp independently from its other Facebook properties, but that turned out not to be the
case. Indeed, the European Union found Facebook lied to regulators about its integration plans
for WhatsApp and fined Facebook € 110 million. The EC regulator explained the reasons for its
fine in a press release, dated May 17, 2017:
The European Commission has fined Facebook €110 million for
providing incorrect or misleading information during the
Commission’s 2014 investigation under the EU Merger Regulation
of Facebook’s acquisition of WhatsApp . . .
When Facebook notified the acquisition of WhatsApp in 2014, it
informed the Commission that it would be unable to establish
reliable automated matching between Facebook’s users’ accounts
and WhatsApp users’ accounts. It stated this both in the
notification form and in a reply to a request for information from
the Commission. However, in August 2016, WhatsApp announced
updates to its terms of service and privacy policy, including the
possibility of linking WhatsApp users’ phone numbers with
Facebook users’ identities.
On 20 December 2016, the Commission addressed a Statement of
Objections to Facebook detailing its concerns.
The commission has found that, contrary to Facebook’s statements
in the 2014 merger review process, the technical possibility of
automatically matching Facebook and WhatsApp users’ identities
already existed in 2014, and that Facebook staff were aware of such
a possibility.
392.
Facebook had lied to regulators. It was always capable of integrating its
advertising targeting systems and in fact had done so. After the acquisition, WhatsApp’s founder
Brian Acton quit in PROTEST IN March 2018, stating on Twitter: “it is time. #deletefacebook.”
393.
Consistent with the EC’s finding, Acton believed Facebook misled European
Union regulators about its plans to comingle WhatsApp and Facebook data for use in its ad
targeting system. And, despite Zuckerberg’s promise that he would not try to monetize WhatsApp
for five years, Facebook almost immediately began exploring the monetization of WhatsApp
without its founders’ consent. Acton left behind $850 million in stock when he quit in protest.
394.
WhatsApp’s other co-founder, Jan Koum, left in April of 2018. Instagram’s
founders Kevin Systrom and Mike Krieger followed suit shortly after, resigning from Facebook in
the Fall of 2018.
395.
With the founders of its two acquired competitors—Instagram and WhatsApp—
gone, by late 2018 Facebook had unfettered internal license to integrate two of the most powerful
rival social networks with Facebook’s core business.
396.
Facebook, however, knew it was vulnerable to divestiture of the acquired assets if
it continued to operate them independently, and the integration of its assets would give it
unprecedented control over user social data globally.
397.
Zuckerberg and Facebook immediately devised a plan to integrate backends of the
WhatsApp, Instagram and Facebook products. On March 6, 2019, Zuckerberg announced a plan
to integrate the apps on his blog, pretextually cloaking the maneuver as a privacy-related decision
to frustrate regulators and hide the anticompetitive effects of his integration of the acquired
products. Facebook’s announced plan would implement a unitary form of end-to-end encryption
across its messaging and photo sharing apps, and would integrate the acquired assets (WhatsApp,
Instagram, and their respective social data) to make them interoperable with—and inextricable
from—Facebook’s core product.
398.
Although Facebook had prior to the backend integration created interoperability
across its applications of its tracking and surveillance infrastructure, the full integration of the so-
called backend provides Facebook with surveillance, advertising targeting, and market power
incomparable from any other social network (and likely any other private entity) on earth. The
integration would ensure that Instagram and WhatsApp networks can also never become viable
platform alternatives to Facebook’s Platform. Indeed, once integrated, Instagram and WhatsApp
would not be alternatives but part and parcel of the very Facebook Graph API and Platform the
company has anticompetitively leveraged dominance in the Social Advertising market to the
detriment of thousands of advertisers, including Plaintiff and Class Members herein.
399.
The back-end integration is a game changer—and directly reneges on Facebook’s
statements to regulators about its ability to merge the apps together and to consolidate market
power. The integration means that 2.6 billion users across Facebook, WhatsApp and Instagram
would be interoperably reachable across platforms for the first time, creating a massive and
unprecedented concentration of market power in the Social Advertising market.
CLASS ACTION ALLEGATIONS
400.
The Classes’ claims all derive directly from a course of conduct by Facebook.
Facebook has engaged in uniform and standardized conduct toward the class. Facebook did not
materially differentiate in its actions or inactions toward members of the class. The objective facts
on these subjects are the same for all class members. Within each Claim for Relief asserted by the
class, the same legal standards govern. Accordingly, Plaintiff brings this lawsuit as a class action
on its own behalf and on behalf of all other persons similarly situated as members of the proposed
class pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3) and/or (b)(2) and/or (c)(4).
This action satisfies the numerosity, commonality, typicality, adequacy, predominance, and
superiority requirements of those provisions.
Nationwide Advertiser Class
401.
Between April 4, 2018, and the present, Facebook advertisers, including Plaintiff,
have been governed by materially common terms of service, which applied specifically to
“commercial” Facebook accounts during this time period.
402.
Plaintiff brings this action and seek to certify and maintain it as a class action under
Rules 23(a); (b)(2); and/or (b)(3); and/or (c)(4) of the Federal Rules of Civil Procedure on behalf
of itself and a Post-2018 Nationwide Advertiser Class defined as follows:
All persons, entities, and/or corporations in the United States who
purchased advertising from Facebook between April 4, 2018, and
the present, and were thereby injured by anticompetitive price
inflation in the Social Advertising market (the “Post-2018 Class
Period”).
403.
Excluded from the Nationwide Advertiser Class is Facebook, its employees,
officers, directors, legal representatives, heirs, successors, and wholly or partly owned
subsidiaries or affiliates; and the judicial officers and their immediate family members and
associated court staff assigned to this case.
Numerosity and Ascertainability
404.
The class in this action satisfies the requirements of Fed. R. Civ. P. 23(a)(1).
Thousands of persons, entities, and/or companies nationwide purchased advertising from
Facebook during the Class Period. Individual joinder of all Class members is impracticable.
405.
The Class is ascertainable because its members can be readily identified using
Facebook accounts, Facebook Ads registrations, and other records and information kept by
Facebook or third parties in the usual course of business and within their control. Plaintiff
anticipates providing appropriate notice to the certified Class, in compliance with Fed. R. Civ. P.
23(c)(1)(2)(A) and/or (B), to be approved by the Court after class certification, or pursuant to
court order under Fed. R. Civ. P. 23(d).
Predominance of Common Issues
406.
This action satisfies the requirements of Fed. R. Civ. P. 23(a)(2) and 23(b)(3)
because questions of law and fact that have common answers are the same for each Class member
and predominate over questions affecting only individual Class members.
407.
Common issues include, without limitation, the following questions of law and
a. Whether Defendant monopolized the Social Advertising Market.
b. Whether Defendant, its employees or affiliates, intended to monopolize the
Social Advertising Market.
c. Whether Defendant attempted to monopolize the Social Advertising Market.
d. Whether Defendant possessed monopoly or market power in the Social
Advertising Market.
e. Whether user data and data obtained by third parties created a Social Data
Barrier to Entry that protected Facebook’s market position and/or monopoly,
reduced competition or entry in the Social Advertising Market, and/or
increased prices for products in that market, including, but not limited to,
advertising sold to members of the proposed Classes.
f. Whether Defendant’s decision to withdraw the Friend and Feed Graph APIs
lacked any justification and/or whether the procompetitive effects of the
decision to do so, if any, was outweighed by the anticompetitive effects.
g. Whether Defendant sacrificed short-term profits to monopolize, or attempt to
monopolize, the Social Advertising Market.
h. Whether the procompetitive effects of the decision to withdraw the Friend and
Feed Graph APIs, if any at all existed, could have been accomplished by less
restrictive means.
i. Whether Defendant’s agreements with whitelisted developers violated Section
2 of the Sherman Act, including whether the agreements restrained trade or
strengthened the Social Data Barrier to Entry.
j. Whether Defendant’s purchase of WhatsApp violated Section 2 of the Sherman
Act.
k. Whether Defendant’s conduct harmed competition in the Social Advertising
Market.
l. Whether Defendant’s conduct caused price increases or the reduction of
consumer or developer choice in the Social Advertising Market.
m. Whether Defendant’s unlawful conduct was a substantial contributing factor
in the injury to members of the Class.
Typicality
408.
This action satisfies the requirements of Fed. R. Civ. P. 23(a)(3) because the Class
and Plaintiff’s claims are typical of the claims of other Class members and arise from the same
course of conduct by Defendant. The relief Plaintiff seeks is typical of the relief sought for the
absent Class members.
Adequate Representation
409.
Plaintiff will fairly and adequately represent and protect the interests of the Class.
Plaintiff has retained counsel with substantial experience in prosecuting antitrust and consumer
class actions, including actions involving defective products.
410.
Plaintiff and its counsel are committed to vigorously prosecuting this action on
behalf of the Class and have the financial resources to do so. Neither Plaintiff nor its counsel have
interests adverse to those of the Class.
Superiority
411.
This action satisfies the requirements of Fed. R. Civ. P. 23(b)(2) because
Defendant has acted and refused to act on grounds generally applicable to the Classes, thereby
making appropriate final injunctive and/or corresponding declaratory relief with respect to the
Classes as a whole.
412.
This action satisfies the requirements of Fed. R. Civ. P. 23(b)(3) because a class
action is superior to other available methods for the fair and efficient adjudication of this
controversy. Common questions of law and fact regarding Defendant’s conduct and responsibility
predominate over any question affecting only individual Class members.
413.
Because the damages suffered by each individual Class member may be relatively
smaller than the costs of litigation, the expense and burden of individual litigation would make it
very difficult or impossible for individual Class members to redress the wrongs done to each of
them individually, such that most or all Class members would have no rational economic interest
in individually controlling the prosecution of specific actions, and the burden imposed on the
judicial system by individual litigation by even a small fraction of the Class would be enormous,
making class adjudication the superior alternative under Fed. R. Civ. P. 23(b)(3)(A) for each of
the proposed Classes.
414.
The conduct of this action as a class action presents far fewer management
difficulties, far better conserves judicial resources and the parties’ resources, and far more
effectively protects the rights of each Class member than would piecemeal litigation. Compared
to the expense, burdens, inconsistencies, economic infeasibility, and inefficiencies of
individualized litigation, the challenges of managing this action as a class action are substantially
outweighed by the benefits to the legitimate interests of the parties, the court, and the public of
class treatment in this Court, making class adjudication superior to other alternatives, under Fed.
R. Civ. P. 23(b)(3)(D).
415.
Plaintiff is not aware of any obstacles likely to be encountered in the management
of this action that would preclude its maintenance as a class action. Rule 23 provides the Court with
authority and flexibility to maximize the efficiencies and benefits of the class mechanism and
reduce management challenges. The Court may, on motion of Plaintiff or on its own
determination, certify nationwide, statewide, and/or multistate classes for claims sharing common
legal questions; utilize the provisions of Rule 23(c)(4) to certify any particular claims, issues, or
common questions of fact or law for class-wide adjudication; certify and adjudicate bellwether
class claims; and utilize Rule 23(c)(5) to divide any class into subclasses.
REALLEGATION AND INCORPORATION BY REFERENCE
416.
Plaintiff realleges and incorporates by reference all the preceding paragraphs and
allegations of this Complaint, as though fully set forth in each of the following Claims for Relief
asserted on behalf of the Class.
CLAIMS FOR RELIEF
COUNT I
Section 2 Sherman Act:
Monopolization
417.
Defendant has willfully acquired and maintained monopoly power in the relevant
market for Social Advertising.
418.
Facebook possesses monopoly power in the relevant market for Social
Advertising. Facebook has the power to control prices or exclude competition in the relevant
market.
419.
Facebook’s revenue share of the Social Advertising Market is approximately 80%;
its share has been above 70% since 2015.
420.
Defendant has willfully acquired and maintained monopoly power for Facebook
in the relevant market for Social Advertising. As alleged herein Defendant has accomplished this
by means of predatory, exclusionary, and anticompetitive conduct, including but not limited to:
including but not limited to: removing friends, news feed, and other crucial APIs; refusing to sell
social data to competing applications developers; extracting social data from competitors through
threats of blacklisting and/or through nonconsensual data scraping; targeting competitors for
reciprocity or denial of API access; entering into whitelisting and data sharing agreements with
competitors, including for large advertising purchases or the provision of user data; and engaging
in covert surveillance of competitors’ users in order to detect and ultimately acquire competitive
threats before they became too formidable.
421.
Defendant’s conduct alleged above has had an anticompetitive effect in the
relevant market for Social Advertising.
422.
Defendant’s conduct alleged herein has no legitimate business purpose or
procompetitive effect.
423.
Defendant’s conduct has had a substantial effect on interstate commerce.
424.
Plaintiff and the Class have been and will be injured in their business or property
as a result of Defendant’s conduct alleged herein.
425.
Plaintiff and the Class have suffered and will suffer injury of the type that the
antitrust laws were intended to prevent. Plaintiff and the Class have been and will be injured by
the harm to competition as a result of Defendant’s conduct.
COUNT II
Section 2 Sherman Act:
Attempted Monopolization
426.
As alleged herein, Defendant has engaged in predatory, exclusionary, and
anticompetitive conduct, including but not limited to: removing friends, news feed, and other
crucial APIs; refusing to sell social data to competing applications developers; extracting social
data from competitors through threats of blacklisting and/or through nonconsensual data
scraping; targeting competitors for reciprocity or denial of API access; entering into whitelisting
and data sharing agreements with competitors, including for large advertising purchases or the
provision of user data; and engaging in covert surveillance of competitors’ users in order to detect
and ultimately acquire competitive threats before they became too formidable.
427.
Defendant’s conduct alleged above has had an anticompetitive effect in the
relevant market for Social Advertising.
428.
Defendant’s conduct alleged herein has no legitimate business purpose or
procompetitive effect.
429.
Defendant has engaged in that conduct with the specific intent of
monopolizing the relevant market for Social Advertising.
430.
Defendant has engaged in that conduct with a dangerous probability of
monopolizing the relevant market for Social Advertising.
431.
Defendant’s conduct has had a substantial effect on interstate commerce.
432.
Plaintiff and the Class have been and will be injured in their business or property
as a result of Defendant’s conduct alleged herein.
433.
Plaintiff and the Class have suffered and will suffer injury of the type that the
antitrust laws were intended to prevent. Plaintiff and the Class have been and will be injured by
the harm to competition as a result of Defendant’s conduct.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests that judgment be entered against Defendant and that
the Court grant the following:
A.
Determine that this action may be maintained as a class action pursuant
to Rules 23(a), (b)(2), (b)(3) and/or (c)(4) of the Federal Rules of Civil
Procedure, and direct that reasonable notice of this action, as provided
by Rule 23(c)(2), be given to the Class, and declare Plaintiff as the
representative of the Class;
B.
Enter a judgment against Defendant in favor of Plaintiff and the Class;
C.
Award the Classes damages (i.e., three times their damages) in amount to
be determined at trial;
D.
Award actual, compensatory, statutory, and consequential damages;
E.
Award equitable monetary relief, including restitution and disgorgement
of all ill-gotten gains, and the imposition of a constructive trust upon, or
otherwise restricting the proceeds of Defendant’s ill-gotten gains, to
ensure an effective remedy;
F.
Grant permanent injunctive relief pursuant to Section 16 of the Clayton
Act to remedy the ongoing anticompetitive effects of Defendant’s
unlawful conduct;
G.
Award pre-judgment and post-judgment interest at the highest rate allowed
by law;
H.
Award Plaintiff and the Class their costs of suit, including reasonable
attorneys’ fees as provided by law; and
I.
Award such further and additional relief as the case may require and the
Court may deem just and proper under the circumstances.
JURY DEMAND
Plaintiff demands a trial by jury on all claims so triable as a matter of right.
Dated: March 3, 2021 Respectfully submitted,
By:
/s/ Jennie Lee Anderson
Jennie Lee Anderson (SBN 203586)
ANDRUS ANDERSON LLP
155 Montgomery Street, Suite 900
San Francisco, CA 94104
Tel. (415) 986-1400; Fax. (415) 986-1474
jennie@andrusanderson.com
REINHARDT WENDORF & BLANCHFIELD
Garrett D. Blanchfield (Pro Hac Vice forthcoming)
Brant D. Penney (Pro Hac Vice forthcoming)
332 Minnesota Street, Suite W1050
St. Paul, MN 55101
Tel: (651) 287-2100
Fax: (651) 287-2103
g.blanchfield@rwblawfirm.com
b.penney@rwblawfirm.com
SPECTOR ROSEMAN & KODROFF, P.C.
William G. Caldes (Pro Hac Vice forthcoming)
Jeffrey Spector (Pro Hac Vice forthcoming)
Mary Ann Geppert (Pro Hac Vice forthcoming)
2001 Market Street, Suite 3420
Philadelphia, PA 19103
Tel: (215) 496-0300
Fax: (215) 496-6611
BCaldes@srkattorneys.com
JSpector@srkattorneys.com
MGeppert@ srkattorneys.com
Attorneys for Plaintiff
| antitrust |
qXP7FYkB9sM9pEmadmRo | 2013 NOV -1 - AM11:18
CLERK DISTRICT COURT
DEST OF CALIF
Les ANGELES
BY
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
Plaintiffs,
V.
Defendant.
NATURE OF THE CASE
1.
Plaintiffs and the Class members they propose to represent purchased or
2.
3.
PARTIES
4.
5.
Plaintiff Christopher H. White is a citizen and resident of Odenton,
6.
7.
8.
Defendant Chrysler Group, L.L.C., (Chrysler) is a limited liability
JURISDICTION AND VENUE
9.
10.
11.
Venue is proper in this District under 28 U.S.C. § 1391(b) because
SUBSTANTIVE ALLEGATIONS
12.13.
14.
15.
TOTALLY INTEGRATED POWER MODULE IS GOING OUT ON
MULTIPLE JEEP VEHICLES. THE TIPM CONTROLS LIGHTS, HORNS,
WIPERS, AIR BAGS, ETC. WHEN THE PART QUITS WORKING IT CAUSES
MULTIPLE ISSUES WITH THE VEHICLE. THE VEHICLE WILL NOT
START, WHICH CAN LEAVE THE OWNER STRANDED. THE WIPERS,
HORN, ETC., JUST TURN ON, WHICH COULD CAUSE AN ACCIDENT.
AND THE AIR BAGS MAY NOT DEPLOY IF IN AN ACCIDENT. THE TIPM
IS ON NATIONAL BACK ORDER, WHICH MEANS WAITING WEEKS FOR
REPAIR AND CHRYSLER IS REFUSING TO PAY FOR A RENTAL CAR
FOR THE OWNER, AND WILL, THE REPLACEMENT LAST LONGER
THAN THE ORIGINL? THE VEHICLE NEEDS TO BE RECALLED AND
REPLACED.
CAR WON'T STOP. TIPM FUSE EXPLODED. JEEP DEALER SAYS I WONT
HAVE A CAR FOR 2 WEEKS AND JEEP WON'T COVER THIS MAIN
STREAM ISSUE. I FOUND 1200 COMPLAINTS ON THE SAME ISSUE. WE
WANT EXTENDED WARRANTY OR FULL RECALL ON ALL JEEP GRAND
CHEROKEES. 2011 AND 2012. PEOPLE CAN DIE IF THEIR CAR SHUTS
OFF ON THE HIGHWAY. I WAS WARNED I CAN DIE IF I DRIVE THIS
JEEP BY SHAVER JEEP IN THOUSAND OAKS, CA. TIPM NEEDS RECALL
AND WILL END UP KILLING JEEP OWNERS.
MY PROBLEM IS WITH MY TOTALLY INTEGRATED POWER MODULE
(TIPM). IT IS FAULTY AND NEEDS REPLACED AND SO ARE 25,000
OTHER 2011 VEHCILES IN THE USA. PART IS ON BACKORDER AND
THERE IS A BUSINESS PROBLEM WITH THE VENDOR. I AM FLAGGING
THIS SITUATION AS A LIFE, HEALTH, AND SAFETY MATTER BECAUSE
YOU HAVE ON FILE 5-2011 JEEP GRAND CHEROKEE ACCIDENTS
WHERE THE AIR BAGS WERE WRITTEN UP IN THE POLICE REPORTS
AS NOT DEPLOYING. THIS GOES RIGHT BACK TO THE TIPM WHICH IS
THE BRAIN OF THE WHOLE VEHICLE. THE AIR BAGS ARE WIRED IN
TO THE TOTALLY INTEGRATED POWER MODULE. THIS IS THE CASE
WHERE YOU NEED TO CONNECT THE DOTS. THERE ARE THOUSANDS
OF US OUT THERE THAT WON'T START BECAUSE WE NEED THE TIPM.
WHAT ABOUT THE OTHER THOUSANDS OUT THERE THAT DIDN'T
DEVELOP THE FAULT YET IN THE TIPM BUT IN THE EVENT OF AN
ACCDIENT THE ODDS THAT THE AIR BAGS DON'T DEPLOY HAS BEEN
GREATLY INCREASED. THIS CONSUMER/JEEP OWNER HAS NO FAITH
AT ALL THAT MY BAGS WILL EVER DEPLOY WHEN NEEDED. WHEN
MY JEEP IS RETURNED TO ME I AM IMMEDIATELY TRADING IT IN.
NHSTA NEEDS TO FORCE CHRSYLER TO MAKE A RECALL; THEY WILL
NEVER DO IT ON THEIR OWN.
16.
I WOULD LIKE TO PLACE A FORMAL COMPLAINT AGAINST
CHRYSLER GROUP, LLC. MY FAMILY ALONG WITH SEVERAL
HUNDREDS, IF NOT THOUSANDS OF OTHER 2011 JEEP GRAND
CHEROKEE OWNERS. THIS ISSUE IS AROUND THE TIPM DEVICE THAT
SEEMS TO BE FAILING ON MY AND MANY CONSUMER'S VEHICLES
DATING BACK TO THE EARLY PART OF 2013. THE PROBLEM IS THE
DEALER, NOR THE CHRYSLER GROUP DOESN'T HAVE AN IDEA WHEN
THIS PART WILL BE AVAILABLE LEAVING MANY OF US WITHOUT A
CAR FOR AN UNDETERMINED AMOUNT OF TIME. THIS PART (TIPM)
NEEDS TO BE PLACED ON OFFICIAL RECALL BY THE CORPORATION
AND UNTIL IT ACTUALLY IS IT HAS PLACED UNDUE FINANCIALSTRAIN ON MANY OF THE OWNERS OF THE JEEP. WE ARE EXPECTED
BY THE BANKS TO CONTINUE PAYING OUR CAR NOTE, ALONG WITH
INSURNACE. NOW CHRYSLER IS SAYING THAT WE MUST ALSO COME
OUT OF POCKET FOR RENTALS TO REPLACE THE VEHICLES WE HAVE
AND OR PAYING FOR UNTIL THEY RESOLVE THE ISSUE. THIS IS NOT
RIGHT ON SO MANY LEVELS AND APPARENTLY THEY CAN GET
AWAY WITH THIS WITHOUT RECOURSE. IN CONCLUSION, JUST
ASKING THE JUSTICE DEPARTEMENT TO LOOK INTO THIS ISSUE AND
ASSIST US CONSUMERS BEING HELD HOSTAGE BY CHRYSLER
GROUP, LLC.
Chrysler Refuses to Acknowledge the TIPM Defect
17.
18.
19.
Chrysler's refusal to publically acknowledge the defect has left Class
Plaintiff Peter Velasco's Experience
20. In March 2009, Plaintiff Velasco purchased a certified Pre-Owned 2008
21. Mr. Velasco bought his 2008 Chrysler 300 because he needed a reliable
22.
23.
24.25.
26.
The Scotts Robinson Chrysler dealership ran a diagnostic test and
27.
Plaintiff Christopher White's Experience
28.
30.
31.
32.
33. Mr. White contacted Chrysler customer care but received very limited
34.
Plaintiff Jacqueline Young's Experience
35.
In January 2011, Plaintiff Young purchased a new 2011 Jeep Grand
36.
Ms. Young purchased her 2011 Jeep Grand Cherokee because she
37.
38.
Frustrated with the increasing difficulty of starting her vehicle, and39.
40.
41.
Plaintiff Christopher Light's Experience
42.
43.
44.
45.
Six months later, in early August 2013, Mr. Light's vehicle once again
46.47.
48.
49.
On September 20, 2013, the dealership notified Mr. Light that it had
50.
Impacted Vehicles
51.
Chrysler has long known that it equipped Class Vehicles with defective
52.
53.
54.
55.
56.
The TIPM defect has resulted in several thousand consumers incurring
CLASS ACTION ALLEGATIONS
57.
All persons in the United States who purchased or leased Class Vehicles
installed with the TIPM, or, alternatively, all persons in California,
Maryland, and Florida who purchased or leased Class Vehicles installed
with the TIPM.
58.
Excluded from the Class are Chrysler and Chrysler Group, LLC; any59.
60.
61.
a.
Whether Class Vehicles suffer from the TIPM defect;
b.
Whether the TIPM defect constitutes an unreasonable safety risk;
C.
How long Chrysler has known of the defect;
d.
e.
TIPM to Plaintiffs and the Class
f.
Whether Chrysler has violated California's Consumers Legal
g.
Whether Chrysler has engaged in unlawful, unfair, or fraudulent
17200 et seq., as alleged in this complaint;
h.
Act, Md. Code Com. Law § 13-101, et seq., as alleged in this
complaint;
i.
Practices Act, Fla. Stat. § 501.201, et seq., as alleged in this
complaint;
j.
Whether Plaintiffs and the other Class members are entitled to
equitable relief, including but not limited to restitution or a
preliminary and/or permanent injunction; and
k.
Whether Plaintiffs and the other Class members are entitled to
damages and other monetary relief.
62.
63.
64.65.
In the alternative, the Class may be certified because:
a.
respect to individual Class members which would establish
incompatible standards of conduct for Chrysler;
b.
the prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them which
or impede their ability to protect their interests; and
C.
respect to the members of the Class as a whole.
FIRST CAUSE OF ACTION
(Violation of the Consumers Legal Remedies Act,
Cal. Civ. Code. §§ 1750, et seq.)
66.
Plaintiff Velasco, on behalf of himself and all others similarly situated,
67.
68.
Plaintiff Velasco and members of the class are "consumers" within the
69.
70.
71.
Had Chrysler adequately disclosed information about the headlight
72.
SECOND CAUSE OF ACTION
(For unlawful, unfair, and fraudulent business practices under
Business and Professions Code § 17200 et seq.)
73.
Plaintiff Velasco, on behalf of himself and all others similarly situated,
74.
Chrysler's acts and practices, as alleged in this complaint, constitute
75.
The business practices engaged in by Chrysler that violate the Unfair
76.
77.
Chrysler engaged in unfair business practices by, among other things:
78.
79.
80.
Engaging in conduct that undermines or violates the stated policies
81.
82.
As a direct and proximate result of Chrysler's unlawful, unfair and
83.
Plaintiff and Class members are entitled to equitable relief, including
THIRD CAUSE OF ACTION
(Violation of the Maryland Consumer Protection Act,
Md. Code Com. Law § 13-101, et seq. )
84.
85.
Plaintiffs White and Young are "persons" within the meaning of the86.
Chrysler is a "person" within the meaning of the Maryland Consumer
87.
All of the conduct alleged herein occurred in the course of Chrysler's
88.
89.
Plaintiffs White and Young and the Class were injured by Chrysler's
90.
FOURTH CAUSE OF ACTION
(Violation of the Florida Deceptive and Unfair Trade Practices Act,
Fla. Stat. § 501.201, et seq.)
91.
Plaintiff Light, on behalf of himself and all others similarly situated,
92.
Plaintiff Light and the other Class members are "consumers" within the
93.
94.
95.
Pursuant to Fla. Stat. $501.211(1), Plaintiff Light and the other Class
96.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on Plaintiffs' own behalf and on behalf of the Class,
a.
counsel to represent the Class;
b.
For an order awarding Plaintiffs and the members of the Class damages,
consequential damages, specific performance, and/or rescission;
c.
other equitable relief as the Court deems proper;
d.
For an order enjoining Chrysler from continuing to engage in unlawful
business practices as alleged herein;
e.
and post-judgment interest;
f.
attorneys' fees and costs of suit, including expert witness fees; and
g.
just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a trial by jury on all claims SO triable.
Respectfully submitted,
GIRARD GIBBS LLP
By:
Eric H. Gibbs
Dylan Hughes
Caitlyn D. Finley601 California Street, 14th Floor
San Francisco, California 94108
Telephone: (415) 981-4800
Facsimile: (415) 981-4846
ehg@girardgibbs.com
dsh@girardgibbs.com
cdf@girardgibbs.com
Todd M. Schneider
Joshua G. Konecky
SCHNEIDER WALLACE COTTRELL
KONECKY LLP
180 Montgomery Street, Suite 2000
San Francisco, California 94104
Telephone: (415) 421-7100
Facsimile: (415) 421-7105
tschneider@schneiderwallace.com
jkonecky@schneiderwallace.com
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
NOTICE OF ASSIGNMENT TO UNITED STATES JUDGES
Dean D. Pregerson
Victor B. Kenton
.
The case number on all documents filed with the Court should read as follows:
2:13-CV-8080-DDP (VBKx)
Clerk, U. S. District Court
November 1, 2013
By MDAVIS
Date
Deputy Clerk
NOTICE TO COUNSEL
Southern Division
Eastern Division
411 West Fourth St., Ste 1053
3470 Twelfth Street, Room 134
Santa Ana, CA 92701
Riverside, CA 92501
UNITED STATES DISTRICT COURT
for the
Central District of California
)
)
)
situated,
)
Plaintiff(s)
)
)
V.
Civil Action
)
CHRYSLER GROUP LLC
)
)
)
)
Defendant(s)
)
SUMMONS IN A CIVIL. ACTION
c/o C T Corporation
818 West Seventh Street
Los Angeles, California 90017
A lawsuit has been filed against you.
Within 21 days after service of this summons on you (not counting the day you received it) - or 60 days if you
Eric H. Glbbs
Dylan Hughes
Caltlyn D. Finley
GIRARD GIBBS, LLP
601 California Street, 14th Floor
San Francisco, California 94108
If you fail to respond, judgment by default will be entered against you for the relief demanded in the complaint.
CLERK OF COURT
THE
U.S.
OF
DISTRIA
NOV - 1 2013
MARILYN DAVIS
Signature of Clerk or
CASHFORM
OF
1227
PROOF OF SERVICE
(This section should not be filed with the court unless required by Fed. R. Civ. P. 4 (l))
I personally served the summons on the individual at (place)
on (date)
; or
I left the summons at the individual's residence or usual place of abode with (name)
, a person of suitable age and discretion who resides there,
, and mailed a copy to the individual's last known address; or
I served the summons on (name of individual)
on (date)
; or
I returned the summons unexecuted because
Other (specify):
for travel and $
for services, for a total of $
0.00
Server's signature
Printed name and title
Server's address)
DEFENDANTS
( Check box If you are representing yourself
)
CHRYSLER GROUP LLC
(b) Attorneys (Firm Name, Address and Telephone Number. If you
are representing yourself, provide same Information.)
III. CITIZENSHIP OF PRINCIPAL PARTIES-For Diversity Cases Only
(Place an X in one box for plaintiff and one for defendant)
PTF
DEF
PTF
3. Federal Question (U.S.
Citizen of This State
1
1
Incorporated or Principal Place
4
Government Not a Party)
of Business In this State
Citizen of Another State
2
2 Incorporated and Principal Place
5
of Business In Another State
4. Diversity (Indicate Citizenship
Citizen or Subject of a
3
of Parties in Item III)
Foreign Country
3 Foreign Nation
6
6. Multi-
2. Removed from
3, Remanded from
4. Reinstated or
5. Transferred from Another
District
State Court
Appellate Court
Reopened
District (Specify)
Litigation
Yes
No
(Check "Yes" only If demanded in complaint)
Yes
No
MONEY DEMANDED IN COMPLAINT: $
CONTRACT
REAL PROPERTY CONT
IMMIGRATION
PRISONER PETITIONS
PROPERTY RIGHTS
110 Insurance
240 Torts to Land
462 Naturalization
Habeas Corpus:
820 Copyrights
120 Marine
245 Tort Product
Application
463 Allen Detainee
830 Patent
Liability
465 Other
510 Motions to Vacate
130 Miller Act
290 All Other Real
immigration Actions
Sentence
840 Trademark
140 Negotiable
Property
TORTS
530 General
SOCIAL SECURITY
Instrument
TORTS
PERSONAL PROPERTY
535 Death Penalty
861 HIA (1395ft)
150 Recovery of
PERSONAL PROPERT
370 Other Fraud
Other
862 Black Lung (923)
Overpayment &
310 Airplane
Enforcément of
315 Airplane
371 Truth In Lending
540 Mandamus/Other
863 DIWC/DIWW (405 (g))
Judgment
Product Liability
380 Other Personal
550 Civil Rights
864 SSID Title XVI
151 Medicare Act
320 Assault, Libel &
Property Damage
555 Prison Condition
Slander
865 RSI (405 (g))
152 Recovery of
385 Property Damage
Defaulted Student
330 Fed. Employers'
560 Civil Detainee
Product Liability
Loan (Excl. Vet.)
Liability
Conditions of
FEDERAL TAX SUITS
BANKRUPTCY
Confinement
340 Marine
422 Appeal 28
FORFEITURE/PENALTY
153 Recovery of
345 Marline Product
Defendant)
Overpayment of
USC 158
Liability
625 Drug Related
Vet. Benefits
423 Withdrawal 28
Selzure of Property 21
7609
350 Motor Vehicle
USC 157
USC 881
160 Stockholders'
Sults
355 Motor Vehicle
CIVII RIGHTS
690 Other
Product Liability
190 Other
360 Other Personal
440 Other Civil Rights
LABOR
Contract
Injury
441 Voting
710 Fair Labor Standards
Act
195 Contract
362 Personal Injury-
Product Liability
Med Malpratice
442 Employment
720 Labor/Mgmt.
196 Franchise
365 Personal Injury-
443 Housing/
Relations
Product Liability
Accomodations
740 Rallway Labor Act
REAL PROPERTY
367 Health Care/
445 American with
210 Land
Pharmaceütical
Disabilities-
751 Family and Medical
Condemnation
Personal Injury
Employment
Leave Act
220 Foreclosure
Product Liability
446 American with
790 Other Labor
368 Asbestos
Disabilities-Other
Litigation
230 Rent Lease &
Personal Injury
448 Education
791 Employee Ret. Inc.
Electment
Product Liability
Security Act
Case Number:
CV13-08080
CIVIL COVER SHEET
Page 1 of 3
STATE CASE WAS PENDING IN THE COUNTY OF:
Los Angeles
Western
Yes
No
Ventura, Santa Barbara, or San Luis Obispo
Western
Southern
Orange
Riverside or San Bernardino
EasternIf the United States, or one of its agencies or employees, is a party, is it:
INITIAL
A PLAINTIFF?
A DEFENDANT?
DIVISION IN
Yes
CACD IS:
No
Then check the box below for the county in
Then check the box below for the county in
which the majority of DEFENDANTS reside.
which the majority of PLAINTIFFS reside.
Los Angeles
Los Angeles
Western
Ventura, Santa Barbara, or San Luis
Ventura, Santa Barbara, or San Luis
Western
Obispo
Obispo
Orange
Orange
Southern
Riverside or San Bernardino
Riverside or San Bernardino
Eastern
Other
Other
Western
A.
B.
C.
D.
E.
Los Angeles
Ventura, Santa Barbara, or
Orange County
Riverside or San
Outside the Central
County
San Luis Obispo Counties
Bernardino Counties
District of California
C.2. Is either of the following true? If so, check the one that applies:
2 or more answers in Column D
only 1 answer in Column D and no answers in Column C
Your case will initially be assigned to the
Your case will initially be assigned to the
SOUTHERN DIVISION.
EASTERN DIVISION.
Enter "Eastern" in response to Question D, below.
If none applies, go to the box below.
Your case will initially be assigned to the
WESTERN DIVISION.
Enter "Western" in response to Question D below.
INITIAL DIVISION IN CACD
WESTERN DIVISION
CIVIL COVER SHEET
NO
NO
A. Arise from the same or closely related transactions, happenings, or events; or
B. Call for determination of the same or substantially related or similar questions of law and fact; or
C. For other reasons would entail substantial duplication of labor if heard by different judges; or
D. Involve the same patent, trademark or copyright, and one of the factors identified above in a, b or C also is present.
DATE:
November 1, 2013
Abbreviation
Substantive Statement of Cause of Action
HIA
(42 U.S.C. 1935FF(b))
BL
923)
DIWC
all claims filed for child's insurance benefits based on disability. (42 U.S.C. 405 (g))
All
DIWW
amended. (42 U.S.C. 405 (g))
SSID
amended.
RSI
All claims for retirement (old age) and survivors benefits under Title 2 of the Social Security Act, as amended.
(42 U.S.C. 405 (g))
CIVIL COVER SHEET | consumer fraud |
2a2CCocBD5gMZwczTj39 | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
Kimberly Gross,
individually and on behalf of all others similarly situated,
Civil Action No: 2:20-cv-05031
Plaintiff(s)
-v.-
Arnold A. Arpino & Associates, P.C.,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
and John Does 1-25.
Defendant(s).
Plaintiff Kimberly Gross (“Plaintiff”), brings this Class Action Complaint by and through
her attorneys, Stein Saks, PLLC, against Defendant Arnold A. Arpino & Associates, P.C.
(“Arpino”), individually and on behalf of a class of all others similarly situated, pursuant to Rule 23
of the Federal Rules of Civil Procedure, based upon information and belief of Plaintiff’s counsel,
except for allegations specifically pertaining to Plaintiff, which are based upon Plaintiff's personal
knowledge.
INTRODUCTION/PRELIMINARY STATEMENT
1.
The Fair Debt Collection Practices Act (“FDCPA”) was enacted in 1977 in response
to the "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by
many debt collectors." 15 U.S.C. §1692(a). Congress was concerned that "abusive debt collection
practices contribute to the number of personal bankruptcies, to material instability, to the loss of
jobs, and to invasions of individual privacy." Id. Congress concluded that "existing laws…[we]re
inadequate to protect consumers," and that "the effective collection of debts" does not require
"misrepresentation or other abusive debt collection practices." 15 U.S.C. §§ 1692(b) & (c).
2.
The purpose of the Act was not only to eliminate abusive debt collection practices,
but also to ensure “that those debt collectors who refrain from using abusive debt collection practices
are not competitively disadvantaged.” Id. § 1692(e). After determining that the existing consumer
protection laws were inadequate, Id. § 1692(b), the Act gave consumers a private cause of action
against debt collectors who fail to comply with it. Id. § 1692k.
JURISDICTION AND VENUE
3.
The Court has jurisdiction over this class action pursuant to 28 U.S.C. § 1331 and
15 U.S.C. § 1692 et. seq. The Court has pendent jurisdiction over state law claims, if any, in this
action pursuant to 28 U.S.C. § 1367(a).
4.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2), as the
acts and transactions occurred here, Plaintiff resides here, and Defendant transacts business here.
NATURE OF THE ACTION
5.
Plaintiff brings this class action on behalf of a class of consumers under § 1692 et
seq. of Title 15 of the United States Code, also known as the Fair Debt Collections Practices Act
("FDCPA"), and
6.
Plaintiff is seeking damages and declaratory relief.
PARTIES
7.
Plaintiff is a resident of the State of New York, county of Suffolk, residing at 41
Cornflower Lane, East Northport, NY 11731.
8.
Defendant Arpino is a “debt collector” as the phrase is defined in 15 U.S.C. §
1692(a)(6) and used in the FDCPA with an address at 380 Townline Rd., Suite 380, Hauppauge,
NY 11788.
9.
Upon information and belief, Defendant Arpino is a company that uses the mail,
telephone, and facsimile and regularly engages in business the principal purpose of which is to
attempt to collect debts alleged to be due to itself or another.
10.
John Does 1-25, are fictitious names of individuals and businesses alleged for the
purpose of substituting names of Defendants whose identities will be disclosed in discovery and
should be made parties to this action.
CLASS ALLEGATIONS
11.
Plaintiff brings this claim on behalf of the following class, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
12.
The Class consists of all individuals:
a. with addresses in the State of New York;
b. to whom Defendant Arpino failed to send the notice required by 15 U.S.C. §
1692g;
c. within five days of an initial communication with a consumer in connection with
collection of a debt;
d. which communication occurred on or after a date one (1) year prior to the filing
of this action and on or before a date twenty-one (21) days after the filing of this
action.
13.
The identities of all class members are readily ascertainable from the records of
Defendant and those companies and entities on whose behalf it attempts to collect and/or has
purchased debts.
14.
Excluded from the Plaintiff Class are the Defendant and all officers, members,
partners, managers, directors and employees of the Defendant and their respective immediate
families, and legal counsel for all parties to this action, and all members of their immediate families.
15.
There are questions of law and fact common to the Plaintiff Class, which common
issues predominate over any issues involving only individual class members. The principal issue is
whether the Defendant’s written communications to consumers, in the form attached as Exhibit A,
violate 15 U.S.C. §§ 1692e, 1692f, and 1692g.
16.
The Plaintiff’s claims are typical of the class members, as all are based upon the same
facts and legal theories. The Plaintiff will fairly and adequately protect the interests of the Plaintiff
Class defined in this complaint. The Plaintiff has retained counsel with experience in handling
consumer lawsuits, complex legal issues, and class actions, and neither the Plaintiff nor her attorneys
have any interests, which might cause them not to vigorously pursue this action.
17.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a well-
defined community interest in the litigation:
a. Numerosity: The Plaintiff is informed and believes, and on that basis alleges,
that the Plaintiff Class defined above is so numerous that joinder of all members
would be impractical.
b. Common Questions Predominate: Common questions of law and fact exist as
to all members of the Plaintiff Class and those questions predominate over any
questions or issues involving only individual class members. The principal issue
is whether the Defendant’s written communications to consumers, in the form
attached as Exhibit A violate 15 U.S.C. §§ 1692e, 1692f, and 1692g.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class members.
The Plaintiff and all members of the Plaintiff Class have claims arising out of the
Defendant’s common uniform course of conduct complained of herein.
d. Adequacy: The Plaintiff will fairly and adequately protect the interests of the
class members insofar as Plaintiff has no interests that are adverse to the absent
class members. The Plaintiff is committed to vigorously litigating this matter.
Plaintiff has also retained counsel experienced in handling consumer lawsuits,
complex legal issues, and class actions. Neither the Plaintiff nor her counsel have
any interests which might cause them not to vigorously pursue the instant class
action lawsuit.
e. Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all
members would be impracticable. Class action treatment will permit a large
number of similarly situated persons to prosecute their common claims in a single
forum efficiently and without unnecessary duplication of effort and expense that
individual actions would engender.
18.
Certification of a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure
is also appropriate in that the questions of law and fact common to members of the Plaintiff Class
predominate over any questions affecting an individual member, and a class action is superior to
other available methods for the fair and efficient adjudication of the controversy.
19.
Depending on the outcome of further investigation and discovery, Plaintiff may, at
the time of class certification motion, seek to certify a class(es) only as to particular issues pursuant
to Fed. R. Civ. P. 23(c)(4).
FACTUAL ALLEGATIONS
20.
Plaintiff repeats the above allegations as if set forth here.
21.
Some time prior to August 10, 2020, an obligation was allegedly incurred to non-
party Ambulatory Anesthesia, P.C.
22.
This alleged debt was incurred as a financial obligation primarily for personal, family
or household purposes and is therefore a “debt” as that term is defined by 15 U.S.C. § 1692a (5),
specifically for personal medical services.
23.
Ambulatory Anesthesia is a "creditor" as defined by 15 U.S.C.§ 1692a (4).
24.
Upon information and belief, Ambulatory Anesthesia contracted with the Defendant
to collect the alleged debt.
25.
Defendant Arpino collects and attempts to collect debts incurred or alleged to have
been incurred for personal, family or household purposes on behalf of itself or other creditors using
the United States Postal Services, telephone and internet.
Violation – Failure to Send §1692g Notice
26.
On or around June, 2020, the Defendant filed a collection lawsuit against the Plaintiff
for the Ambulatory Anesthesia debt.
27.
This lawsuit was the first communication the Plaintiff received from Defendant.
28.
In response to the receipt of this lawsuit the Plaintiff telephoned the Defendant to
discuss the alleged debt.
29.
Pursuant to 15 U.S.C. §1692g:
Within five days after the initial communication with a consumer in
connection with the collection of any debt, a debt collector shall, unless the
following information is contained in the initial communication or the
consumer has paid the debt, send the consumer a written notice containing –
1. The amount of the debt;
2. The name of the creditor to whom the debt is owed;
3. A statement that unless the consumer, within thirty days after
receipt of the notice, disputes the validity of the debt, or any
4. portion thereof, the debt will be assumed to be valid by the debt-
collector;
5. A statement that the consumer notifies the debt collector in
writing within thirty-day period that the debt, or any portion
thereof, is disputed, the debt collector will obtain verification of
the debt or a copy of a judgment against the consumer and a copy
of such verification or judgment will be mailed to the consumer
by the debt collector; and
6. A statement that, upon the consumer’s written request within the
thirty-day period, the debt collector will provide the consumer
with the name and address of the original creditor, if different
from the current creditor.
30.
Defendant failed to send Plaintiff the written notices within five days of this initial
communication as required by 15 U.S.C.§ 1692g.
Violation – August 10, 2020 Collection Letter
31.
On or about August 10, 2020, Defendant Arpino sent Plaintiff a collection letter. A
copy of this letter is attached as Exhibit A.
32.
The letter is also lacking the notice required by 15 U.S.C. § 1692g.
33.
Defendant’s actions were therefore misleading and unfair in attempting to coerce the
consumer to pay the alleged debt without taking advantage of her statutorily required rights.
34.
The letter is also deceptive on its face in that it fails to give the required notice and
leaves the consumer unsure of her statutory rights.
35.
As a result of Defendant's deceptive, misleading and unfair debt collection practices,
Plaintiff has been damaged.
COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692e et seq.
36.
Plaintiff repeats the above allegations as if set forth here.
37.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692e.
38.
Pursuant to 15 U.S.C. §1692e, a debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.
39.
Defendant violated said section:
a. By making a misleading representation or using deceptive means in violation of
§1692e (10) by failing to provide the statutory notices required by § 1692g and
thereby coercing the consumer to waive her statutory rights to dispute the debt.
40.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692e et seq. of the FDCPA, actual damages, statutory damages, costs and
attorneys’ fees.
COUNT II
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692f et seq.
41.
Plaintiff repeats the above allegations as if set forth here.
42.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692f.
43.
Pursuant to 15 U.S.C. §1692f, a debt collector may not use any unfair or
unconscionable means in connection with the collection of any debt.
44.
Defendant violated this section by:
a. unfairly attempting to coerce the consumer to pay the alleged debt without
notifying her of her rights to dispute the debt, as required by § 1692g.
45.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692f et seq. of the FDCPA, actual damages, statutory damages, costs and
attorneys’ fees.
COUNT III
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692g et seq.
46.
Plaintiff repeats the above allegations as if set forth here.
47.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692g.
48.
Pursuant to 15 U.S.C. §1692g:
Within five days after the initial communication with a consumer in
connection with the collection of any debt, a debt collector shall, unless the
following information is contained in the initial communication or the
consumer has paid the debt, send the consumer a written notice containing –
1. The amount of the debt;
2. The name of the creditor to whom the debt is owed;
3. A statement that unless the consumer, within thirty days after
receipt of the notice, disputes the validity of the debt, or any
4. portion thereof, the debt will be assumed to be valid by the debt-
collector;
5. A statement that the consumer notifies the debt collector in
writing within thirty-day period that the debt, or any portion
thereof, is disputed, the debt collector will obtain verification of
the debt or a copy of a judgment against the consumer and a copy
of such verification or judgment will be mailed to the consumer
by the debt collector; and
6. A statement that, upon the consumer’s written request within the
thirty-day period, the debt collector will provide the consumer
with the name and address of the original creditor, if different
from the current creditor.
49.
Defendant violated this section by failing to provide the proper notice required by
§1692g in an initial communication or within five days thereafter.
50.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692g et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
DEMAND FOR TRIAL BY JURY
51.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby requests
a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Kimberly Gross, individually and on behalf of all others similarly
situated, demands judgment from Defendant Arnold A. Arpino & Associates, P.C., as follows:
a)
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Eliyahu Babad, Esq., as Class Counsel;
b)
Awarding Plaintiff and the Class statutory damages;
c)
Awarding Plaintiff and the Class actual damages;
d)
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees and
expenses;
e)
Awarding pre-judgment interest and post-judgment interest; and
f)
Awarding Plaintiff and the Class such other and further relief as this Court may deem
just and proper.
Dated: October 20, 2020
Respectfully submitted,
Stein Saks, PLLC
By: /s Eliyahu Babad
Eliyahu Babad, Esq.
285 Passaic Street
Hackensack, NJ, 07601
P. (201) 282-6500 x121
F. (201) 282-6501
Attorneys for Plaintiff
| consumer fraud |
-U7iA4kBRpLueGJZ1fIH | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THOMAS ESTKA, individually and on
)
behalf of all others similarly situated,
)
)
Plaintiff,
)
No. 12 C 10253
)
v.
)
)
CHALET NURSERY AND GARDEN
)
SHOP INC.,
)
)
CLASS ACTION
Defendant.
)
JURY DEMANDED
CLASS ACTION COMPLAINT
Plaintiff Thomas Estka (“Plaintiff”), by his attorneys, Markoff Leinberger LLC, states as
follows for his Class Action Complaint against Defendant Chalet Nursery and Garden Shop Inc.
(“Defendant”).
1.
This is a consumer class action based upon Defendant’s violations of the Fair and
Accurate Credit Transactions Act (“FACTA”) amendment to Fair Credit Reporting Act, 15
U.S.C. § 1681, et seq., as amended (the “FCRA”). Specifically, this action is based on Section
1681c(g) of the FCRA. This section of the FCRA, like many others, was designed to combat the
rampant increase of identity theft throughout the nation in recent years. Under the FCRA,
companies that accept credit and debit cards are required to restrict the information they print on
sales receipts. Such a practice, if followed, reduces an identity thief’s ability to obtain valuable
account information relating to a consumer. Despite the simple steps necessary to comply, and
despite abundant notice, Defendant simply chose to ignore compliance with the FCRA. As such,
consumers who purchase goods and services from Defendant receive none of the benefits that
Section 1681c(g) was designed to confer, and are uniformly burdened with an elevated risk of
identity theft.
Jurisdiction and Venue
2.
Jurisdiction of this Court arises under 15 U.S.C. § 1681, 28 U.S.C. §§ 1331 and
3.
Venue lies properly in this district pursuant to 28 U.S.C. §1391(b).
Parties
4.
Plaintiff is an individual who resides in this district.
5.
Defendant is an Illinois corporation with its principal place of business in this
district.
6.
At all relevant times, Defendant was a “person who accepts credit cards or debit
cards for the transaction of business” within the meaning of FACTA.
Statutory Framework
7.
In 2003, FACTA was enacted to bolster protections for consumers from identity
8.
FACTA, 15 U.S.C. § 1681c(g) provides as follows:
Except as otherwise provided in this subsection, no person that accepts
credit cards or debit cards for the transaction of business shall print more
than the last 5 digits of the card number or the expiration date upon any
receipt provided to the cardholder at the point of sale or transaction.
9.
§ 1681c(g) applies to any “device that electronically prints receipts” (“Devices”)
for point of sale transactions.
10.
Devices first put into use after January 1, 2005 must have been immediately
compliant with 15 U.S.C. § 1681c(g).
11.
Devices first put into use prior to January 1, 2005 must have complied with 15
U.S.C. § 1681c(g) by December 4, 2006.
12.
FACTA gave merchants who accept credit or debit cards up to three years to
comply with its requirements, requiring full compliance with its provisions no later than
December 4, 2006.
13.
On June 3, 2008, FACTA was amended to provide that
any person who printed an expiration date on any receipt provided to a consumer
cardholder at a point of sale or transaction between December 4, 2004 and June 3,
2008, but otherwise complied with the requirements of section 1681c(g) of this
title for such receipt shall not be in willful noncompliance with section 1681c(g)
of this title by reason of printing such expiration date on the receipt.
15 U.S.C. § 1681n(d).
COUNT I
Violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681c(g)
14.
Plaintiff incorporates paragraphs 1 through 13 as though fully stated herein.
15.
On December 14, 2012, Plaintiff made a purchase at Defendant’s business at 3132
Lake Ave., Wilmette, IL 60091. To pay for the purchase, Plaintiff used his Visa card.
Following the transaction, Plaintiff received from Defendant an electronically-printed receipt
that displayed the expiration date of Plaintiff’s Visa card.
16.
Plaintiff brings this action individually and on behalf of the following putative
Class: All persons to whom Chalet Nursery and Garden Shop Inc. d/b/a Chalet, located at 3132
Lake Ave., Wilmette, IL 60091, provided an electronically printed receipt at the point of sale or
transaction, in a transaction occurring on or after December 21, 2010, which receipt displayed
the expiration date of the person’s credit or debit card.
17.
The Class is so numerous that joinder of all individual members in one action
would be impracticable. On information and belief, there are more than 100 persons to whom
Defendant provided an electronically printed receipt at the point of sale or transaction, in a
transaction occurring on or after December 21, 2010, which receipt displayed the expiration date
of the person’s credit or debit card.
18.
Plaintiff’ claims are typical of the claims of the Class members. All are based on
the same legal theories and arise from the same unlawful and willful conduct.
19.
There are common questions of law and fact affecting members of the Class,
which common questions predominate over questions that may affect individual members.
These common questions include, but are not limited to:
a.
Whether Defendant had a practice of providing consumers with
electronically printed receipts on which Defendant printed the expiration
dates of consumers’ credit or debit cards; and
b.
Whether Defendant thereby willfully violated FACTA.
20.
Plaintiff will fairly and adequately represent the Class members. Plaintiff has no
interests that conflict with the interests of Class members. Plaintiff has retained counsel
experienced in handling consumer class actions. Neither Plaintiff nor his counsel has any
interests that might cause them not to pursue this claim vigorously.
21.
This action should be maintained as a class action because the prosecution of
separate actions by individual Class members would create a risk of inconsistent or varying
adjudications with respect to individual members that would establish incompatible standards of
conduct for the parties opposing the Class.
22.
Whether Defendant failed to comply with 15 U.S.C. § 1681c(g) can be easily
determined by a review of its policies and a ministerial inspection of its business records.
23.
A class action is a superior method for the fair and efficient adjudication of this
controversy. Management of the Class claims is likely to present significantly fewer difficulties
than those presented in many individual claims. Moreover, the identities of the Class members
may be obtained from Defendant’s records, rendering identification of the class something
capable of ministerial review.
24.
At all relevant times, Defendant used Devices for point of sale transactions.
25.
As of December 14, 2012, Defendant was aware that it was prohibited from
providing to consumers sales receipts that displayed the expiration dates of consumers’ credit or
debit cards.
26.
Prior to December 14, 2012, VISA, MasterCard and other card associations,
acquirers and issuers advised merchants, including Defendant, of the need to truncate card
numbers and expiration dates on electronically printed receipts.
27.
Prior to December 14, 2012, VISA, MasterCard and other card associations,
acquirers and issuers contractually required merchants accepting those cards to truncate card
numbers and expiration dates on electronically printed receipts.
28.
As of January 1, 2005, the Illinois Consumer Fraud and Deceptive Business
Practices Act provided that
…no provider may print or otherwise produce or reproduce or permit the
printing or other production or reproduction of the following: (i) any part
of the credit card or debit card account number, other than the last 4 digits
or other characters, (ii) the credit card or debit card expiration date on any
receipt provided or made available to the cardholder.
29.
On or after December 21, 2010, Defendant provided Plaintiff and Class members
receipts that failed to comply with 15 U.S.C. § 1681c(g).
30.
At all times pertinent hereto, Defendant acted by and through its agents, servants,
and/or employees who were acting within the course and scope of their agency or employment,
and under the direct supervision and control of the Defendant.
31.
Notwithstanding that (1) Defendant had many years to comply with FACTA, (2)
Defendant was contractually required to comply with the truncation requirements even before the
FACTA compliance deadlines, (3) Defendant was aware of the truncation requirements and (4)
Illinois required truncation of card receipts by January 1 2005, Defendant provided consumers
with credit and debit card receipts that failed to comply with 15 U.S.C. § 1681c(g).
32.
Defendant willfully violated the FCRA.
33.
As a result of Defendant’s willful violations of the FCRA, it is liable to Plaintiff
and Class members pursuant to 15 U.S.C. § 1681n.
WHEREFORE, Plaintiff, individually and on behalf of the putative Class, requests that
this Court enter judgment in his favor and against Chalet Nursery and Garden Shop Inc. and
award the following:
a.
Statutory damages pursuant to 15 U.S.C. § 1681n;
b.
Attorney’s fees, litigation expenses, and costs pursuant to 15 U.S.C. §
1681n; and
c.
Such further relief as this Court deems just and proper.
Plaintiff Demands a Trial By Jury
THOMAS ESTKA, Plaintiff,
By:
s/ Paul F. Markoff
One of Plaintiff’s Attorneys
Paul F. Markoff
Karl G. Leinberger
Markoff Leinberger LLC
134 N. LaSalle St., Ste. 1050
Chicago, IL 60602
312.726.4162 (p)
312.674.7272 (f)
| consumer fraud |
iMajDYcBD5gMZwcz8HWB | IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
EASTERN DIVISION
Civil Action No. 19-1204
CLASS ACTION
JESSE DEAN, D.C., a Tennessee resident,
individually and as the representative of a
class of similarly-situated persons,
Plaintiff,
v.
CARECORE NATIONAL, LLC, a New
York limited liability company,
Defendant.
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CLASS ACTION COMPLAINT
Plaintiff, JESSE DEAN, D.C. (“Plaintiff”), brings this action on behalf of himself and all
others similarly situated, through his attorneys, and except as to those allegations pertaining to
Plaintiff or his attorneys, which allegations are based upon personal knowledge, alleges the
following upon information and belief against Defendant, CARECORE NATIONAL, LLC
(“Defendant”):
PRELIMINARY STATEMENT
1.
This case challenges Defendant’s practice of sending “unsolicited advertisements”
by facsimile.
2.
The federal Telephone Consumer Protection Act of 1991, as amended by the Junk
Fax Prevention Act of 2005 (“JPFA”), 47 USC § 227 (hereafter “TCPA” or the “Act”), and the
regulations promulgated under the Act, prohibit a person or entity from faxing or having an agent
fax advertisements without the recipient’s prior express invitation or permission. The TCPA
provides a private right of action and provides statutory damages of $500 per violation. On or
about September 15, 2015, Defendant sent Plaintiff an unsolicited fax advertisement in violation
of the TCPA (“the Fax”), a true and correct copy of which is attached hereto as Exhibit A, and
made a part hereof. Upon information and belief, Defendant has sent the Fax and other facsimile
transmissions of unsolicited advertisements to Plaintiff and the Class in violation of the TCPA.
The Fax describes the commercial availability or quality of Defendant’s property, goods or
services, namely, Defendant’s “New Musculoskeletal Newsletter,” and states: “We are excited to
announce the launch of the new eviCore healthcare (formerly Triad) Musculoskeletal
Newsletter” (Exhibit A). Plaintiff alleges on information and belief that Defendant has sent, and
continues to send, unsolicited advertisements via facsimile transmission in violation of the
TCPA, including but not limited to the advertisement sent to Plaintiff.
3.
Unsolicited faxes damage their recipients. A junk fax recipient loses the use of its
fax machine, paper, and ink toner. An unsolicited fax wastes the recipient’s valuable time that
would have been spent on something else. A junk fax intrudes into the recipient’s seclusion and
violates the recipient’s right to privacy. Unsolicited faxes occupy phone lines, prevent fax
machines from receiving authorized faxes, prevent their use for authorized incoming faxes, cause
undue wear and tear on the recipients’ fax machines, and require additional labor to attempt to
discern the source and purpose of the unsolicited message.
4.
On behalf of himself and all others similarly situated, Plaintiff brings this case as
a class action asserting claims against Defendant under the TCPA. Plaintiff seeks to certify a
class comprising all that were sent the Fax and other unsolicited fax advertisements that were
sent without prior express invitation or permission and without compliant opt-out language (to
the extent the affirmative defense of established business relationship is alleged). Plaintiff seeks
statutory damages for each violation of the TCPA and injunctive relief.
5.
Plaintiff is informed and believes, and upon such information and belief avers,
that this action is based upon a common nucleus of operative facts because the facsimile
transmissions at issue were and are being done in the same or similar manner. This action is
based on the same legal theory, namely liability under the TCPA. This action seeks relief
expressly authorized by the TCPA: (i) injunctive relief enjoining Defendant, its employees,
agents, representatives, contractors, and affiliates, and all persons and entities acting in concert
with them, from sending unsolicited advertisements in violation of the TCPA; and (ii) an award
of statutory damages in the minimum amount of $500 for each violation of the TCPA, and to
have such damages trebled, as provided by § 227(b)(3) of the Act, in the event willfulness in
violating the TCPA is shown.
JURISDICTION AND VENUE
6.
This Court has subject matter jurisdiction under 28 U.S.C. § 1331 and 47 U.S.C.
7.
This Court has personal jurisdiction over Defendant because Defendant transacts
business within this judicial district, has made contacts within this judicial district, and/or has
committed tortious acts within this judicial district.
8.
Venue is proper under 28 U.S.C. § 1391(b)(2) because a substantial part of the
events or omissions giving rise to the claims occurred within this judicial district.
PARTIES
9.
Plaintiff, JESSE DEAN, D.C., is a Tennessee resident who owns and operates
Milan Chiropractic & Sports Injury Clinic, a medical practice and pain center in Milan,
Tennessee.
10.
On information and belief, Defendant, CARECORE NATIONAL, LLC, is a New
York limited liability company with its principal place of business in Bluffton, South Carolina.
CareCore operates under the assumed name eviCore healthcare.
FACTS
11.
On or about September 15, 2015, Defendant sent an unsolicited facsimile to
Plaintiff using a telephone facsimile machine, computer, or other device. See Exhibit A.
12.
The Fax states, in part, the following:
eviCore healthcare
New Musculoskeletal Newsletter
. . .
Sign Up for the NEW MSK Newsletter!
We are excited to announce the launch of the new eviCore healthcare (formerly
Triad) Musculoskeletal Newsletter!
You can now receive important updates that are delivered directly to your inbox
as opposed to fax communications. Our new digital communication allows us to
instantly send information to you the moment we hear about it. By subscribing to
our newsletter, you will have first-hand access to pertinent information such as
changes to existing processes/plans, education opportunities, and webinar training
sessions.
Our e-mail blasts will be your go-to source for updates, and you’ll be able to share
these announcements with others – without having to leave your desk!
. . .
To sign up for the eviCore healthcare Musculoskeletal (MSK) Newsletter, send an
email request to MSKprovidernewsletter@evicore.com. Please include the below
information so we can better target our communication:
. . . .
(Exhibit A). The Fax provides no opt-out instructions.
13.
The Fax advertises the commercial availability and quality of Defendant’s new
Musculoskeletal Newsletter. On that basis, the Fax is an advertisement under the TCPA and
regulations implementing the TCPA.
14.
Defendant provides managed healthcare services. See Internet Google result:
eviCore healthcare
Organization
CareCore National, LLC, doing business as eviCore healthcare, provides managed healthcare services.
The Company offers radiology, radiation therapy, cardiology, medical oncology, lab management, and
health plan, as well as other specialty solutions.
Additionally, see from Defendant’s website, www.evicore.com:
ABOUT EVICORE: Empowering the Improvement of Care
Specifically designed with the size and scale to address the complexity of today’s and
tomorrow’s healthcare system, eviCore is a company committed to advancing healthcare
management through intelligent care – and enabling better outcomes for patients, providers, and
health plans.
Ours is an evidence-based approach that leverages our exceptional capabilities, powerful
analytics, and acute sensitivity to the challenges and needs of everyone involved across the
healthcare continuum. By applying proven talent and leading-edge technology, we harness
healthcare’s evolving demand and inherent change to realize healthcare innovation and deliver
improved results and a positive experience for everyone.
Who We Empower
eviCore empowers the improvement of care by connecting patients, providers, and health plans
with intelligent, evidence-based solutions to enable better outcomes.
15.
On information and belief, Defendant receives some or all of the revenues from
the sale of the property, goods or services advertised on Exhibit A, and Defendant profits and
benefits from the sale of the property, goods or services advertised on Exhibit A.
16.
Plaintiff did not give “prior express invitation or permission” to Defendant to send
the Fax.
17.
On information and belief, Defendant faxed the same and other unsolicited
facsimile advertisements without compliant opt-out language to Plaintiff and at least 40 other
recipients.
18.
There is no reasonable means for Plaintiff (or any other class member) to avoid
receiving unauthorized fax advertisements. Fax machines are left on and ready to receive the
urgent communications their owners desire to receive.
19.
Defendant’s facsimile attached as Exhibit A does not display a proper opt-out
notice as required by 47 C.F.R. § 227(b)(1)(C) and 47 C.F.R. § 64.1200(a)(4).
CLASS ACTION ALLEGATIONS
20.
In accordance with Fed. R. Civ. P. 23(b)(3), Plaintiff brings this class action
pursuant to the TCPA on behalf of the following class of persons:
All persons who (1) on or after four years prior to the filing of this
action, (2) were sent telephone facsimile messages of material
advertising the commercial availability or quality of any property,
goods, or services by or on behalf of Defendant, and (3) from
whom Defendant did not obtain “prior express invitation or
permission” to send fax advertisements, or (4) with whom
Defendant did not have an established business relationship, or
(5) where the fax advertisements did not include an opt-out notice
compliant with 47 C.F.R. § 64.1200(a)(4)(iii) regarding any
claimed business relationship.
Excluded from the Class are Defendant, its employees and agents, and members of the Judiciary.
Plaintiff seeks to certify a class which includes, but is not limited to, the fax advertisements sent
to Plaintiff. Plaintiff reserves the right to amend the class definition upon completion of class
certification discovery.
21.
Class Size (Fed. R. Civ. P. 23(a)(1)): Plaintiff is informed and believes, and upon
such information and belief avers, that the number of persons and entities of the Plaintiff Class is
numerous and joinder of all members is impracticable. Plaintiff is informed and believes, and
upon such information and belief avers, that the number of class members is at least forty.
22.
Commonality (Fed. R. Civ. P. 23(a)(2)): Common questions of law and fact
apply to the claims of all class members. Common material questions of fact and law include, but
are not limited to, the following:
(a)
Whether the Fax and other faxes sent during the class period constitute
advertisements under the TCPA and its implementing regulations;
(b)
Whether Defendant meets the definition of “sender” for direct TCPA
liability, meaning a “person or entity on whose behalf a facsimile unsolicited
advertisement is sent or whose goods or services are advertised or promoted in the
unsolicited advertisement,” 47 C.F.R. § 64.1200(f)(10);
(c)
Whether Defendant had prior express invitation or permission to send
Plaintiff and the class fax advertisements;
(d)
Whether the faxes contain an “opt-out notice” that complies with the
requirements of § (b)(1)(C)(iii) of the Act, and the regulations promulgated thereunder,
and the effect of the failure to comply with such requirements;
(e)
Whether Defendant should be enjoined from faxing advertisements in the
future;
(f)
Whether Plaintiff and the other members of the class are entitled to
statutory damages; and
(g)
Whether the Court should award treble damages.
23.
Typicality (Fed. R. Civ. P. 23(a)(3)): Plaintiff's claims are typical of the claims of
all class members. Plaintiff received the same or similar faxes as the faxes sent by or on behalf of
Defendant advertising the availability or quality of Defendant’s property, goods or services of
during the Class Period. Plaintiff is making the same claims and seeking the same relief for
himself and all class members based upon the same federal statute. Defendant has acted in the
same or in a similar manner with respect to Plaintiff and all the class members by sending
Plaintiff and each member of the class the same or similar fax or faxes which did not contain the
proper opt-out language or were sent without prior express invitation or permission.
24.
Fair and Adequate Representation (Fed. R. Civ. P. 23(a)(4)): Plaintiff will fairly
and adequately represent and protect the interests of the class. Plaintiff is interested in this
matter, has no conflicts, and has retained experienced class counsel to represent the class.
25.
Predominance and Superiority (Fed. R. Civ. P. 23(b)(3)): Common questions of
law and fact predominate over any questions affecting only individual members, and a class
action is superior to other methods for the fair and efficient adjudication of the controversy
because:
(a)
Proof of Plaintiff’s claims will also prove the claims of the class without
the need for separate or individualized proceedings;
(b)
Evidence regarding defenses or any exceptions to liability that Defendant
may assert and attempt to prove will come from Defendant’s records and will not require
individualized or separate inquiries or proceedings;
(c)
Defendant has acted and is continuing to act pursuant to common policies
or practices in the same or similar manner with respect to all class members;
(d)
The amount likely to be recovered by individual class members does not
support individual litigation. A class action will permit a large number of relatively small
claims involving virtually identical facts and legal issues to be resolved efficiently in one
proceeding based upon common proofs; and
(e)
This case is inherently manageable as a class action in that:
(i)
Defendant identified persons to receive the fax transmissions and it
is believed that Defendant’s and/or Defendant’s agents’ computers and business
records will enable Plaintiff to readily identify class members and establish
liability and damages;
(ii)
Liability and damages can be established for Plaintiff and the class
with the same common proofs;
(iii)
Statutory damages are provided for in the statute and are the same
for all class members and can be calculated in the same or a similar manner;
(iv)
A class action will result in an orderly and expeditious
administration of claims and it will foster economics of time, effort and expense;
(v)
A class action will contribute to uniformity of decisions
concerning Defendant’s practices; and
(vi)
As a practical matter, the claims of the class are likely to go
unaddressed absent class certification.
Claim for Relief for Violation of the TCPA, 47 U.S.C. § 227 et seq.
26.
The TCPA makes it unlawful for any person to “use any telephone facsimile
machine, computer or other device to send, to a telephone facsimile machine, an unsolicited
advertisement . . . .” 47 U.S.C. § 227(b)(1)(C).
27.
The TCPA defines “unsolicited advertisement” as “any material advertising the
commercial availability or quality of any property, goods, or services which is transmitted to any
person without that person's prior express invitation or permission, in writing or otherwise.”
47 U.S.C. § 227 (a) (5).
28.
Opt-Out Notice Requirements. The TCPA as amended by the JFPA
strengthened the prohibitions against the sending of unsolicited advertisements by requiring, in
§ (b)(1)(C)(iii) of the Act, that senders of faxed advertisements place a clear and conspicuous
notice on the first page of the transmission that contains the following among other things
(hereinafter collectively the “Opt-Out Notice Requirements”):
(1)
A statement that the recipient is legally entitled to opt-out of receiving
future faxed advertisements – knowing that he or she has the legal right to request an opt-
out gives impetus for recipients to make such a request, if desired;
(2)
A statement that the sender must honor a recipient’s opt-out request within
30 days and the sender’s failure to do so is unlawful – thereby encouraging recipients to
opt-out, if they did not want future faxes, by advising them that their opt-out requests will
have legal “teeth”;
(3)
A statement advising the recipient that he or she may opt-out with respect
to all of his or her facsimile telephone numbers and not just the ones that receive a faxed
advertisement from the sender – thereby instructing a recipient on how to make a valid
opt-out request for all of his or her fax machines;
(4)
The opt-out language must be conspicuous.
The requirement of (1) above is incorporated from § (b)(D)(ii) of the Act. The requirement of (2)
above is incorporated from § (b)(D)(ii) of the Act and the rules and regulations of the Federal
Communications Commission (the “FCC”) in ¶ 31 of its 2006 Report and Order, 21 F.C.C.R.
3787, 2006 WL 901720, which rules and regulations took effect on August 1, 2006). The
requirements of (3) above are contained in § (b)(2)(E) of the Act and incorporated into the Opt-
Out Notice Requirements via § (b)(2)(D)(ii). Compliance with the Opt-Out Notice Requirements
is neither difficult nor costly. The Opt-Out Notice Requirements are important consumer
protections bestowed by Congress upon consumers and businesses, giving them the right, and
means, to stop unwanted fax advertisements.
29.
2006 FCC Report and Order. The TCPA, in § (b)(2) of the Act, directed the
FCC to implement regulations regarding the TCPA, including the TCPA’s Opt-Out Notice
Requirements and the FCC did so in its 2006 Report and Order, which in addition provides
among other things:
A.
The definition of, and the requirements for, an established business
relationship (EBR) for purposes of the first of the three prongs of an exemption to
liability under § (b)(1)(C)(i) of the Act and provides that the lack of an “established
business relationship” precludes the ability to invoke the exemption contained in
§ (b)(1)(C) of the Act (see 2006 Report and Order ¶¶ 8-12 and 17-20);
B.
The required means by which a recipient’s facsimile telephone number
must be obtained for purposes of the second of the three prongs of the exemption under
§ (b)(1)(C)(ii) of the Act, and provides that the failure to comply with these requirements
precludes the ability to invoke the exemption contained in § (b)(1)(C) of the Act (see
2006 Report and Order ¶¶ 13-16); and
C.
The things that must be done in order to comply with the Opt-Out Notice
Requirements for the purposes of the third of the three prongs of the exemption under
§ (b)(1)(C)(iii) of the Act, and provides that the failure to comply with these requirements
precludes the ability to invoke the exemption contained in § (b)(1)(C) of the Act (see
2006 Report and Order ¶¶ 24-34).
As a result thereof, a sender of a faxed advertisement who fails to comply with the Opt-
Out Notice Requirements cannot claim the exemption from liability contained in § (b)(C)(1) of
the Act.
30.
The Fax. On or about September 15, 2015, Defendant sent the Fax via facsimile
transmission from telephone facsimile machines, computers, or other devices to the telephone
lines and facsimile machines of Plaintiff and members of the Plaintiff Class. The Fax constituted
an advertisement under the Act and the regulations implementing the Act. Defendant failed to
comply with the Opt-Out Requirements in connection with the Fax. The Fax was transmitted to
persons or entities without their prior express invitation or permission and Defendant is
precluded from sustaining the EBR safe harbor with Plaintiff and other members of the class,
because of the failure to comply with the Opt-Out Notice Requirements. By virtue thereof,
Defendant violated the TCPA and the regulations promulgated thereunder by sending the Fax via
facsimile transmission to Plaintiff and members of the Class. Plaintiff seeks to certify a class
which includes this Fax and all others sent during the four years prior to the filing of this case
through the present.
31.
Defendant’s Other Violations. Plaintiff is informed and believes, and upon such
information and belief avers, that during the period preceding four years of the filing of this
Complaint and repeatedly thereafter, Defendant has sent via facsimile transmission from
telephone facsimile machines, computers, or other devices to telephone facsimile machines of
members of the Plaintiff Class other faxes that constitute advertisements under the TCPA and its
implementing regulations that were transmitted to persons or entities without their prior express
invitation or permission and without complying with the Opt-Out Notice Requirements. By
virtue thereof, Defendant violated the TCPA and the regulations promulgated thereunder.
Plaintiff is informed and believes, and upon such information and belief avers, that Defendant
may be continuing to send unsolicited advertisements via facsimile transmission in violation of
the TCPA and the regulations promulgated thereunder, and absent intervention by this Court,
will do so in the future.
32.
The TCPA provides a private right of action to bring this action on behalf of
Plaintiff and the Plaintiff Class to redress Defendant’s violations of the Act, and provides for
statutory damages. 47 U.S.C. § 227(b)(3). The Act also provides that injunctive relief is
appropriate. Id.
33.
The TCPA is a strict liability statute, so Defendant is liable to Plaintiff and the
other class members even if their actions were only negligent.
34.
Defendant knew or should have known that (a) Plaintiff and the other class
members had not given prior express invitation or permission for Defendant or anybody else to
fax advertisements about the availability or quality of Defendant’s property, goods or services;
(b) Defendant transmitted advertisements; (c) the Fax did not contain the required Opt-Out
Notice; and (d) Defendant’s transmission of unsolicited advertisements that did not contain the
required opt-out notice was unlawful.
35.
Defendant’s actions caused damages to Plaintiff and the other class members.
Receiving Defendant’s junk faxes caused Plaintiff and the other recipients to lose paper and
toner consumed in the printing of Defendant’s faxes. Moreover, Defendant’s faxes occupied
Plaintiff's and the other class members’ telephone lines and fax machines. Defendant’s faxes cost
Plaintiff and the other class members time, as Plaintiff and the other class members and their
employees wasted their time receiving, reviewing and routing Defendant’s unauthorized faxes.
That time otherwise would have been spent on Plaintiff's and the other class members’ business
or personal activities. Defendant’s faxes intruded into Plaintiff's and other class members’
seclusion and violated their right to privacy, including their interests in being left alone. Finally,
the injury and property damage sustained by Plaintiff and the other class members from the
sending of Defendant’s advertisements occurred outside of Defendant’s premises.
WHEREFORE, Plaintiff, JESSE DEAN, D.C., individually and on behalf of all others
similarly situated, demands judgment in his favor and against Defendant, CARECORE
NATIONAL, LLC, as follows:
A.
That the Court adjudge and decree that the present case may be properly
maintained as a class action, appoint Plaintiff as the representative of the class, and appoint
Plaintiff’s counsel as counsel for the class;
B.
That the Court award actual monetary loss from such violations or the sum of five
hundred dollars ($500.00) for each violation, whichever is greater, and that the Court award
treble damages of $1,500.00 if the violations are deemed “willful or knowing”;
C.
That Court enjoin Defendant from additional violations; and
D.
That the Court award pre-judgment interest, costs, and such further relief as the
Court may deem just and proper.
Dated: September 13, 2019.
Respectfully submitted,
JESSE DEAN, D.C., a Tennessee resident,
individually and as the representative of a class of
similarly-situated persons
By: /s/ Benjamin C. Aaron
Benjamin C. Aaron (#034118)
Charles F. Barrett (#20627)
NEAL AND HARWELL, PLC
1201 Demonbreun Street, Suite 1000
Nashville, TN 37203
Telephone: 615-244-1713
Fascimile: 615-726-0573
baaron@nealharwell.com
cbarrett@nealharwell.com
and
Ryan M. Kelly (pro hac vice to be submitted)
ANDERSON + WANCA
3701 Algonquin Road, Suite 500
Rolling Meadows, IL 60008
Telephone: 847-368-1500
Fax: 847-368-1501
rkelly@andersonwanca.com
| privacy |
yuxdEocBD5gMZwczLoUB |
Case No. 18-cv-4874
SHAKED LAW GROUP, P.C.
Dan Shaked (DS-3331)
44 Court Street, Suite 1217
Brooklyn, NY 11201
Tel. (917) 373-9128
Fax (718) 504-7555
Attorneys for Plaintiff and the Class
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-----------------------------------------------------------X
MARION KILER, Individually and as the
representative of a class of similarly situated persons,
Plaintiff,
- against -
STEEL TECHNOLOGY, LLC d/b/a Hydro Flask,
Defendants.
-----------------------------------------------------------X
COMPLAINT – CLASS ACTION
INTRODUCTION
1. Plaintiff, Marion Kiler (“Plaintiff” or “Kiler”), brings this action on behalf of
herself and all other persons similarly situated against Steel Technology, LLC d/b/a Hydro Flask
(hereinafter “Hydro Flask” or “Defendant”), and states as follows:
2. Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using his computer. Plaintiff uses the terms “blind” or
“visually-impaired” to refer to all people with visual impairments who meet the legal definition of
blindness in that they have a visual acuity with correction of less than or equal to 20 x 200. Some
blind people who meet this definition have limited vision; others have no vision.
3. Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people
in the United States are visually impaired, including 2.0 million who are blind, and according to
1
the American Foundation for the Blind’s 2015 report, approximately 400,000 visually impaired
persons live in the State of New York.
4. Plaintiff brings this civil rights action against Hydro Flask for their failure to
design, construct, maintain, and operate their website to be fully accessible to and independently
usable by Plaintiff and other blind or visually-impaired persons. Defendant is denying blind and
visually-impaired persons throughout the United States with equal access to the goods and services
Hydro Flask provides to their non-disabled customers through http//:www.Hydroflask.com
(hereinafter “Hydroflask.com” or “the website”). Defendants’ denial of full and equal access to
its website, and therefore denial of its products and services offered, and in conjunction with its
physical locations, is a violation of Plaintiff’s rights under the Americans with Disabilities Act (the
“ADA”).
5. Hydroflask.com provides to the public a wide array of the goods, services, price
specials, employment opportunities and other programs offered by Hydro Flask. Yet,
Hydroflask.com contains thousands of access barriers that make it difficult if not impossible for
blind and visually-impaired customers to use the website. In fact, the access barriers make it
impossible for blind and visually-impaired users to even complete a transaction on the website.
Thus, Hydro Flask excludes the blind and visually-impaired from the full and equal participation
in the growing Internet economy that is increasingly a fundamental part of the common
marketplace and daily living. In the wave of technological advances in recent years, assistive
computer technology is becoming an increasingly prominent part of everyday life, allowing blind
and visually-impaired persons to fully and independently access a variety of services.
6. The blind have an even greater need than the sighted to shop and conduct
transactions online due to the challenges faced in mobility. The lack of an accessible website
2
means that blind people are excluded from experiencing transacting with defendant’s website and
from purchasing goods or services from defendant’s website.
7. Despite readily available accessible technology, such as the technology in use at
other heavily trafficked retail websites, which makes use of alternative text, accessible forms,
descriptive links, resizable text and limits the usage of tables and JavaScript, Defendant has chosen
to rely on an exclusively visual interface. Hydro Flask’s sighted customers can independently
browse, select, and buy online without the assistance of others. However, blind persons must rely
on sighted companions to assist them in accessing and purchasing on Hydroflask.com.
8. By failing to make the website accessible to blind persons, Defendant is violating
basic equal access requirements under both state and federal law.
9. Congress provided a clear and national mandate for the elimination of
discrimination against individuals with disabilities when it enacted the ADA. Such discrimination
includes barriers to full integration, independent living, and equal opportunity for persons with
disabilities, including those barriers created by websites and other public accommodations that are
inaccessible to blind and visually impaired persons. Similarly, New York state law requires places
of public accommodation to ensure access to goods, services, and facilities by making reasonable
accommodations for persons with disabilities.
10. Plaintiff browsed and intended to make an online purchase of an 18 oz. standard
mouth bottle on Hydroflask.com. However, unless Defendant remedies the numerous access
barriers on its website, Plaintiff and Class members will continue to be unable to independently
navigate, browse, use, and complete a transaction on Hydroflask.com.
11. Because Defendant’s website, Hydroflask.com, is not equally accessible to
blind and visually-impaired consumers, it violates the ADA. Plaintiff seeks a permanent injunction
to cause a change in Hydro Flask’s policies, practices, and procedures to that Defendant’s website
3
will become and remain accessible to blind and visually-impaired consumers. This complaint also
seeks compensatory damages to compensate Class members for having been subjected to unlawful
discrimination.
JURISDICTION AND VENUE
12. This Court has subject matter jurisdiction over this action under 28 U.S.C. §
1331 and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42 U.S.C. §
12181 et seq., and 28 U.S.C. § 1332, because this is a class action, as defined by 28 U.S.C. §
1332(d)(1)(B), in which a member of the putative class is a citizen of a different state than
Defendant, and the amount in controversy exceeds the sum or value of $5,000,000, excluding
interest and costs. See 28 U.S.C. § 133(d)(2).
13. This Court also has supplemental jurisdiction over pursuant to 28 U.S.C. §
1367, over Plaintiff’s pendent claims under the New York State Human Rights Law, N.Y. Exec.
Law, Article 15 (Executive Law § 290 et seq.) and the New York City Human Rights Law, N.Y.C.
Administrative Code § 8-101 et seq. (“City Law”).
14. Venue is proper in this District of New York pursuant to 28 U.S.C. §§ 1391(b)-
(c) and 144(a) because Plaintiff resides in this District, Defendant conducts and continues to
conduct a substantial and significant amount of business in this District, and a substantial portion
of the conduct complained of herein occurred in this District.
15. Defendant is registered to do business in New York State and has been
conducting business in New York State, including in this District. Defendant purposefully targets
and otherwise solicits business from New York State residents through its website and sells its
products through many retailers in this District. Because of this targeting, it is not unusual for
Hydro Flask to conduct business with New York State residents. Defendant also has been and is
committing the acts alleged herein in this District and has been and is violating the rights of
4
consumers in this District and has been and is causing injury to consumers in this District. A
substantial part of the act and omissions giving rise to Plaintiff’s claims have occurred in this
District. Most courts support the placement of venue in the district in which Plaintiff tried and
failed to access the Website. In Access Now, Inc. v. Otter Products, LLC 280 F.Supp.3d 287 (D.
Mass. 2017), Judge Patti B. Saris ruled that “although the website may have been created and
operated outside of the district, the attempts to access the website in Massachusetts are part of the
sequence of events underlying the claim. Therefore, venue is proper in [the District of
Massachusetts].” Otter Prods., 280 F.Supp.3d at 294. This satisfies Due Process because the harm
– the barred access to the website – occurred here.” Otter Prods., 280 F.Supp.3d at 293.
Additionally, in Access Now, Inc. v. Sportswear, Inc., No. 17-cv-11211-NMG, 2018 Dist. LEXIS
47318 (D. Mass. Mar. 22, 2018), Judge Nathaniel M. Gorton stated that the defendant “availed
itself of the forum state’s economic activities by targeting the residents of the Commonwealth . . .
. Such targeting evinces a voluntary attempt to appeal to the customer base in the forum.”
Sportswear, No. 1:17-cv-11211-NMG, 2018 U.S. Dist. LEXIS 47318 at *11. Thus, establishing
a customer base in a particular district is sufficient cause for venue placement. Specifically,
Plaintiff attempted to purchase an 18 oz. standard mouth bottle on Defendant’s website,
Hydroflask.com.
PARTIES
16. Plaintiff, is and has been at all relevant times a resident of Kings County,
State of New York.
17. Plaintiff is legally blind and a member of a protected class under the ADA, 42
U.S.C. § 12102(l)-(2), the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et
seq., the New York State Human Rights Law and the New York City Human Rights Law.
Plaintiff, Marion Kiler, cannot use a computer without the assistance of screen reader software.
5
Plaintiff, Marion Kiler, has been denied the full enjoyment of the facilities, goods and services of
Hydroflask.com as a result of accessibility barriers on Hydroflask.com.
18. Defendant, Steel Technology, LLC, is an Oregon Foreign Limited Liability
Company doing business in this State with its principal place of business located at 525 NW
York Drive, Bend, OR 97703.
19. Hydro Flask provides to the public a website known as Hydroflask.com which
provides consumers with access to an array of goods and services, including, the ability to view
the various lines of bottles, flasks and accessories, make purchases, and learn about the
innovation of the products, among other features. Consumers across the United States and the
world use Defendant’s website to purchase bottles, flasks, and related products. Defendant’s
website is a place of public accommodation within the definition of Title III of the ADA, 42
U.S.C. § 12181(7). See Victor Andrews v. Blick Art Materials, LLC, No. 17-cv-767, 2017 WL
3278898 (E.D.N.Y. August 1, 2017). The inaccessibility of Hydroflask.com has deterred
Plaintiff from buying a 18 oz. standard mouth bottle.
NATURE OF THE CASE
20. The Internet has become a significant source of information, a portal, and a tool
for conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-impaired persons alike.
21. The blind access websites by using keyboards in conjunction with screen-
reading software which vocalizes visual information on a computer screen. Except for a blind
person whose residual vision is still sufficient to use magnification, screen access software
provides the only method by which a blind person can independently access the Internet. Unless
websites are designed to allow for use in this manner, blind persons are unable to fully access
Internet websites and the information, products and services contained therein.
6
22. For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being rendered into
text, the blind user is unable to access the same content available to sighted users.
23. Blind users of Windows operating system-enabled computers and devises have
several screen-reading software programs available to them. Job Access With Speech, otherwise
known as “JAWS” is currently the most popular, separately purchase and downloaded screen-
reading software program available for blind computer users.
24. The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the Web Content
Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-established guidelines for making
websites accessible to blind and visually-impaired persons. These guidelines are universally
followed by most large business entities and government agencies to ensure their websites are
accessible. Many Courts have also established WCAG 2.1 as the standard guideline for
accessibility. The federal government has also promulgated website accessibility standards under
Section 508 of the Rehabilitation Act. These guidelines are readily available via the Internet, so
that a business designing a website can easily access them. These guidelines recommend several
basic components for making websites accessible, including but not limited to: adding invisible
alt-text to graphics, ensuring that all functions can be performed using a keyboard and not just a
mouse, ensuring that image maps are accessible, and adding headings so that blind persons can
easily navigate the site. Without these very basic components, a website will be inaccessible to a
blind person using a screen reader. Websites need to be accessible to the “least sophisticated” user
of screen-reading software and need to be able to work with all browsers. Websites need to be
continually updated and maintained to ensure that they remain fully accessible.
FACTUAL ALLEGATIONS
7
25. Defendant, Steel Technology, LLC, controls and operates Hydroflask.com. in
New York State and throughout the United States and the world.
26. Hydroflask.com is a commercial website that offers products and services for
online sale. The online store allows the user to browse bottles, flasks, and accessories, make
purchases, and perform a variety of other functions.
27. Among the features offered by Hydroflask.com are the following:
(a) Consumers may use the website to connect with Hydro Flask on social media,
using such sites as Facebook, Twitter, Instagram, and Pinterest;
(b) an online store, allowing customers to purchase various kinds and sizes of
bottles, flasks, and accessories; and
(c) learning about career opportunities, promotions, the innovation of the products,
and about the company.
28. This case arises out of Hydro Flask’s policy and practice of denying the blind
access to the goods and services offered by Hydroflask.com. Due to Hydro Flask’s failure and
refusal to remove access barriers to Hydroflask.com, blind individuals have been and are being
denied equal access to Hydro Flask, as well as to the numerous goods, services and benefits offered
to the public through Hydroflask.com.
29. Hydro Flask denies the blind access to goods, services and information made
available through Hydroflask.com by preventing them from freely navigating Hydroflask.com.
30. Hydroflask.com contains access barriers that prevent free and full use by
Plaintiff and blind persons using keyboards and screen-reading software. These barriers are
pervasive and include, but are not limited to: lack of alt-text on graphics, inaccessible drop-down
menus, the lack of navigation links, the lack of adequate prompting and labeling, the denial of
8
keyboard access, empty links that contain no text, redundant links where adjacent links go to the
same URL address, and the requirement that transactions be performed solely with a mouse.
31. Alternative text (“Alt-text”) is invisible code embedded beneath a graphical
image on a website. Web accessibility requires that alt-text be coded with each picture so that a
screen-reader can speak the alternative text while sighted users see the picture. Alt-text does not
change the visual presentation except that it appears as a text pop-up when the mouse moves over
the picture. There are many important pictures on Hydroflask.com that lack a text equivalent. The
lack of alt-text on these graphics prevents screen readers from accurately vocalizing a description
of the graphics (screen-readers detect and vocalize alt-text to provide a description of the image to
a blind computer user). As a result, Plaintiff and blind Hydroflask.com customers are unable to
determine what is on the website, browse the website or investigate and/or make purchases.
32. Hydroflask.com also lacks prompting information and accommodations
necessary to allow blind shoppers who use screen-readers to locate and accurately fill-out online
forms. On a shopping site such as Hydroflask.com, these forms include search fields to locate
bottles and flasks, fields that specify the color and quantity, and fields used to fill-out personal
information, including address and credit card information. Due to lack of adequate labeling,
Plaintiff and blind customers cannot make purchases or inquiries as to Defendant’s merchandise,
nor can they enter their personal identification and financial information with confidence and
security. In fact, when Plaintiff attempted to select a color and click on “add to cart,” her screen-
reader could not recognize a link to any color and could not recognize an “add to cart” button.
33. Similarly, Hydroflask.com lacks accessible drop-down menus. Drop-down
menus allow customers to locate and choose products as well as specify the quantity of certain
items. On Hydroflask.com, blind customers are not aware if the desired products, such as bottles
and flasks, have been added to the shopping cart because the screen-reader does not indicate the
9
type of product. Moreover, blind customers are unable to select the color quantity of the product
they desire. Therefore, blind customers are essentially prevented from purchasing any items on
Hydroflask.com.
34. Furthermore, Hydroflask.com lacks accessible image maps. An image map is
a function that combines multiple words and links into one single image. Visual details on this
single image highlight different “hot spots” which, when clicked on, allow the user to jump to
many different destinations within the website. For an image map to be accessible, it must
contain alt-text for the various “hot spots.” The image maps on Hydroflask.com’s menu page do
not contain adequate alt-text and are therefore inaccessible to Plaintiff and the other blind
individuals attempting to make a purchase. When Plaintiff tried to access the menu link in order
to make a purchase, she was unable to access it completely.
35. Hydroflask.com also lacks accessible forms. Color and Quantity boxes allow
customers to specify the color and quantity of certain items. On Hydroflask.com, blind
customers are unable to select specific color and quantity because the screen-reader does not
indicate the function of the box. As a result, blind customers are denied access to the color and
quantity box. Furthermore, Plaintiff is unable to locate the shopping cart because the shopping
cart form does not specify the purpose of the shopping cart. As a result, blind customers are
denied access to the shopping cart. Consequently, blind customers are unsuccessful in adding
products into their shopping carts and are essentially prevented from purchasing items on
Hydroflask.com.
36. Moreover, the lack of navigation links on Defendant’s website makes
attempting to navigate through Hydroflask.com even more time consuming and confusing for
Plaintiff and blind consumers.
10
37. Hydroflask.com requires the use of a mouse to complete a transaction. Yet, it
is a fundamental tenet of web accessibility that for a web page to be accessible to Plaintiff and
blind people, it must be possible for the user to interact with the page using only the keyboard.
Indeed, Plaintiff and blind users cannot use a mouse because manipulating the mouse is a visual
activity of moving the mouse pointer from one visual spot on the page to another. Thus,
Hydroflask.com’s inaccessible design, which requires the use of a mouse to complete a
transaction, denies Plaintiff and blind customers the ability to independently navigate and/or
make purchases on Hydroflask.com.
38. Due to Hydroflask.com’s inaccessibility, Plaintiff and blind customers must in
turn spend time, energy, and/or money to make their purchases at traditional brick-and-mortar
retailers. Some blind customers may require a driver to get to the stores or require assistance in
navigating the stores. By contrast, if Hydroflask.com was accessible, a blind person could
independently investigate products and make purchases via the Internet as sighted individuals
can and do. According to WCAG 2.1 Guideline 2.4.1, a mechanism is necessary to bypass
blocks of content that are repeated on multiple webpages because requiring users to extensively
tab before reaching the main content is an unacceptable barrier to accessing the website.
Plaintiff must tab through every navigation bar option and footer on Defendant’s website in an
attempt to reach the desired service. Thus, Hydroflask.com’s inaccessible design, which requires
the use of a mouse to complete a transaction, denies Plaintiff and blind customers the ability to
independently make purchases on Hydroflask.com.
39. Hydroflask.com thus contains access barriers which deny the full and equal
access to Plaintiff, who would otherwise use Hydroflask.com and who would otherwise be able
to fully and equally enjoy the benefits and services of Hydroflask.com in New York State and
throughout the United States.
11
40. Plaintiff, Marion Kiler, has made numerous attempts to complete a purchase
on Hydroflask.com, most recently in August 2018, but was unable to do so independently
because of the many access barriers on Defendant’s website. These access barriers have caused
Hydroflask.com to be inaccessible to, and not independently usable by, blind and visually-
impaired persons. Amongst other access barriers experienced, Plaintiff was unable to purchase
an 18 oz. standard mouth bottle.
41. As described above, Plaintiff has actual knowledge of the fact that
Defendant’s website, Hydroflask.com, contains access barriers causing the website to be
inaccessible, and not independently usable by, blind and visually-impaired persons.
42. These barriers to access have denied Plaintiff full and equal access to, and
enjoyment of, the goods, benefits and services of Hydroflask.com.
43. Defendant engaged in acts of intentional discrimination, including but not
limited to the following policies or practices:
(a) constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
(b) constructed and maintained a website that is sufficiently intuitive and/or
obvious that is inaccessible to blind class members; and/or
(c) failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
44. Defendant utilizes standards, criteria or methods of administration that have
the effect of discriminating or perpetuating the discrimination of others.
45. Because of Defendant’s denial of full and equal access to, and enjoyment of,
the goods, benefits and services of Hydroflask.com, Plaintiff and the class have suffered an
12
injury-in-fact which is concrete and particularized and actual and is a direct result of defendant’s
conduct.
CLASS ACTION ALLEGATIONS
46. Plaintiff, on behalf of herself and all others similarly situated, seeks
certification of the following nationwide class pursuant to Rule 23(a) and 23(b)(2) of the Federal
Rules of Civil Procedure: “all legally blind individuals in the United States who have attempted
to access Hydroflask.com and as a result have been denied access to the enjoyment of goods and
services offered by Hydroflask.com, during the relevant statutory period.”
47. Plaintiff seeks certification of the following New York subclass pursuant to
Fed.R.Civ.P. 23(a), 23(b)(2), and, alternatively, 23(b)(3): “all legally blind individuals in New
York State who have attempted to access Hydroflask.com and as a result have been denied
access to the enjoyment of goods and services offered by Hydroflask.com, during the relevant
statutory period.”
48. There are hundreds of thousands of visually-impaired persons in New York
State. There are approximately 8.1 million people in the United States who are visually-
impaired. Id. Thus, the persons in the class are so numerous that joinder of all such persons is
impractical and the disposition of their claims in a class action is a benefit to the parties and to
the Court.
49. This case arises out of Defendant’s policy and practice of maintaining an
inaccessible website denying blind persons access to the goods and services of Hydroflask.com.
Due to Defendant’s policy and practice of failing to remove access barriers, blind persons have
been and are being denied full and equal access to independently browse, select and shop on
Hydroflask.com.
13
50. There are common questions of law and fact common to the class, including
without limitation, the following:
(a) Whether Hydroflask.com is a “public accommodation” under the ADA;
(b) Whether Hydroflask.com is a “place or provider of public accommodation”
under the laws of New York;
(c) Whether Defendant, through its website, Hydroflask.com, denies the full and
equal enjoyment of its goods, services, facilities, privileges, advantages, or accommodations to
people with visual disabilities in violation of the ADA; and
(d) Whether Defendant, through its website, Hydroflask.com, denies the full and
equal enjoyment of its goods, services, facilities, privileges, advantages, or accommodations to
people with visual disabilities in violation of the law of New York.
51. The claims of the named Plaintiff are typical of those of the class. The class,
similar to the Plaintiff, is severely visually-impaired or otherwise blind, and claims Hydro Flask
has violated the ADA, and/or the laws of New York by failing to update or remove access
barriers on their website, Hydroflask.com, so it can be independently accessible to the class of
people who are legally blind.
52. Plaintiff will fairly and adequately represent and protect the interests of the
members of the Class because Plaintiff has retained and is represented by counsel competent and
experienced in complex class action litigation, and because Plaintiff has no interests antagonistic
to the members of the class. Class certification of the claims is appropriate pursuant to Fed. R.
Civ. P. 23(b)(2) because Defendant has acted or refused to act on grounds generally applicable to
the Class, making appropriate both declaratory and injunctive relief with respect to Plaintiff and
the Class as a whole.
14
53. Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3)
because questions of law and fact common to Class members clearly predominate over questions
affecting only individual class members, and because a class action is superior to other available
methods for the fair and efficient adjudication of this litigation.
54. Judicial economy will be served by maintenance of this lawsuit as a class
action in that it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities throughout the
United States.
55. References to Plaintiff shall be deemed to include the named Plaintiff and
each member of the class, unless otherwise indicated.
FIRST CAUSE OF ACTION
(Violation of 42 U.S.C. §§ 12181 et seq. – Title III of the Americans with Disabilities Act)
56. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 55 of this Complaint as though set forth at length herein.
57. Title III of the American with Disabilities Act of 1990, 42 U.S.C. § 12182(a)
provides that “No individual shall be discriminated against on the basis of disability in the full
and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations
of any place of public accommodation by any person who owns, leases (or leases to), or operates
a place of public accommodation.” Title III also prohibits an entity from “[u]tilizing standards or
criteria or methods of administration that have the effect of discriminating on the basis of
disability.” 42 U.S.C. § 12181(b)(2)(D)(I).
58. Hydroflask.com is a sales establishment and public accommodation within the
definition of 42 U.S.C. §§ 12181(7).
15
59. Defendant is subject to Title III of the ADA because it owns and operates
Hydroflask.com.
60. Under Title III of the ADA, 42 U.S.C. § 12182(b)(1)(A)(I), it is unlawful
discrimination to deny individuals with disabilities or a class of individuals with disabilities the
opportunity to participate in or benefit from the goods, services, facilities, privileges, advantages,
or accommodations of an entity.
61. Under Title III of the ADA, 42 U.S.C. § 12182(b)(1)(A)(II), it is unlawful
discrimination to deny individuals with disabilities or a class of individuals with disabilities an
opportunity to participate in or benefit from the goods, services, facilities, privileges, advantages,
or accommodation, which is equal to the opportunities afforded to other individuals.
62. Specifically, under Title III of the ADA, 42 U.S.C. § 12182(b)(2)(A)(II),
unlawful discrimination includes, among other things, “a failure to make reasonable
modifications in policies, practices, or procedures, when such modifications are necessary to
afford such goods, services, facilities, privileges, advantages, or accommodations to individuals
with disabilities, unless the entity can demonstrate that making such modifications would
fundamentally alter the nature of such goods, services, facilities, privileges, advantages or
accommodations.”
63. In addition, under Title III of the ADA, 42 U.S.C. § 12182(b)(2)(A)(III),
unlawful discrimination also includes, among other things, “a failure to take such steps as may
be necessary to ensure that no individual with disability is excluded, denied services, segregated
or otherwise treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would fundamentally alter
the nature of the good, service, facility, privilege, advantage, or accommodation being offered or
would result in an undue burden.”
16
64. There are readily available, well-established guidelines on the Internet for
making websites accessible to the blind and visually-impaired. These guidelines have been
followed by other business entities in making their websites accessible, including but not limited
to ensuring adequate prompting and accessible alt-text. Incorporating the basic components to
make their website accessible would neither fundamentally alter the nature of Defendant’s
business nor result in an undue burden to Defendant.
65. The acts alleged herein constitute violations of Title III of the ADA, 42 U.S.C.
§ 12101 et seq., and the regulations promulgated thereunder. Patrons of Hydro Flask who are
blind have been denied full and equal access to Hydroflask.com, have not been provided services
that are provided to other patrons who are not disabled, and/or have been provided services that
are inferior to the services provided to non-disabled patrons.
66. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
67. As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages,
accommodations and/or opportunities of Hydroflask.com in violation of Title III of the
Americans with Disabilities Act, 42 U.S.C. §§ 12181 et seq. and/or its implementing regulations.
68. Unless the Court enjoins Defendant from continuing to engage in these
unlawful practices, Plaintiff and members of the proposed class and subclass will continue to
suffer irreparable harm.
69. The actions of Defendant were and are in violation of the ADA, and therefore
Plaintiff invokes his statutory right to injunctive relief to remedy the discrimination.
70. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
17
71. Pursuant to 42 U.S.C. § 12188 and the remedies, procedures, and rights set
forth and incorporated therein, Plaintiff prays for judgment as set forth below.
SECOND CAUSE OF ACTION
(Violation of New York State Human Rights Law, N.Y. Exec. Law
Article 15 (Executive Law § 292 et seq.))
72. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 71 of this Complaint as though set forth at length herein.
73. N.Y. Exec. Law § 296(2)(a) provides that it is “an unlawful discriminatory
practice for any person, being the owner, lessee, proprietor, manager, superintendent, agent, or
employee of any place of public accommodation . . . because of the . . . disability of any person,
directly or indirectly, to refuse, withhold from or deny to such person any of the
accommodations, advantages, facilities or privileges thereof.”.
74. Hydroflask.com is a sales establishment and public accommodation within the
definition of N.Y. Exec. Law § 292(9).
75. Defendant is subject to the New York Human Rights Law because it owns and
operates Hydroflask.com. Defendant is a person within the meaning of N.Y. Exec. Law. §
76. Defendant is violating N.Y. Exec. Law § 296(2)(a) in refusing to update or
remove access barriers to Hydroflask.com, causing Hydroflask.com to be completely
inaccessible to the blind. This inaccessibility denies blind patrons the full and equal access to the
facilities, goods and services that Defendant makes available to the non-disabled public.
77. Specifically, under N.Y. Exec. Law § unlawful discriminatory practice
includes, among other things, “a refusal to make reasonable modifications in policies, practices,
or procedures, when such modifications are necessary to afford facilities, privileges, advantages
or accommodations to individuals with disabilities, unless such person can demonstrate that
18
making such modifications would fundamentally alter the nature of such facilities, privileges,
advantages or accommodations.”
78. In addition, under N.Y. Exec. Law § 296(2)(c)(II), unlawful discriminatory
practice also includes, “a refusal to take such steps as may be necessary to ensure that no
individual with a disability is excluded or denied services because of the absence of auxiliary
aids and services, unless such person can demonstrate that taking such steps would
fundamentally alter the nature of the facility, privilege, advantage or accommodation being
offered or would result in an undue burden.”
79. There are readily available, well-established guidelines on the Internet for
making websites accessible to the blind and visually-impaired. These guidelines have been
followed by other business entities in making their website accessible, including but not limited
to: adding alt-text to graphics and ensuring that all functions can be performed by using a
keyboard. Incorporating the basic components to make their website accessible would neither
fundamentally alter the nature of Defendant’s business nor result in an undue burden to
Defendant.
80. Defendant’s actions constitute willful intentional discrimination against the
class on the basis of a disability in violation of the New York State Human Rights Law, N.Y.
Exec. Law § 296(2) in that Defendant has:
(a) constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
(b) constructed and maintained a website that is sufficiently intuitive and/or
obvious that is inaccessible to blind class members; and/or
(c) failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
19
81. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
82. As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages,
accommodations and/or opportunities of Hydroflask.com under N.Y. Exec. Law § 296(2) et seq.
and/or its implementing regulations. Unless the Court enjoins Defendant from continuing to
engage in these unlawful practices, Plaintiff and members of the class will continue to suffer
irreparable harm.
83. The actions of Defendant were and are in violation of the New York State
Human Rights Law and therefore Plaintiff invokes his right to injunctive relief to remedy the
discrimination.
84. Plaintiff is also entitled to compensatory damages, as well as civil penalties
and fines pursuant to N.Y. Exec. Law § 297(4)(c) et seq. for each and every offense.
85. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
86. Pursuant to N.Y. Exec. Law § 297 and the remedies, procedures, and rights set
forth and incorporated therein, Plaintiff prays for judgment as set forth below.
THIRD CAUSE OF ACTION
(Violation of New York State Civil Rights Law, NY CLS Civ R,
Article 4 (CLS Civ R § 40 et seq.))
87. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 86 of this Complaint as though set forth at length herein.
88. Plaintiff served notice thereof upon the attorney general as required by N.Y.
Civil Rights Law § 41.
20
89. N.Y. Civil Rights Law § 40 provides that “all persons within the jurisdiction
of this state shall be entitled to the full and equal accommodations, advantages, facilities, and
privileges of any places of public accommodations, resort or amusement, subject only to the
conditions and limitations established by law and applicable alike to all persons. No persons,
being the owner, lessee, proprietor, manager, superintendent, agent, or employee of any such
place shall directly or indirectly refuse, withhold from, or deny to any person any of the
accommodations, advantages, facilities and privileges thereof . . .”
90. N.Y. Civil Rights Law § 40-c(2) provides that “no person because of . . .
disability, as such term is defined in section two hundred ninety-two of executive law, be
subjected to any discrimination in his or her civil rights, or to any harassment, as defined in
section 240.25 of the penal law, in the exercise thereof, by any other person or by any firm,
corporation or institution, or by the state or any agency or subdivision.”
91. Hydroflask.com is a sales establishment and public accommodation within the
definition of N.Y. Civil Rights Law § 40-c(2).
92. Defendant is subject to New York Civil Rights Law because it owns and
operates Hydroflask.com. Defendant is a person within the meaning of N.Y. Civil Law § 40-
93. Defendant is violating N.Y. Civil Rights Law § 40-c(2) in refusing to update
or remove access barriers to Hydroflask.com, causing Hydroflask.com to be completely
inaccessible to the blind. This inaccessibility denies blind patrons full and equal access to the
facilities, goods and services that Defendant makes available to the non-disabled public.
94. There are readily available, well-established guidelines on the Internet for
making websites accessible to the blind and visually-impaired. These guidelines have been
followed by other business entities in making their website accessible, including but not limited
21
to: adding alt-text to graphics and ensuring that all functions can be performed by using a
keyboard. Incorporating the basic components to make their website accessible would neither
fundamentally alter the nature of Defendant’s business nor result in an undue burden to
Defendant.
95. In addition, N.Y. Civil Rights Law § 41 states that “any corporation which
shall violate any of the provisions of sections forty, forty-a, forty-b or forty two . . . shall for each
and every violation thereof be liable to a penalty of not less than one hundred dollars nor more
than five hundred dollars, to be recovered by the person aggrieved thereby . . .”
96. Specifically, under N.Y. Civil Rights Law § 40-d, “any person who shall
violate any of the provisions of the foregoing section, or subdivision three of section 240.30 or
section 240.31 of the penal law, or who shall aid or incite the violation of any of said provisions
shall for each and every violation thereof be liable to a penalty of not less than one hundred
dollars nor more than five hundred dollars, to be recovered by the person aggrieved thereby in
any court of competent jurisdiction in the county in which the defendant shall reside . . .”
97. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
98. As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff and members of the proposed class on the basis of disability are
being directly indirectly refused, withheld from, or denied the accommodations, advantages,
facilities and privileges thereof in § 40 et seq. and/or its implementing regulations.
99. Plaintiff is entitled to compensatory damages of five hundred dollars per
instance, as well as civil penalties and fines pursuant to N.Y. Civil Rights Law § 40 et seq. for
each and every offense.
FOURTH CAUSE OF ACTION
22
(Violation of New York City Human Rights Law,
N.Y.C. Administrative Code § 8-102, et seq.)
100. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 99 of this Complaint as though set forth at length herein.
101. N.Y.C. Administrative Code § 8-107(4)(a) provides that “it shall be an
unlawful discriminatory practice for any person, being the owner, lessee, proprietor, manager,
superintendent, agent or employee of any place or provider of public accommodation, because of
. . . disability . . . directly or indirectly, to refuse, withhold from or deny to such person, any of
the accommodations, advantages, facilities or privileges thereof.”
102. Hydroflask.com is a sales establishment and public accommodation within
the definition of N.Y.C. Administrative Code § 8-102(9).
103. Defendant is subject to City Law because it owns and operates
Hydroflask.com. Defendant is a person within the meaning of N.Y.C. Administrative Code § 8-
104. Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing
to update or remove access barriers to Hydroflask.com, causing Hydroflask.com to be
completely inaccessible to the blind. This inaccessibility denies blind patrons full and equal
access to the facilities, goods, and services that Defendant makes available to the non-disabled
public. Specifically, Defendant is required to “make reasonable accommodation to the needs of
persons with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.] from
discriminating on the basis of disability shall make reasonable accommodation to enable a
person with a disability to . . . enjoy the right or rights in question provided that the disability is
known or should have been known by the covered entity.” N.Y.C. Administrative Code § 8-
107(15)(a).
23
105. Defendant’s actions constitute willful intentional discrimination against the
class on the basis of a disability in violation of the N.Y.C. Administrative Code § 8-107(4)(a)
and § 8-107(15)(a) in that Defendant has:
(a) constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
(b) constructed and maintained a website that is sufficiently intuitive and/or
obvious that is inaccessible to blind class members; and/or
(c) failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
106. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
107. As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages,
accommodations and/or opportunities of Hydroflask.com under N.Y.C. Administrative Code § 8-
107(4)(a) and/or its implementing regulations. Unless the Court enjoins Defendant from
continuing to engage in these unlawful practices, Plaintiff and members of the class will continue
to suffer irreparable harm.
108. The actions of Defendant were and are in violation of City law and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
109. Plaintiff is also entitled to compensatory damages, as well as civil penalties
and fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense.
110. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
24
111. Pursuant to N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) and the
remedies, procedures, and rights set forth and incorporated therein, Plaintiff prays for judgment
as set forth below.
FIFTH CAUSE OF ACTION
(Declaratory Relief)
112. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 111 of this Complaint as though set forth at length herein.
113. An actual controversy has arisen and now exists between the parties in that
Plaintiff contends, and is informed and believes that Defendant denies, that Hydroflask.com
contains access barriers denying blind customers the full and equal access to the goods, services
and facilities of Hydroflask.com, which Hydro Flask owns, operates and/or controls, fails to
comply with applicable laws including, but not limited to, Title III of the American with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., and N.Y.C.
Administrative Code § 8-107, et seq. prohibiting discrimination against the blind.
114. A judicial declaration is necessary and appropriate at this time in order that
each of the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully demands judgment in favor of Plaintiff and
the class and against the Defendants as follows:
a)
A preliminary and permanent injunction to prohibit Defendant from violating the
Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et
seq., and N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b) A preliminary and permanent injunction requiring Defendant to take all the steps
necessary to make its website, Hydroflask.com, into full compliance with the
25
requirements set forth in the ADA, and its implementing regulations, so that
Hydroflask.com is readily accessible to and usable by blind individuals;
c)
A declaration that Defendant owns, maintains and/or operates its website,
Hydroflask.com, in a manner which discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with Disabilities
Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., and N.Y.C.
Administrative Code § 8-107, et seq., and the laws of New York;
d) An order certifying this case as a class action under Fed. R. Civ. P. 23(a) & (b)(2) and/or
(b)(3), appointing Plaintiff as Class Representative, and his attorneys as Class Counsel;
e)
An order directing Defendants to continually update and maintain its website to ensure
that it remains fully accessible to and usable by the visually-impaired;
f)
Compensatory damages in an amount to be determined by proof, including all applicable
statutory damages and fines, to Plaintiff and the proposed class for violations of their civil
rights under New York State Human Rights Law and City Law;
g) Plaintiff’s reasonable attorneys’ fees, expenses, and costs of suit as provided by state and
federal law;
h) For pre- and post-judgment interest to the extent permitted by law; and
i)
For such other and further relief which this court deems just and proper.
Dated: Brooklyn, New York
August 27, 2018
SHAKED LAW GROUP, P.C.
Attorneys for Plaintiff
By:/s/Dan Shaked_________
Dan Shaked (DS-3331)
44 Court St., Suite 1217
Brooklyn, NY 11201
Tel. (917) 373-9128
e-mail: ShakedLawGroup@Gmail.com
26
| civil rights, immigration, family |
s6NICYcBD5gMZwcztmPs | FILED
ENTERED
RECEIVED
SERVED ON
COUNSEL/PARTIES OF RECORD
MAR 13 2020
CLERK US DISTRICT COURT
DISTRICT OF NEVADA
BY:
DEPUTY
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
Case No.:
20CV529
CLASS ACTION COMPLAINT AND
JURY DEMAND
Plaintiffs,
V.
Defendants.
Plaintiffs Larry Lawter, Julie Mutsko, Kerri Shapiro, and Victor Wukovits (collectively
INTRODUCTION
1.
This is a data breach class action on behalf of millions of consumers whose
2.
MGM is a global company that owns, operates, and manages hotels, casinos, and
3.
On February 19, 2020, MGM publicly acknowledged that on July 7, 2019, an
4.
The stolen PII included names, addresses, phone numbers, email addresses, and
5.
The stolen PII has been made available for download on the dark web, where it
6.
After being alerted of these findings, MGM belatedly confirmed that the data
7.
The Data Breach was a direct result of MGM's failure to implement adequate and
8.
MGM disregarded the rights of Plaintiffs and class members by, among other
9.
Plaintiffs were guests at various MGM hotels during the period covered by the
10.
Plaintiffs and class members have sustained compensable damages as a result of
11.
Plaintiffs seek to remedy these harms on behalf of themselves and all similarly
PARTIES
12.
Plaintiff Larry Lawter is a resident of South Carolina. He paid for a hotel room at13.
Plaintiff Julie Mutsko is a resident of Ohio. She paid for a hotel room at MGM
14.
Plaintiff Kerri Shapiro is a resident of New York. She paid for a hotel room at
15.
Plaintiff Victor Wukovits is a resident of Louisiana. He paid for a hotel room at
16.
Defendant MGM Resorts International is a publicly traded company incorporated
JURISDICTION AND VENUE
17.
This Court has subject matter jurisdiction over this action pursuant to the Class
18.
This Court has diversity jurisdiction over Plaintiffs' claims pursuant to 29 U.S.C.
19.
This Court has general personal jurisdiction over MGM because it maintains its
20.
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(a)(1) because a
STATEMENT OF FACTS
A.
The MGM Data Breach
21.
On or about July 7, 2019, an unauthorized individual gained access to MGM's
22.
The data consisted of a treasure trove of MGM customers' PII, including their23.
In mid-February 2020, the stolen data of all 10.6 million MGM guests was
24.
Cyber security specialists have recognized that the PII stolen in the Data Breach
25.
On or about September 7, 2019, MGM began notifying affected customers and
Notice of Data Incident
What Happened
On or about July 7, 2019, an individual accessed MGM Resorts
International's computer network system without permission. The individual
downloaded partial customer data from MGM's computer systems, then
posted and disclosed part of the data on a closed internet forum
What Information Was Involved
MGM immediately initiated an internal forensic investigation into this
incident. MGM conducted an exhaustive investigation and search of the
downloaded data from the closed internet site. On August 9, 2019, MGM
determined your First Name, Last Name and Driver's License Number
were part of the compromised file.
What We Are Doing
We take the security of our customers' data seriously, and after MGM became
aware of the event, we took immediate measures to investigate and remediate
the incident. We have implemented additional safeguards to improve further
1
MGM Resorts Says Data Breach Exposed Some Guests' Personal Information, The
2
Details of 10.6 Million MGM Hotel Guests Posted on a Hacking Forum, ZDNet, Feb.
data security related to external software incidents. Furthermore, MGM
reported the incident to law enforcement immediately once MGM discovered
the matter. In addition, we are offering identity theft protection services
through ID Experts, the data incident and recovery services expert, to provide
you with MyIDCare. MyIDCare services include: 12 months of credit and
CyberScan monitoring, a $1,000,000 insurance reimbursement policy, and
fully managed ID theft recovery services. With this protection, MyIDCare
will help you resolve issues if your identity is compromised.
What You Can Do
We encourage you to contact ID Experts with any questions and to enroll in
free MyIDCare services by calling 833-959-1344 or going to
https://ide.myidcare.com/mgmri and using the Enrollment Code provided
above.
Please call 833-959-1344 or go to https://ide.myidcare.com/mgmri for
3
assistance or for any additional questions you may have.
26.
In a letter to the North Dakota Attorney General dated September 7, 2019, MGM
27.
MGM acknowledged that consumers face a substantial risk of fraud and identity
3
https://media.dojmt.gov/wp-content/uploads/Consumer-Notice-26.pdf(emphasis
4
https://attorneygeneral.nd.gov/sites/ag/files/documents/DataBreach/2019-09-09-
5
Id.
6
https://media.dojmt.gov/wp-content/uploads/Consumer-Notice-26.pdf(attachment to
28.
In mid-February 2020, the stolen data of all 10.6 million MGM guests was
The personal details of more than 10.6 million users who stayed at MGM
Resorts hotels have been published on a hacking forum this week.
ZDNet verified the authenticity of the data today, together with a security
researcher from Under the Breach, a soon-to-be-launched data breach monitoring
service.According to our analysis, the MGM data dump that was shared today
contains personal details for 10,683,188 former hotel guests.
Included in the leaked files are personal details such as full names, home
addresses, phone numbers, emails, and dates of birth.
ZDNet reached out to past guests and confirmed they stayed at the hotel, along
with their timeline, and the accuracy of the data included in the leaked files.
Within an hour after we reached out to the company, we were in a conference call
with the hotel chain's security team. Within hours, the MGM Resorts team was
able to verify the data and track it to a past security incident.
An MGM spokesperson told ZDNet the data that was shared online this
week stems from a security incident that took place last year [in 2019].
According to Irina Nesterovsky, Head of Research at threat intel firm KELA, the
data of MGM Resorts hotel guests had been shared in some [other] closed-circle
hacking forums since at least July, last year.
[T]he publication of this data dump on a very popular and openly accessibly
hacking forum this week has brought it to many other hackers' attention.
29.
These facts illustrate that class members face a significant risk of identity theft or
7
Details of 10.6 Million MGM Hotel Guests Posted on a Hacking Forum, ZDNet, Feb.
30.
The Data Breach was reportedly the result of a faulty cloud-based server. A data
31.
MGM is a multi-billion-dollar company and had the financial and personnel
32.
As a condition of staying at its hotel properties, MGM requires that its customers
B.
MGM's Privacy Policy
33.
MGM's Privacy Policy on its website discussed its data security safeguards and
MGM RESORTS PRIVACY POLICY
MGM
respects your privacy. This Privacy Policy ("Policy") describes the
information collection, use, protection, and sharing practices of MGM Resorts
International and MGM Resorts International websites, mobile applications,
electronic communications, and properties.
We collect information from a variety of sources and in a variety of ways,
including the following:
Personal Information. When you visit, use, and/or access MGM Resorts or
MGM Online Services, you may provide us with (and/or we may collect)
information by which you can be personally identified including your name, date
of birth, postal address, email address, and telephone number, and videos,
recordings, and images of you ("Personal Information"). We may also obtain
Personal Information from third parties.
8
MGM Admits to 2019 Data Breach Affecting 10.6 Million Customers, SC Magazine,
Sensitive Information. When you make a purchase, visit, use and/or access
MGM Resorts or MGM Online Services, or engage in other transactions or
activities, you may provide us with sensitive Personal Information including your
credit or debit card number, financial account number, biometrics, medical/health-
related information, driver's license number, government-issued identification
card number, social security number, passport number, or naturalization number
("Sensitive Information").
SECURITY
Information maintained in electronic form that is collected by MGM Resorts
International and any individual MGM Resort is stored on systems protected by
industry standard security measures. These measures are intended to protect
these systems from unauthorized access
We have controls in place that
are designed to detect potential data breaches, contain and minimize the loss
of data, and conduct forensic investigations of a breach.
Our staff is required to take reasonable measures to ensure that
unauthorized persons cannot view or access your Personal Information.
Employees who violate our internal privacy policies are subject to disciplinary
9
action up to and including termination of employment.
34.
These representations were false and misleading because, among other things,
35.
Plaintiffs and class members provided their PII to MGM with the reasonable
C.
The Hotel Industry is a Frequent Target of Cyber Criminals, and MGM Was
on Notice of the Threat of a Breach
36.
The type of PII collected by hotels makes this industry particularly appealing to
9
https://www.mgmresorts.com/en/privacy-policy.html (emphasis added).Other estimates project that hotels
11
37.
Indeed, in recent years, Marriott, Hilton, Hyatt, and Trump Hotels have all been
38.
"Hotel chains and travel companies were major targets for cybercriminals in 2019
card skimming malware and others suffering from exposed cloud
,113
39.
"While hospitality companies have fewer transactions than retail organizations -
This rich personal data is invaluable to
40.
The increased risk of data breaches in the hotel industry was widely known
10
Why Cybersecurity Matters, Hotel Management (Oct. 17,2019), available at
tps://www.hotelmanagement.net/tech/why-cybersecurity-matters.
11
Id.
12
Id.
13
MGM Admits to 2019 Data Breach Affecting 10.6 Million Customers, SC Magazine,
14
Cybersecurity in Hospitality: An Unsolvable Problem?, Paladion Networks, available
41.
PII is also valuable to MGM. MGM recognizes a business value of consumers'
D.
The Risk of Misuse of the Stolen PII Will Persist for Years
42.
MGM was well aware that the PII it collects is highly sensitive, and of significant
43.
PII is a valuable commodity to identity thieves. As the Federal Trade
44.
A robust cyber black market exists, in which criminals can post stolen PII on
45.
The ramifications of MGM's failure to keep PII secure are long lasting. Once PII
46.
"The fact that the breach happened about seven months ago without any public
47.
Thus, even if misuse has not yet occurred for certain class members, there is a
15
Warning Signs of Identity Theft, Federal Trade Commission, available at
16
MGM Admits to 2019 Data Breach Affecting 10.6 Million Customers, SC Magazine,E.
MGM Failed to Comply with FTC Guidelines and Industry Standards
48.
The FTC has promulgated numerous guides for businesses, which highlight the
49.
In 2016, the FTC updated its publication, Protecting Personal Information: A
50.
The FTC further recommends that companies not maintain PII longer than is
51.
The FTC has brought enforcement actions against businesses for failing to
17
Start With Security, Federal Trade Commission, available at
18
Protecting Personal Information: A Guide for Business, Federal Trade Commission,
19
Start With Security, Federal Trade Commission, available at
52.
MGM failed to adopt reasonable data security safeguards. MGM's failure to
53.
Cyber security firms and industry participants have promulgated a series of best
20
54.
MGM failed to comply with these and other industry best practices.
F.
Plaintiffs and Class Members Suffered Damages
55.
As a direct and proximate result of MGM's wrongful actions and inactions,
56.
Plaintiffs and class members have suffered, will suffer, or are at a substantially
a.
The unauthorized use of their PII for fraudulent purposes.
b.
Fraud losses for accounts opened or debts incurred in their name.
c.
Out-of-pocket costs for mitigation efforts such as purchasing credit
20
How to Work on Hotel Cyber Security, Open Data Security, July 23, 2019, available at
monitoring services, credit freezes, credit reports, etc.
d.
Time spent responding to the Data Breach for things like reviewing
financial accounts and credit reports more closely than they otherwise
would have, researching and disputing fraudulent charges or suspicious
activity, signing up for protective measures, etc.
e.
Lost opportunity costs and lost wages associated with efforts expended in
response to the Data Breach.
f.
"Loss of value" of their PII. A robust market exists for stolen PII, which
is highly coveted and sold on the dark web at specific identifiable prices.
The theft of consumers' PII led to a diminution in value of that PII.
g.
"Benefit of the bargain" damages. Plaintiffs and class members overpaid
for hotel services that should have been - but were not - accompanied by
adequate data security. Part of the price class members paid to MGM was
intended to be used to fund adequate data security. Plaintiffs and class
members did not get what they paid for. MGM's misrepresentations and
omissions regarding data security diminished the value of Plaintiffs'
purchases.
h.
The continued risk to their PII in MGM's possession, which could be the
subject to further breaches if MGM fails to undertake appropriate
measures to protect the PII going forward.
57.
Consumers face an unusually high risk of misuse from this particular data breach.
58.
Identity thieves can combine data stolen in the Data Breach with other59.
Thieves can also use the stolen data, alone or in combination with other
60.
Thieves can use the stolen data, alone or in combination with other information
61.
MGM has acknowledged that consumers face a significant risk of identity theft or
G.
MGM's Delay in Providing Notice to Class Members Caused Additional
Harm
62.
"One thing that does matter is hearing about a data breach quickly. That alerts
If consumers don't know about a breach because
63.
Consumers' PII was stolen on July 7, 2019, but MGM did not begin to send
21
https://media.dojmt.gov/wp-content/uploads/Consumer-Notice-26.pdf(attachment to
22
The Data Breach Next Door, Consumer Reports, Jan. 31, 2019, available at
64.
As a result of MGM's unreasonable delay in detecting and notifying consumers of
H.
Plaintiffs and Class Members Are Entitled to Injunctive Relief
65.
Plaintiffs and class members are entitled to injunctive relief requiring MGM to,
66.
MGM acted on grounds that apply generally to the class as a whole, SO that
CLASS ACTION ALLEGATIONS
67.
Plaintiffs bring this case as a class action pursuant to Fed. R. Civ. P. 23(b)(2) and
Nationwide Class: All persons residing in the United States whose
PII was stolen in the July 7, 2019 Data Breach at MGM.
Nevada Sub-Class: All residents of Nevada whose PII was stolen
in the July 7, 2019 Data Breach at MGM.
Louisiana Sub-Class: All residents of Louisiana whose PII was
stolen in the July 7, 2019 Data Breach at MGM.
New York Sub-Class: All residents of New York whose PII was
stolen in the July 7, 2019 Data Breach at MGM.
Ohio Sub-Class: All residents of Ohio whose PII was stolen in the
July 7, 2019 Data Breach at MGM.
South Carolina Sub-Class: All residents of South Carolina whose
PII was stolen in the July 7, 2019 Data Breach at MGM.
68.
Excluded from the Classes are Defendant's executive officers, and the judge to69.
Plaintiffs hereby reserve the right to amend or modify these class definitions after
70.
Numerosity. The Classes are each SO numerous that joinder of all members is
71.
Commonality. There are many questions of law and/or fact common to Plaintiffs
a.
Whether MGM's data security systems prior to the Data Breach complied
with applicable data security laws, regulations, and industry standards;
b.
Whether MGM owed a duty to class members to safeguard their PII;
c.
Whether MGM breached its duty to class members to safeguard their PII;
d.
Whether a computer hacker stole class members' PII in the Data Breach;
e.
Whether MGM knew or should have known that its data security systems
were deficient prior to the Data Breach;
f.
Whether Plaintiffs and class members suffered legally cognizable damages
as a result of the Data Breach; and
g.
Whether Plaintiffs and class members are entitled to injunctive relief.
72.
Typicality. Plaintiffs' claims are typical of the claims of all class members
73.
Adequacy of Representation. Plaintiffs will fairly and adequately protect the
74.
Predominance. MGM has engaged in a common course of conduct toward all
75.
Superiority. A class action is superior to other available methods for the fair and
76.
MGM acted on grounds that apply generally to the Classes as a whole, SO that
77.
Likewise, particular "issues" under Rule 23(c)(4) are appropriate for certification
78.
Finally, all members of the proposed Classes are readily ascertainable. MGM has
CAUSES OF ACTION
COUNT I
NEGLIGENCE
(On Behalf of the Nationwide Class and all State Sub-Classes)
79.
Plaintiffs re-allege and incorporate by reference all preceding allegations as if
80.
As a condition of receiving services, Plaintiffs and class members were obligated81.
Plaintiffs and class members entrusted their PII to MGM with the understanding
82.
MGM had knowledge of the sensitivity of the PII and the types of harm that
83.
MGM had a duty to exercise reasonable care in safeguarding, securing, and
84.
MGM's duty of care arose as a result of, among other things, the special
85.
Also, MGM had a duty to employ reasonable security measures under Section 5
practices in or affecting commerce,"
86.
MGM was also subject to an "independent duty" untethered to any contract
87.
Plaintiffs and class members were the foreseeable victims of inadequate data
88.
MGM knew or should have known of the inherent risks in collecting and storing
89.
MGM's conduct created a foreseeable risk of harm to Plaintiffs and class
90.
Plaintiffs and class members had no ability to protect their PII once in was in
91.
MGM was in a position to protect against the harm suffered by Plaintiffs and class
92.
MGM, through its actions and/or omissions, unlawfully breached its duty to
93.
MGM improperly and inadequately safeguarded Plaintiffs' and class members'
94.
But for MGM's wrongful breach of duties owed to Plaintiffs and class members,
95.
There is a temporal and close causal connection between MGM's failure to
96.
As a result of MGM's negligence, Plaintiffs and class members suffered and will
97.
Plaintiffs and class members are entitled to compensatory and consequential
98.
Plaintiffs and class members are also entitled to the injunctive relief set forth
COUNT II
NEGLIGENCE PER SE
(On Behalf of the Nationwide Class and all State Sub-Classes)
99.
Plaintiffs re-allege and incorporate by reference all preceding allegations as if
100.
Section 5 of the FTCA prohibits "unfair
practices in or affecting commerce,"
101.
MGM violated Section 5 of the FTCA by failing to use reasonable measures to
102.
MGM's violation of Section 5 of the FTCA constitutes negligence per se as
103.
Plaintiffs and class members are within the class of persons that the FTCA was
104. The harm that occurred as a result of the Data Breach is the type of harm the
105.
As a direct and proximate result of MGM's negligence per se, Plaintiffs and class
106.
Plaintiffs and class members are entitled to compensatory and consequential107.
Plaintiffs and class members are also entitled to the injunctive relief set forth
COUNT III
BREACH OF IMPLIED CONTRACT
(On Behalf of the Nationwide Class and all State Sub-Classes)
108.
Plaintiffs re-allege and incorporate by reference all preceding allegations as if
109.
When Plaintiffs and class members provided their PII to MGM in exchange for
110.
MGM solicited and invited Plaintiffs and class members to provide their PII as
111.
When entering into the implied contracts, Plaintiffs and class members reasonably
112.
MGM's implied promise to safeguard PII is evidenced by, e.g., the
113.
Plaintiffs and class members paid money for MGM's services. Plaintiffs and
114.
Plaintiffs and class members would not have provided their PII to MGM in the
115.
Plaintiffs and class members fully performed their obligations under the implied
116.
MGM breached its implied contracts with Plaintiffs and class members by failing
117. As a result of MGM's conduct, Plaintiffs and class members have suffered, and
118.
Plaintiffs and class members are entitled to compensatory and consequential
119.
Plaintiffs and class members are also entitled to the injunctive relief set forth
COUNT IV
UNJUST ENRICHMENT
(On Behalf of the Nationwide Class and all State Sub-Classes)
120.
Plaintiffs re-allege and incorporate by reference all preceding allegations as if
121.
This claim is plead in the alternative to the breach of implied contract claim.
122.
Plaintiffs and class members conferred a monetary benefit on MGM. Specifically,
123.
MGM knew that Plaintiffs and class members conferred a monetary benefit,
124.
The amounts Plaintiffs and class members paid to MGM for its services were
125.
Under the principles of equity and good conscience, MGM should not be
126.
MGM failed to adequately secure consumers' PII and, therefore, did not provide
127.
MGM acquired consumers' money and PII through inequitable means in that it
128.
If Plaintiffs and class members would have known that MGM employed
129.
Plaintiffs and class members have no adequate remedy at law.
130,
As a direct and proximate result of MGM's conduct, Plaintiffs and class members
131.
MGM should be compelled to disgorge into a common fund or constructive trust,
COUNT V
VIOLATION OF THE NEVADA CONSUMER FRAUD ACT
NRS 41.600
(On Behalf of the Nationwide Class and Nevada Sub-Class)
132.
Plaintiffs re-allege and incorporate by reference all preceding allegations as if
133. MGM engaged in unfair and unlawful acts and practices by failing to maintain
134.
MGM violated the Nevada Consumer Fraud Act by engaging in unfair anda.
by representing that it would maintain adequate data security practices to
safeguard consumer information from unauthorized disclosures, data
breaches, and theft;
b.
by omitting and concealing the material fact of the inadequacy of MGM's
data security protections for consumers' PII;
c.
by failing to disclose that MGM's data security systems failed to meet
legal and industry standards for the protection of consumers' PII; and
d.
by soliciting and collecting PII with knowledge that the information would
not be adequately protected and by storing that PII in an unsecure
electronic environment.
135.
Plaintiffs and class members relied on MGM's implied promise of data security
136.
MGM's conduct violated NRS 598.0917(7) because it constituted a tender of
or tendering terms of sale or lease less favorable than the terms
137.
MGM's violations of NRS 598.0917(7) constituted "consumer fraud" for
138. MGM also breached its duty under NRS 603A.210, which requires any data
use, modification or disclosure." MGM did not take such
139. Additionally, NRS 598.0923(3) provides that a violation of any federal or Nevada
140. MGM' violations of NRS 598.0923(3), NRS 598.0917(7), and NRS 603A in turn
141. MGM engaged in an unfair practice by engaging in conduct that is contrary to
142.
As a direct and proximate result of the foregoing, Plaintiffs and class members
143.
As a result of these violations, Plaintiffs and class members are entitled to an
COUNT VI
VIOLATION OF THE LOUISIANA UNFAIR TRADE
PRACTICES AND CONSUMER PROTECTION LAW
La. Rev. Stat. Ann. §§ 51:1401, et seq.
(On Behalf of the Louisiana Sub-Class)
144.
Plaintiff Wukovits re-alleges and incorporates by reference all preceding
145. MGM, Plaintiff Wukovits, and the Louisiana Sub-Class members are "persons"
146.
Plaintiff and the Louisiana Sub-Class members are "consumers" within the
147.
MGM engaged in "trade" or "commerce" within the meaning of La. Rev. Stat.
148.
The Louisiana Unfair Trade Practices and Consumer Protection Law ("Louisiana
149. MGM participated in unfair and deceptive acts and practices that violated thea.
Failing to implement reasonable data security measures to protect
consumers' PII, which was a direct and proximate cause of the Data
Breach;
b.
Failing to comply with common law and statutory duties pertaining to the
security and privacy of PII, including duties imposed by the FTCA, 15
U.S.C. § 45;
c.
Misrepresenting that it employed reasonable data security measures and
would reasonably protect the privacy of consumers' PII;
d.
Omitting and concealing the material fact that it did not employ
reasonable measures to secure PII; and
e.
Omitting and concealing the material fact that it did not comply with
common law and statutory duties pertaining to the security of PII,
including duties imposed by the FTCA, 15 U.S.C. § 45.
150. MGM's representations and omissions were material because they were likely to
151. MGM intended to mislead Plaintiff and Louisiana Sub-Class members and/or
152. MGM's unfair and deceptive acts and practices were immoral, unethical,
153. MGM acted intentionally, knowingly, and maliciously in violating the Louisiana
154.
Had MGM disclosed that its data systems were not secure and were vulnerable to
155. Accordingly, Plaintiff and the Louisiana Sub-Class members acted reasonably in
156.
As a direct and proximate result of MGM's unfair and deceptive acts and
157.
Plaintiff and the Louisiana Sub-Class members seek all monetary and non-
COUNT VII
VIOLATION OF THE NEW YORK GENERAL BUSINESS LAW
N.Y. Gen. Bus. Law §§ 349, et seq.
(On Behalf of the New York Sub-Class)
158.
Plaintiff Kerri Shapiro re-alleges and incorporates by reference all preceding
159.
MGM engaged in deceptive acts or practices in the conduct of its business, trade,
a.
Failing to implement reasonable data security measures to protect
consumers' PII, which was a direct and proximate cause of the Data
Breach;
b.
Failing to comply with common law and statutory duties pertaining to the
security and privacy of PII, including duties imposed by the FTCA, 15
U.S.C. § 45;
c.
Misrepresenting that it employed reasonable data security measures and
would reasonably protect the privacy of consumers' PII;
d.
Omitting and concealing the material fact that it did not employ
reasonable measures to secure PII; and
e.
Omitting and concealing the material fact that it did not comply with
common law and statutory duties pertaining to the security of PII,
including duties imposed by the FTCA, 15 U.S.C. § 45.
160.
Plaintiff and members of the New York Sub-Class were deceived in New York.
161.
MGM's representations and omissions were material because they were likely to
162.
MGM acted intentionally, knowingly, and maliciously in violating New York's
163.
As a direct and proximate result of MGM's deceptive and unlawful acts and
164.
MGM's deceptive and unlawful acts and practices affected the public interest and
165.
MGM's deceptive and unlawful practices caused substantial injury to Plaintiff and
166.
Plaintiff and the New York Sub-Class members seek all monetary and non-COUNT VIII
VIOLATION OF THE OHIO DECEPTIVE TRADE PRACTICES ACT
Ohio Rev. Code §§ 4165.01, et seq.
(On Behalf of the Ohio Sub-Class)
167.
Plaintiff Julie Mutsko re-alleges and incorporates by reference all preceding
168.
MGM, Plaintiff Mutsko, and the Ohio Sub-Class members are each a "person," as
169. MGM advertised, offered, or sold goods or services in Ohio and engaged in trade
170.
MGM engaged in deceptive trade practices in the course of its business and
a.
Representing that its goods and services have characteristics, uses,
benefits, or qualities that they do not have, in violation of Ohio Rev. Code
§ 4165.02(A)(7);
b.
Representing that its goods and services are of a particular standard or
quality when they are of another, in violation of Ohio Rev. Code §
4165.02(A)(9); and
c.
Advertising its goods and services with intent not to sell them as advertise,
in violation of Ohio Rev. Code § 4165.02(A)(11).
171. MGM's deceptive trade practices include:
a.
Failing to implement reasonable data security measures to protect
consumers' PII, which was a direct and proximate cause of the Data
Breach;
b.
Failing to comply with common law and statutory duties pertaining to the
security and privacy of PII, including duties imposed by the FTCA, 15
U.S.C. § 45;
c.
Misrepresenting that it employed reasonable data security measures and
would reasonably protect the privacy of consumers' PII;
d.
Omitting and concealing the material fact that it did not employ
reasonable measures to secure PII; and
e.
Omitting and concealing the material fact that it did not comply with
common law and statutory duties pertaining to the security of PII,
including duties imposed by the FTCA, 15 U.S.C. § 45.
172.
MGM's representations and omissions were material because they were likely to
173.
MGM intended to mislead Plaintiff and Ohio Sub-Class members and/or induce
174. MGM acted intentionally, knowingly, and maliciously in violating the Ohio
175.
As a direct and proximate result of MGM's deceptive trade practices, Plaintiff and
176.
Plaintiff and Ohio Sub-Class members seek all monetary and non-monetary relief
COUNT IX
VIOLATION OF THE SOUTH CAROLINA UNFAIR TRADE PRACTICES ACT,
S.C. Code Ann. §§ 39-5-10, et seq.
(On Behalf of the South Carolina Sub-Class)
177.
Plaintiff Larry Lawter re-alleges and incorporates by reference all preceding
178.
MGM is a "person" as defined by S.C. Code Ann. § 39-5-10(a).
179.
The South Carolina Unfair Trade Practices Act prohibits "unfair or deceptive acts
180.
MGM advertised, offered, or sold goods or services in South Carolina and
181.
MGM engaged in unfair and deceptive acts and practices, including by:
a.
Failing to implement reasonable data security measures to protect
consumers' PII, which was a direct and proximate cause of the Data
Breach;
b.
Failing to comply with common law and statutory duties pertaining to the
security and privacy of PII, including duties imposed by the FTCA, 15
U.S.C. § 45;
c.
Misrepresenting that it employed reasonable data security measures and
would reasonably protect the privacy of consumers' PII;
d.
Omitting and concealing the material fact that it did not employ
reasonable measures to secure PII; and
e.
Omitting and concealing the material fact that it did not comply with
common law and statutory duties pertaining to the security of PII,
including duties imposed by the FTCA, 15 U.S.C. § 45.
182. MGM's acts and practices had, and continue to have, the tendency or capacity to183.
MGM's representations and omissions were material because they were likely to
184.
MGM intended to mislead Plaintiff and South Carolina Sub-Class members
185.
Had MGM disclosed to consumers that its data systems were not secure and, thus,
186.
Plaintiff and the South Carolina Sub-Class members acted reasonably in relying
187. MGM had a duty to disclose the above-described facts due to the sensitivity and
a.
Possession of exclusive knowledge regarding the security of the PII in its
systems;
b.
Active concealment of the state of its data security; and/or
c.
Incomplete representations about the security and integrity of its computer
and data systems, while purposefully withholding material facts from
consumers that contradicted these representations.
188.
MGM's business acts and practices offend an established public policy, or are
189. MGM's unfair and deceptive acts or practices adversely affected the public
190.
MGM's unfair and deceptive acts or practices have the potential for repetition
191.
MGM's violations present a continuing risk to Plaintiff and the South Carolina
192.
MGM intended to mislead Plaintiff and South Carolina Sub-Class members
193.
MGM acted intentionally, knowingly, and maliciously in violating South
194.
As a direct and proximate result of MGM's unfair and deceptive acts or practices,
195.
Plaintiff and South Carolina Sub-Class members seek all monetary and non-
REQUEST FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and all others similarly situated,
A.
An Order certifying this case as a class action;B.
An Order appointing Plaintiffs as class representatives;
C.
An Order appointing the undersigned counsel as class counsel;
D.
Injunctive relief requiring MGM to: (i) strengthen its data security systems and
E.
An award of compensatory damages, statutory damages, and punitive damages;
F.
An award of costs and expenses;
G.
An award of attorneys' fees; and
H.
Such other and further relief as this court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs demand a jury trial as to all issues triable by a jury.
Respectfully submitted,
/s/ Don Springmeyer
WOLF, RIFKIN, SHAPIRO, SCHULMAN AND
RABKIN, LLP
Don Springmeyer
3556 E Russell Rd
Second Floor
Las Vegas, NV 89120-2234
702-341-5200
Fax: (702) 341-5300
Email: dspringmeyer@wrslawyers.com
BERGER MONTAGUE PC
E. Michelle Drake( Pro Hac Vice to be submitted)
43 SE Main Street, Suite 505
Minneapolis, MN 55414
Tel: (612) 594-5933
Fax: (612) 584-4470
emdrake@bm.net
BERGER MONTAGUE PC
Michael Dell' Angelo
(Pro Hac Vice to be submitted)
Jon Lambiras (Pro Hac Vice to be submitted)
Joshua T. Ripley (Pro Hac Vice to be submitted)
1818 Market Street, Suite 3600
Philadelphia, PA 19103
Tel: (215) 875-3000
Fax: (215) 875-4604
mdellangelo@bm.net
jlambiras@bm.net
jripley@bm.net
MCCULLEY MCCLUER PLLC
Stuart McCluer (Pro Hac Vice to be submitted)
R. Bryant McCulley (Pro Hac Vice to be submitted)
Frank B. Ulmer (Pro Hac Vice to be submitted)
701 East Bay Street, Suite 411
Charleston, SC 29403
Tel: (843) 444-5404
Fax: (843) 444-5408
smccluer@mcculleymccluer.com
bmcculley@mcculleymccluer.com
fulmer@mcculleymccluer.com
Counsel for Plaintiffs and the Proposed Class | securities |
nQxOFocBD5gMZwcznz3x | ROBBINS GELLER RUDMAN
& DOWD LLP
PATRICK J. COUGHLIN (111070)
DAVID W. MITCHELL (199706)
ALEXANDRA S. BERNAY (211068)
CARMEN A. MEDICI (248417)
655 West Broadway, Suite 1900
San Diego, CA 92101-8498
Telephone: 619/231-1058
619/231-7423 (fax)
patc@rgrdlaw.com
davidm@rgrdlaw.com
xanb@rgrdlaw.com
cmedici@rgrdlaw.com
DEVINE GOODMAN RASCO &
WATTS-FITZGERALD, LLP
JOHN W. DEVINE
LAWRENCE D. GOODMAN
ROBERT J. KUNTZ, JR.
2800 Ponce De Leon Blvd., Suite 1400
Coral Gables, FL 33134
Telephone: 305/374-8200
305/374-8208 (fax)
jdevine@devinegoodman.com
lgoodman@devinegoodman.com
rkuntz@devinegoodman.com
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
Case No.
CLASS ACTION
B & R SUPERMARKET, INC., d/b/a
MILAM’S MARKET, a Florida corporation,
and GROVE LIQUORS LLC, a Florida limited
liability company, Individually and on Behalf
of All Others Similarly Situated,
Plaintiffs,
vs.
COMPLAINT FOR VIOLATIONS OF THE
SHERMAN ANTITRUST ACT,
VIOLATIONS OF THE CLAYTON
ANTITRUST ACT, CALIFORNIA’S
CARTWRIGHT ACT AND UNJUST
ENRICHMENT
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DEMAND FOR JURY TRIAL
VISA, INC., a Delaware corporation; VISA
USA, INC., a Delaware corporation;
MASTERCARD INTERNATIONAL
INCORPORATED; a Delaware corporation;
[Caption continued on following page.]
AMERICAN EXPRESS COMPANY, a New
York corporation; DISCOVER FINANCIAL
SERVICES, an Illinois corporation; BANK OF
AMERICA, N.A., a national banking
association; BARCLAYS BANK
DELAWARE, a Delaware corporation;
CAPITAL ONE FINANCIAL
CORPORATION, a Delaware corporation;
CHASE BANK USA, NATIONAL
ASSOCIATION, a national banking
association; CITIBANK (SOUTH DAKOTA),
N.A., a South Dakota bank; CITIBANK, N.A.,
a national banking association; PNC BANK,
NATIONAL ASSOCIATION, a national
banking association; USAA SAVINGS BANK,
a Nevada corporation; U.S. BANCORP
NATIONAL ASSOCIATION, a national
banking association; WELLS FARGO BANK,
N.A., a national banking association; EMVCo,
LLC, a Delaware limited liability company;
JCB CO. LTD, a Japanese company; and
UNIONPAY, a Chinese bank association,
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Defendants.
B & R Supermarket, Inc., d/b/a Milam’s Market, a Florida corporation (“Milam’s Market”),
and Grove Liquors LLC, a Florida limited liability company (“Grove Liquors”), individually and on
behalf of all others similarly situated (collectively, the “Class”), sue Visa, Inc. and Visa USA, Inc.
(collectively, “Visa”), MasterCard International Incorporated (“MasterCard”), American Express
Company (“American Express”) and Discover Financial Services (“Discover”) (collectively, the
“Networks”); Bank of America, N.A. (“BOA”), Barclays Bank Delaware (“Barclays”), Capital One
Financial Corporation (“Capital One”), Chase Bank USA, National Association (“Chase”), Citibank
(South Dakota), N.A., Citibank, N.A., PNC Bank, National Association (“PNC”), USAA Savings
Bank (“USAA”), U.S. Bancorp National Association (“US Bank”) and Wells Fargo Bank,
N.A. (“Wells Fargo”) (collectively, the “Issuing Banks”); EMVCo, LLC (“EMVCo”); JCB Co. Ltd
(“JCB”); and UnionPay (“UnionPay”) and state as follows:
NATURE OF THE CLAIM
1.
This is a class action suit for violations of the Sherman Antitrust Act, California’s
Cartwright Act, unjust enrichment, and for other equitable and injunctive relief.
2.
For their own benefit, the Networks, the Issuing Banks through EMVCo conspired to
shift billions of dollars in liability for fraudulent, faulty and otherwise rejected consumer credit card
transactions from themselves to the Class, without consideration to, or meaningful recourse by, those
merchants (the “Liability Shift”).
THE PARTIES
3.
Plaintiff B & R Supermarket, Inc., d/b/a Milam’s Market, is a Florida corporation that
operates four retail grocery stores in Miami-Dade County.
4.
Plaintiff Grove Liquors LLC is a Florida limited liability company operating a retail
liquor store in Miami-Dade County.
5.
Class members, who bring this class action pursuant to Rules 23(a) and (b)(2) and
(b)(3) of the Federal Rules of Civil Procedure, comprise merchants who have been unlawfully
subjected to a Liability Shift for the assessment of MasterCard, Visa, Discover, UnionPay, JCB, and
American Express credit and charge card chargebacks, despite having purchased EMV-chip-
compliant point of sale (“POS”) card readers and having otherwise complied with the directives of
the Networks and Issuing Banks, during the period from October 1, 2015 until the anticompetitive
acts cease.
6.
Defendant Visa is a California-based payments technology company, which operates
a retail electronic payments network in the United States. It administers Visa payment programs and
its product platform includes consumer credit, consumer debit and cash access, and prepaid and
commercial programs. It provides products and services over a secure payments network to support
payment programs offered by its member issuing banks to their customers, including tens of millions
of retail consumers. Visa conducts business throughout the United States, including extensively in
the Northern District of California and this Division, where it is headquartered. Visa is a founding
member of EMVCo and has two members, Christina Hulka and Marc Kekicheff, on the EMVCo
Board of Managers. Along with American Express, Discover, JCB, MasterCard and UnionPay, Visa
is a co-owner of defendant EMVCo.
7.
Defendant MasterCard is a New York-based payments technology company, which
operates a retail electronic payments network in the United States. It administers MasterCard
payment programs and its product platform includes consumer credit, consumer debit and cash
access, and prepaid and commercial programs. It provides products and services over a secure
payments network to support payment programs offered by its member issuing banks to their
customers, including tens of millions of retail consumers. MasterCard conducts business throughout
the United States, including extensively in the Northern District of California. MasterCard is a co-
owner of defendant EMVCo. MasterCard has a representative, Jonathan Main, on the EMVCo
Board of Managers.
8.
Defendant American Express is a New York-based payments technology company
which issues credit and charge cards and related services and conducts business throughout the
United States, including extensively in the Northern District of California, and is a co-owner of
defendant EMVCo. American Express has two representatives, Robert Burns and Sean Conroy, on
the EMVCo Board of Managers.
9.
Defendant Discover is an Illinois-based financial services company, which issues the
Discover card and operates the Discover retail electronic payments network in the United States. It
administers Discover payment programs and its product platform includes consumer credit cards,
and other card services. It provides products and services over a secure payments network to support
payment programs offered by its own and some member issuing banks to their customers, including
tens of millions of retail consumers. Discover conducts business throughout the United States,
including extensively in the Northern District of California. Discover is a co-owner of defendant
EMVCo. Discover has two representatives, David Bibby and Cheryl Mish, on the EMVCo Board of
Managers.
10.
Defendant BOA, a national banking association with its principal place of business in
Charlotte, North Carolina, issues credit cards throughout the United States, including extensively in
the Northern District of California. It is an issuing bank that, throughout this judicial district, issues
General Purpose Cards to individuals and businesses. As an issuing bank, BOA maintains the line of
credit associated with each Visa or MasterCard it issues. Cardholder transactions made with these
cards are processed by the Networks. BOA is a member of both MasterCard and Visa. Bank of
America Merchant Services is an EMVCo Business Associate. According to EMVCo’s website,
“EMVCo Business Associates provide EMVCo with input on strategic business and implementation
issues related to the use of the EMV Specifications. Business Associates serve on the Board of
Advisors and, accordingly, advise the EMVCo Executive Committee.” According to EMVCo, in
addition to receiving a seat on the EMVCo Board of Advisors, Business Associates also gain
“networking opportunities with EMVCo executives and other Business Associates” and “[a]dvance
access to EMV Specification revisions, draft documents and upcoming meeting materials.”
11.
Defendant Barclays is a Delaware corporation, which issues credit cards throughout
the United States, including extensively in the Northern District of California. It is an issuing bank
that, throughout this judicial district, issues General Purpose Cards to individuals and businesses. As
an issuing bank, Barclays maintains the line of credit associated with each Visa or MasterCard it
issues. Cardholder transactions made with these cards are processed by the Networks. Barclays is a
member of both MasterCard and Visa.
12.
Defendant Capital One is a Delaware corporation, with its principal place of business
in McLean, Virginia, issues credit cards throughout the United States, including extensively in the
Northern District of California. It is an issuing bank that, throughout this judicial district, issues
General Purpose Cards to individuals and businesses. As an issuing bank, Capital One maintains the
line of credit associated with each Visa or MasterCard it issues. Cardholder transactions made with
these cards are processed by the Networks. Capital One is a member of both MasterCard and Visa.
13.
Defendant Chase, a national banking association, issues credit cards throughout the
United States, including extensively in the Northern District of California. It is an issuing bank that,
throughout this judicial district, issues General Purpose Cards to individuals and businesses. As an
issuing bank, Chase maintains the line of credit associated with each Visa or MasterCard it issues.
Cardholder transactions made with these cards are processed by the Networks. Chase is a member
of both MasterCard and Visa. Chase is an EMVCo Business Associate. According to EMVCo’s
website, “EMVCo Business Associates provide EMVCo with input on strategic business and
implementation issues related to the use of the EMV Specifications. Business Associates serve on
the Board of Advisors and, accordingly, advise the EMVCo Executive Committee.” According to
EMVCo, in addition to receiving a seat on the EMVCo Board of Advisors, Business Associates also
gain “networking opportunities with EMVCo executives and other Business Associates” and
“[a]dvance access to EMV Specification revisions, draft documents and upcoming meeting
materials.” Chase is also a Technical Associate of EMVCo. According to EMVCo’s website,
EMVCo “Technical Associates have the opportunity to provide input and receive feedback on
detailed technical and operational issues connected to the EMV Specifications and related processes.
Open to any industry stakeholder with an interest in monitoring the EMV Specifications, this
participation type also gives organisations the opportunity to interact regularly with EMVCo’s
technical Working Groups, offer input to meeting agendas, submit technical contributions to
EMVCo for consideration, and gain early access to draft specifications and other technical
documents. Up to five seats on the EMVCo Board of Advisors are reserved for Technical
Associates representing distinct market sectors. Technical Associate representation on the Board of
Advisors is determined through an annual election process.”
14.
Defendant Citibank (South Dakota), N.A. is a South Dakota bank with its principal
place of business in Sioux Falls, South Dakota. It is parent company Citigroup’s primary banking
entity responsible for U.S. credit card activities.
15.
Defendant Citibank, N.A. is a bank with its principal place of business in New York,
New York, and is a subsidiary of Citigroup, Inc., a Delaware corporation with its principal place of
business in New York, New York. Citigroup is a member of both Visa and MasterCard. It engages
in interstate commerce. It is an issuing bank that, throughout this judicial district, issues General
Purpose Cards to individuals and businesses. It also is an acquiring bank that, throughout this
judicial district, provides card-acceptance services to class members.
16.
Defendant PNC is a Pennsylvania corporation which issues credit cards throughout
the United States, including in the Northern District of California. It is an issuing bank that,
throughout this judicial district, issues General Purpose Cards to individuals and businesses. As an
issuing bank, PNC maintains the line of credit associated with each Visa or MasterCard card it
issues. Cardholder transactions made with these cards are processed by the Networks. PNC is a
member of both Visa and MasterCard.
17.
Defendant USAA is a Nevada corporation which issues credit cards throughout the
United States, including in the Northern District of California. It is an issuing bank that, throughout
this judicial district, issues General Purpose Cards to individuals and businesses. As an issuing
bank, PNC maintains the line of credit associated with each Visa or MasterCard card it issues.
Cardholder transactions made with these cards are processed by the Networks. USAA is a member
of both Visa and MasterCard.
18.
Minneapolis-based U.S. Bancorp, with $422 billion in assets, is the parent company
of defendant US Bank, the fifth largest commercial bank in the United States. US Bank issues credit
cards throughout the United States, including extensively in the Northern District of California. It is
an issuing bank that, throughout this judicial district, issues General Purpose Cards to individuals
and businesses. As an issuing bank, US Bank maintains the line of credit associated with each Visa
or MasterCard it issues. Cardholder transactions made with these cards are processed by the
Networks. US Bank is a member of both MasterCard and Visa. US Bank is also an EMVCo
Business Associate. According to EMVCo’s website, “EMVCo Business Associates provide
EMVCo with input on strategic business and implementation issues related to the use of the EMV
Specifications. Business Associates serve on the Board of Advisors and, accordingly, advise the
EMVCo Executive Committee.” According to EMVCo, in addition to receiving a seat on the
EMVCo Board of Advisors, Business Associates also gain “networking opportunities with EMVCo
executives and other Business Associates” and “[a]dvance access to EMV Specification revisions,
draft documents and upcoming meeting materials.” US Bank is also a Technical Associate of
EMVCo. According to EMVCo’s website, EMVCo “Technical Associates have the opportunity to
provide input and receive feedback on detailed technical and operational issues connected to the
EMV Specifications and related processes. Open to any industry stakeholder with an interest in
monitoring the EMV Specifications, this participation type also gives organisations the opportunity
to interact regularly with EMVCo’s technical Working Groups, offer input to meeting agendas,
submit technical contributions to EMVCo for consideration, and gain early access to draft
specifications and other technical documents. Up to five seats on the EMVCo Board of Advisors are
reserved for Technical Associates representing distinct market sectors. Technical Associate
representation on the Board of Advisors is determined through an annual election process.”
19.
Defendant Wells Fargo is a San Francisco-based corporation which issues credit cards
throughout the United States, including extensively in the Northern District of California. It is an
issuing bank that, throughout this judicial district, issues General Purpose Cards to individuals and
businesses. As an issuing bank, Wells Fargo maintains the line of credit associated with each Visa
or MasterCard it issues. Cardholder transactions made with these cards are processed by the
Networks. Wells Fargo is a member of both MasterCard and Visa.
20.
Defendant EMVCo is a Delaware limited liability company overseen by, inter alia,
the Networks, which, among other things, develops and manages the technical standards by which
EMC chip transactions (as defined herein) are processed and maintained. According to EMVCo’s
website, American Express, Discover, JCB, UnionPay and Visa “own[s] an equal share of EMVCo
and has representatives in the organisation at the management and working group levels. All
decisions are made on a consensus basis among the member organisations.” EMVCo is not simply a
standard-setting entity. Instead, the organization serves as a means through which defendants here
have been able to effectuate their conspiracy. Moreover, the anticompetitive conduct alleged herein
was not conducted as part of EMVCo’s standard-setting functions. The U.S. Supreme Court has
long acknowledged that standard-setting organizations “can be rife with opportunities for
anticompetitive activity.” Am. Soc’y of Mech. Eng’rs v. Hydrolevel Corp., 456 U.S. 556, 571
(1982); see also Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 659 (1961).
21.
Defendant JCB is a Japanese company and a credit card issuer and acquirer. JCB
conducts business throughout the United States, including extensively in the Northern District of
California. As of March 2015, JCB had 89.6 million cardholders, including 20 million members
outside Japan. JCB is a co-owner of defendant EMVCo. JCB has two representatives, Masao Noda
and Junya Tanaka, on the EMVCo Board of Managers.
22.
Defendant UnionPay is a Chinese bankcard association established under the
approval of the State Council and the People’s Bank of China. At present, the Shanghai-
headquartered UnionPay has about 400 domestic and overseas associate members. UnionPay
conducts business throughout the United States, including in the Northern District of California.
UnionPay is a co-owner of defendant EMVCo. UnionPay has two representatives, Hongliang Xu
and Jack Pan, on the EMVCo Board of Managers.
23.
Historically Visa and MasterCard were joint ventures between payment card issuing
banks. This member bank control over Visa and MasterCard allowed card issuers to jointly set rules
regarding the operation of the payment card networks.
24.
Over time the joint agreements between the member banks implemented through Visa
and MasterCard began to be challenged as violative of the antitrust laws. See below (“Defendants
Have a History of Anticompetitive Conduct”). In order to avoid liability, the member banks divested
their ownership in Visa and MasterCard through an IPO. But, by creating clever shareholding
agreements, the member banks continue to exercise control over Visa and MasterCard. For example,
although the MasterCard IPO broadened stock ownership, it imposed clear restrictions that make it
impossible for the member banks to lose control of the business of MasterCard. MasterCard’s
member banks have ensured that they will maintain effective collective control even now that the
IPO is completed by imposing limits on stock purchases and retaining certain veto powers over
major business decisions.
INTRADISTRICT ASSIGNMENT
25.
A substantial part of the events or omissions which give rise to the claim occurred in
San Francisco County and defendant Visa, Inc., who was responsible for a substantial part of the
events or omissions, is headquartered in San Mateo County. As such this action is properly assigned
to the San Francisco division of this Court.
JURISDICTION AND VENUE
26.
This Court has jurisdiction over this case pursuant to 28 U.S.C. §1332(d) and the
Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. §1711 et seq., which vests original
jurisdiction in the district courts of the United States for any multi-state class action where the
aggregate amount in controversy exceeds $5 million and where the citizenship of any member of the
Class of plaintiffs is different from that of any defendant. The $5 million amount in controversy and
diverse-citizenship requirements of CAFA are satisfied in this case.
27.
Venue is proper in this District pursuant to §12 of the Clayton Act (15 U.S.C. §22),
and 28 U.S.C. §1391 (b), (c), and (d), because a substantial part of the events giving rise to
plaintiffs’ claims occurred in this District, a substantial portion of the affected interstate trade and
commerce discussed below has been carried out in this District, and one or more of the defendants
resides in, is licensed to do business in, is doing business in, had agents in, or is found or transacts
business in this District.
28.
This Court has personal jurisdiction over each of the defendants because, inter alia,
each defendant: (a) transacted business throughout the United States, including in this District; (b)
provided services related to credit cards and/or charge cards throughout the United States, including
in this District; (c) had substantial contacts with the United States, including in this District; and/or
(d) was engaged in an illegal conspiracy that was directed at and had the intended effect of causing
injury to persons residing in, located in, or doing business throughout the United States, including in
this District.
29.
Defendants engaged in conduct both inside and outside the United States that caused
direct, substantial, and reasonably foreseeable and intended anticompetitive effects upon interstate
commerce within the United States.
30.
The activities of defendants and their co-conspirators were within the flow of, were
intended to, and did have, a substantial effect on interstate commerce of the United States.
Defendants’ products are sold in the flow of interstate commerce.
31.
The anticompetitive conduct, and its effects on U.S. commerce described herein,
proximately caused antitrust injury to plaintiffs and members of the Class in the United States.
32.
By reason of the unlawful activities alleged herein, defendants substantially affected
commerce throughout the United States, causing injury to plaintiffs and members of the Class.
33.
Defendants’ conspiracy and wrongdoing described herein adversely affected persons
in the United States including plaintiffs and members of the Class.
BACKGROUND FACTS
Cards and Commerce
34.
The American consumer economy runs on plastic.
35.
Some 230 million adult American consumers hold more than a billion credit and
charge cards which they use to make more than two trillion dollars of purchases each year – in 2011,
26 billion credit card transactions totaled some $2.1 trillion.
36.
Millions of merchants, in virtually every branch of the economy, rely on accepting
credit and charge transactions for their livelihood. MasterCard and Visa are accepted by about 8
million merchants each, Discover by slightly fewer; and some 4.5 million merchants take American
Express.
37.
In 1997, payment card usage accounted for approximately 23% of consumer
payments. By 2011, cards accounted for more than twice that proportion of consumer sales – 48%.
During the same period, use of cash and checks declined, from 70% of consumer transactions to
35%.
38.
Although they work the same when a cardholder makes a purchase, credit and charge
cards are different: A credit card has a revolving line of credit meaning cardholders are able to spend
out of the line of credit using the credit card, and typically have to pay a minimum payment – but are
not required to pay the full amount owed – each month. If the cardholder does not pay off the
statement balance, he or she pays interest each month on the unpaid balance of the expended line of
credit. A charge card, on the other hand, does not come with a line of credit and typically does not
allow the cardholder to carry a balance, instead charge cards typically require payment of the full
amount charged each month.
39.
While many American consumers use credit and charge cards for the convenience
they offer, there are some transactions – for example, renting a car or a hotel room, or making an
online purchase – which are virtually impossible to make without such a card.
40.
For American merchants, like those in the Class, accepting credit and charge cards is
a prerequisite and necessity for doing business. Customers expect to be able to use their plastic
when they make a purchase and will often choose simply not to do business with a merchant who
doesn’t accept a card.
Credit Card Mechanics
41.
Defendants Visa and MasterCard, while they operate the networks that make
transactions on Visa or MasterCard credit cards work, do not issue the cards themselves, or carry the
line of credit each card represents. Instead, banks and other financial institutions, including the
Issuing Banks, issue the credit cards.
42.
In the past, defendant American Express only issued charge cards. In more recent
years, American Express began directly issuing credit cards as well.
43.
Defendant Discover operates a network of its own. Its cards are mostly issued
directly by Discover, along with a few issuing banks.
44.
There are numerous moving parts behind a credit or charge card transaction.
45.
In the case of American Express charge cards, American Express is both the issuer
and provides the network. When a consumer uses the card in lieu of cash to make a purchase from a
merchant, the merchant is thereafter paid the purchase price (less a “swipe fee”) by American
Express. American Express makes its money by charging cardholders membership fees (which vary
depending upon the sort of services or perquisites associated with different card types), interest on
unpaid balances and by charging the swipe fee (which varies from around 2% to 5% of the cost of
the goods or services purchased) paid by the merchant.
46.
Accordingly, a typical American Express charge card transaction involves three
parties: The customer, American Express and the merchant.
47.
A Visa, MasterCard or Discover credit card transaction, on the other hand, involves
as many as five parties: (1) the card-holding customer; (2) the merchant; (3) the “acquiring bank”;
(4) the issuing bank (in the case of most Discover cards that is usually Discover Bank); and (5) the
Network itself, that is, Visa, MasterCard or Discover.
48.
The acquiring bank is the link between the Network and the merchant that accepts the
card for payment. The issuing bank is the bank, like the Issuing Banks here, that issues the credit
card to the customer and which carries the line of credit represented by the card. The cardholder
owes the debt to the issuing bank in the amount of any unpaid balance carried on the card.
49.
When the cardholding customer presents a credit card to pay for goods or services,
the accepting merchant relays the transaction information to the acquiring bank. The acquiring bank
processes the information and transmits it to the network. The network relays the information to the
issuing bank, which approves the transaction, presuming approval is warranted based on with the
cardholder’s account status or credit limit. The approval is conveyed to the acquiring bank, which in
turn relays it to the merchant.
50.
The issuing bank then transmits to the acquiring bank the amount of the purchase
price minus an “interchange fee.” Before paying the merchant, the acquiring bank withholds an
additional fee – called the “merchant discount fee” – for its processing services. Thus, the total
amount the merchant receives for the transaction is the purchase price minus the sum of the
interchange fee and the merchant discount fee.
51.
Interchange fees vary based on factors that include the type of card used and the type
of merchant. Many credit cards provide rewards or cash back to cardholder. Those rewards or cash
back cost money, and thus these cards, referred to in the industry as “premium cards,” are associated
with higher interchange fees.
52.
In general, cardholders can dispute their payment card transactions for various
reasons, including claims of fraud. Cardholders are rarely responsible for these losses, called
“chargebacks,” which, historically, were born by the issuers, and only rarely by the merchants.
Credit Card Technology
53.
Each credit or charge card bears a unique embossed number, an embossed expiration
date and a printed “CVV,” or “card verification value” number – often called the “security code.”
54.
The embossed number identifies the card as a Visa, MasterCard, Discover, American
Express, JCB or UnionPay, identifies the type of card, the issuing bank (for Visa and MasterCard
payment cards), the account number and card number within an account, and contains one or more
“check digits,” random numbers added for security.
55.
Cards also bear a magnetic stripe or magstrip on the back, similar to a piece of audio
or computer tape. The magstrip contains information about the card, including the card number,
expiration date and so forth. When swiped though the card reader at the merchant’s POS – in what
is called “card present” transaction – the card reader is able to obtain that information from the
magstrip and transmit it along the network.
56.
This combination of features allows the various participants in a credit card
transaction to share information about the card, all with the aim of speeding the transaction while
avoiding fraud and unauthorized charges.
57.
Beginning in the mid-1990s credit and charge cards began to be manufactured to
include, in addition to the magstrip, a so-called “EMV chip.” This electronic chip – actually a tiny
micro-processor – is a more advanced form of electronic data storage than a magstrip. While
magstrips are “static,” containing only the information with which they are initially coded, EMV
chips are “dynamic,” in that the data they contain can be interacted with, altered and updated. An
EMV chip creates a unique electronic signature for each transaction.
58.
EMVCo is jointly owned by Visa, MasterCard, UnionPay, JCB, Discover and
American Express. The EMV standard encompasses specifications, test procedures and
compliance processes managed by EMVCo.
59.
The EMV name comes from “Europay, MasterCard and Visa,” the companies that in
1994 initiated development of the EMV Specifications. Europay International SA became part of
MasterCard in 2002. JCB joined EMVCo in 2004, and American Express in 2009.
60.
EMVCo is managed by the Board of Managers, which is comprised of representatives
from each of the member payment systems. Various Working Groups complete EMVCo’s work,
and “decisions are made on a consensus bases to ensure card infrastructure uniformity.” In 2010,
EMVCo launched the EMVCo Associates Programme (EAP), “for key industry stakeholders to
provide input to EMVCo’s Board of Managers, Executive Committee, and Working Groups.”
61.
EMV is the trademark owned by all of the equity owners of EMVCo: American
Express, JCB, Discover, MasterCard, UnionPay and Visa. However, EMV also refers to the various
forms of electronic payments that are administered by EMVCo.
62.
An EMV chip looks like this:
63.
Financial institutions in Europe, Latin America, Asia/Pacific and Canada migrated to
EMV over the past decade. Those transitions took years to accomplish and ran into substantial
roadblocks along the way. For example, roll out in Canada began in 2008 and as of 2014, the
adoption rate was only at 59.5%, according to statistics provided by EMVCo itself.
64.
The cost of the transition to EMV chip cards in the United States, as borne by
merchants who accept the cards (and who, for example, must purchase new POS equipment that can
process chip card transactions at a cost of $100 to $600 per machine) is expected to be between $6
billion and $8 billion. Of that amount, 75% is likely to be paid by merchants, making the transition
three times as expensive for them as for defendants.
65.
EMV cards, because of their dynamic nature, are purported by the Networks to reduce
fraud significantly during card present transactions – those where the customer actually produces his
card to the merchant at the merchant’s POS. In addition, EMV chips are supposed to be less prone
to illicit copying than magstrips. (Although, an EMV-chip-equipped card does nothing to lessen the
likelihood of fraud or error in what are “card not present” transactions, such as those conducted
online or over the telephone.)
66.
There are two kinds of EMV cards – “chip-and-PIN” (personal identification number)
cards, where the transaction is authorized by the merchant processing the chip card and the consumer
entering a PIN, and “chip-and-signature” cards, where merchant processes the chip and the consumer
signs an electronic signature pad.
67.
The European Union’s version of the EMV system, unlike the standard deployed in
the United States, utilizes the chip-and-PIN system, rather than a chip-and-signature system. Chip-
and-PIN cards are considered more secure.
68.
EMV cards have already been widely adopted outside the United States. Lack of
EMV-enabled cards – which are common elsewhere in the world – has been blamed in part for the
fact that more than half of the $14 billion in global annual credit card fraud occurs within the United
States.
The “Liability Shift” and “Certification”
69.
Despite all the security measures associated with credit cards, with any card
transaction, even with EMV chip-enabled cards, there is a possibility of fraud, error or complaint.
Cards may be stolen from their rightful owners and used by the thief to make charges. A merchant
might charge the wrong amount or deliver the wrong, or faulty, goods.
70.
Typically, when a card-holding customer sees a fraudulent charge on his or her card
statement, or wishes to dispute a charge for another reason, the customer contacts his or her issuing
bank. (The telephone numbers and other contact information printed on the back of credit cards go
to card issuers, not to the Networks.)
71.
In such cases, the card-holding customer is not usually liable for the fraudulent or
unauthorized charge. Instead, chargebacks are typically absorbed by the issuing banks – who
marketed such “fraud protection” to their credit card customers as a core service of their cards –
when fraudulent card present transactions occur.
72.
Accordingly, the Class members were not typically liable for the cost of fraudulent
charges in card present transactions, except on those occasions where the merchant improperly
handled the transaction in some way, such as not obtaining a customer signature.
73.
On the other hand, merchants who accept cards online or in other “card not present”
transactions have more frequently had to bear the cost of fraudulent charges.
74.
But the Networks decided that on October 1, 2015 – by fiat of Visa, MasterCard,
American Express and the issuing banks, and without any opportunity for merchants like plaintiffs
and the Class members to object or to opt out – the system for handling chargebacks for card present
transactions would change dramatically.
75.
In what defendants truthfully enough dubbed a “Liability Shift,” the issuing banks
and the Networks decreed that, as of that October 1, 2015, liability for billions of dollars of card
present chargebacks would shift from the issuing banks to the merchants, unless the merchants could
satisfy certain conditions – conditions, it would turn out, which were impossible for the Class
members to meet and which the Networks, the Issuing Banks and EMVCo knew were impossible to
meet.
76.
Indeed, it is widely accepted within the electronic payments industry that defendants
knew that the conditions they had set for the Class members were impossible. Just some examples:
(a)
In the first place, defendants had the example of every other country that has
adopted the EMV chip: “No country has [ever] achieved anywhere near 100 percent EMV readiness
at the time of the liability shift,” according to Erik Vlugt, vice president of global product
management at VeriFone, a company which actually makes chip-reading equipment and software.
(b)
The Strawhecker Group, an electronic payments services provider estimated
as early as March 2015 that 34% of U.S. merchants could be ready for the Liability Shift deadline.
And as the deadline drew nearer, the company lowered its estimates. In September 2015, on the eve
of the Liability Shift, the company estimated that only 27% of merchants could be ready.
(c)
Gilles Ubaghs, senior analyst of financial services technology at Ovum, an
independent analyst and consultancy firm headquartered in London, specializing in global coverage
of IT and the telecommunications industries, stated that “many merchants and retailers are totally
unprepared for the liability shift to EMV on October 1,” and that banks and payment providers had
not done enough to educate merchants.
(d)
A top industry consultant, Allen Weinberg of Glenbrook – a “payments
industry strategy consulting and research firm,” whose clients include card payment networks –
warned that “[t]hese POS change projects usually span years, not months. Many pieces to the EMV
puzzle, particularly regarding debit, were not in place in time for the liability shift deadline.” In
addition, he said, “[m]any, many, many integrated POS systems (IPOS), especially the electronic
cash register software for these systems, were just not ready in time. Even if the software was ahead
of the game, they faced long certification queues at many acquirers.”
(e)
Defendants also knew that even providing the software to support EMV cards
was a challenge, according to Terry Crowley, CEO of TranSend, a company that manufactures the
software to make merchants’ equipment work with EMV chip card. Crowley said that while
software code for card-accepting devices was historically simple enough to be written on the back of
a business card, “now with EMV, that same software wraps around the walls of a room three
times . . . hundreds of thousands of lines of code.” With the Liability Shift deadline having passed,
Crowley says, suddenly there is a “fire drill” to replace all of this simple software, compounded by
the facts that the EMV code is hard to write, harder to certify and that few EMV software developers
understand the U.S. market.
(f)
In September 2015, Digital Transactions, a publication devoted to tracking the
industry, stated that “few are surprised that EMV certifications are taking longer than traditional
POS terminals.”
77.
Despite these obstacles, defendants insisted that the October 1, 2015 Liability Shift
occur as to almost all merchants, with no grace period.
78.
From the perspective of the relationship between cardholder and issuing bank,
nothing changed: The issuing banks continued to market and provide “fraud protection” to
cardholders, who were not held liable for fraudulent charges. But from the perspective of the
relationship between the issuing banks and merchants the difference was seismic: the issuing banks
would now, in many cases, be able to shift the liability for covering such charges from themselves to
Class members.
79.
Merchants who accepted EMV chip cards, but failed to process them through
approved POS card readers (i.e., “inserted” the EMV chips cards in the readers as opposed to
“swiping” the magnetic strip on the cards) would now be liable for any chargebacks resulting from
fraudulent or improper use of the EMV chip cards.
80.
Merchants were not consulted about the change, were not permitted to opt out, were
not offered any reduction of the interchange fee, the merchant discount fee, the swipe fee – or any
other cost of accepting defendants’ credit and charge cards. This is in contrast to the United
Kingdom and Australian markets where merchants were given interchange concessions which
helped share the costs of fraud and purchasing and deploying new hardware and software.
81.
Thus, what defendants knew, but Milam’s Market, Grove Liquors and the rest of the
Class did not and could not know, was that purchasing new POS equipment and training their staff
was not going to be enough. In addition, the equipment would have to “certified” after the fact in a
murky, nebulous process that was utterly outside of their control.
82.
Instead, the “certification” process is controlled by the very entities that benefit from
the Liability Shift and it is the primary means through which defendants’ illegal conduct has been
able to flourish.
83.
According to a report by the International Retail User Group: “Certifications are
mandatory and unique to each phase of the EMV payment system.” Each step of the certification
process involves numerous entities. “Brand certification involves the card brands and EMVCo”;
“PIN pad certification involves PIN pad manufacturers, EMVCo and Acquirers”; “Acquirer
certification involves PIN pads and Brands”; and “Retail certification involves PIN pad,
Middleware, Store Systems, Acquirer and Brands.” Within each of these steps, there are multiple
certifications within each basic process, the report notes. And none of it is within the Class
members’ control.
84.
A House of Representatives’ Small Business Committee Staff Report pointed out that
“[t]here also is a concern that small businesses that have the new hardware installed may be slow to
receive certification.” This concern is borne out by Class members’ experience.
85.
As a result, Class members such as the plaintiffs here, could not timely comply with
the standard, no matter what they did, because the Defendants refused to, or were unable to, “certify”
the new equipment by the deadline – or, indeed, ever.
86.
Worse, the Networks, the Issuing Banks and EMVCo knew from the outset – and the
Class members are now learning – that the “certification” process would take years after the October
1, 2015 Liability Shift was imposed.
87.
The result has been massively increased costs for chargebacks being laid at the feet of
the Class members, while the Issuing Banks have been spared those same costs and the Networks
have continued profit – just as defendants knew would happen.
88.
According to statistics from the EMV Migration Forum, as of the end of 2015,
approximately 400 million EMV chip cards have been issued in the United States, with 675,000
merchant locations accepting EMV chip transactions. But this does not detail how many of these
merchants, like the named plaintiffs, tried to become compliant but, because of defendants’ actions,
are now liable for charges they would not have incurred prior to the Liability Shift.
89.
Moreover, there is agreement among some industry analysts that EMV technology
may not strengthen a merchant’s security, and general reluctance by retailers to switch indicates
widespread adoption of EMV in the United States may not occur until 2020. Defendants knew this
information well in advance of the Liability Shift deadline, yet they plowed forward.
An Example: Milam’s Markets and Grove Liquors
90.
Taking heed of the representations made by the industry and Visa, MasterCard,
Discover and American Express, Milam’s Market and Grove Liquors management diligently
prepared for the October 1, 2015 Liability Shift.
91.
Working with their acquirer, Worldpay, and their equipment vendor, NCR
Corporation, Milam’s Market and Grove Liquors expended management effort, training time and
considerable costs to update and acquire new POS equipment so that their stores would be able to
process the EMV chip cards.
92.
That equipment, NCR’s Equinox L5300 card readers, were purchased and installed
well prior to the Liability Shift. These state-of-the-art POS card readers are designed to process
EMV chip card transactions.
93.
However, merely having the right equipment in place is not enough for Milam’s
Market and Grove Liquors to avoid the Liability Shift – without the completion of the so-called
“certification,” they are still caught by the Liability Shift.
94.
But while very large retailers such as Target, Walmart and others quickly had their
EMV-processing systems “certified” – thus sparing them the Liability Shift – the members of the
Class are at the mercy of defendants.1
95.
Merchants like Milam’s Market and Grove Liquors have no control over the
“certification” process. All they can do is request “certification” and wait for it to occur. And no
one can say when that will be.
96.
NCR Corporation has advised that “certification” of the Equinox L5300 was “TBD” –
to be determined. A copy of that notice is attached as Ex. A.
97.
These extended delays for smaller merchants are also no surprise to defendants. The
Congressional Small Business Committee Staff Memo noted that there was from the start “a concern
that small businesses that have the new hardware installed may be slow to receive certification.”
“Most of the Tier I retailers [giants like Target and Walmart] may be able to roll out by October, but
across the board, the readiness is not high.”
98.
Officials of the National Retail Federation – the world’s largest retail trade
association – have summed up the situation perfectly: “So the same guys who mandated this for
retailers have not resourced it to where they can get retailers certified.”
1
Notably Target and Walmart are both EMVCo Business Associates and Walmart is an EMVCo
Technical Associate as well.
99.
Meanwhile, defendants have downplayed these obvious troubles. One representative
for MasterCard claimed that all a merchant needs to do to activate an EMV terminal was to “contact
their acquirer or payment services provider or terminal manufacturer to find out how to do so.”
American Express likewise downplayed issues telling merchants that “to help avoid the liability
[shift],” all they would need to do is “work with your processor or terminal provider today to
upgrade to chip card technology.” American Express further told merchants “[t]o upgrade, contact
your payment processor or terminal provider and tell them you’d like to start accepting chip cards.
They’ll provide you with a chip-enabled system and guide you through each step. Before you know
it, your upgraded system will be up and running.”
100.
Of course, plaintiff Milam’s Market did just that and to this day, despite following
every requirement to become EMV compliant, Milam’s Market is suffering damages as a result of
defendants’ delays and refusals to properly certify the technology plaintiff was assured would be
compliant.
101.
The damages are substantial. Milam’s Market and Grove Liquors are being “charged-
back” for supposedly fraudulent transactions that, in the past, would have been borne by the Issuing
Banks.
102.
Illustrative is a “Notification of Chargeback” dated January 4, 2016. The chargeback
concerns a $17.99 Visa transaction that occurred on December 13, 2015, which Milam’s Market
requested be reversed, and the related Denial of Chargeback Reversal dated January 26, 2016.
Copies of the documents are attached as Ex. B.
103.
As stated on the Denial of Chargeback Reversal, the reason for this cost to be
assessed to Milam’s Market for a “Counterfeit Transaction” was that “[t]he bank [i.e., the issuing
bank] stated the EMV chip card was processed. The transaction was not processed through a chip
reader terminal, therefore the chargeback will stand.” Ex. B.
104.
In other words, Milam’s Market has to bear this cost thanks to the “Liability Shift,”
despite everything it has done to comply with defendants’ edicts.
105.
Worse, besides the base value of the transaction, Milam’s Market and Grove Liquors
must also pay a “chargeback fee” of five dollars, a fee assessed against the merchant each time it is
made liable for a chargeback by MasterCard and Visa. For some merchants, these fees are as high as
$30 per incident.
106.
Accordingly, in this single, illustrative instance, Milam’s Market was assessed a total
of $22.99 which, before the “Liability Shift,” it would not have had to pay. Instead, before the
“Liability Shift,” the issuing bank would have born the $17.99 chargeback – a cost the issuing bank
is now spared.
107.
Tellingly, nothing Milam’s Market could have done – short of making the business-
crippling decision to stop accepting Visa cards – could have prevented this outcome. Indeed, the
expenditures it made in an effort to comply with defendants’ new EMV chip regime have all been
for naught, as defendants have failed to conduct the very “certification” required.
108.
Milam’s Market and Grove Liquors has been made liable for chargebacks under the
Liability Shift for Discover and American Express charges as well. See, e.g., Ex. C, evidencing two
Discover chargebacks of $140.47 and $44.98, respectively; see also Ex. D, evidencing an American
Express chargeback for $155.12 – all attributable to processing EMV chip cards.
109.
The two exemplar Discover chargebacks both are expressly denominated as follows
in each relevant “Notification of Chargeback”:
UA05 Fraud – Chip Card Counterfeit Transaction
Definition: The UA05 reason code is valid for a chargeback on a card present
card sale or cash advance involving a chip card and the issuer or cardholder alleges
that a counterfeit card was used to conduct a card sale or cash advance and the
merchant’s POS device did not support and use EMV technology.
Ex. C.
110.
The truth is, however, that Milam’s Market’s POS equipment did support and use
EMV chip technology when the two charged-back fraudulent purchases were made. The store was
only subject to this “liability” shift because defendants had failed to “certify” that equipment.
111.
Likewise, the American Express chargebacks are attributed to cause code “Fraud
F30.” This is the fraud code reserved for fraud on an EMV chip card. Ex. D.
112.
The increase in such losses since the Liability Shift has been substantial. For
example, according to Worldpay, during the time period of October 1, 2015 to February 15, 2016,
Milam’s Market and Grove Liquors have been assessed final responsibility by MasterCard and Visa
for 88 chargebacks totaling $9,196.22 (plus chargeback $5 fees for each item, for an additional cost
to Milam’s Market and Grove Liquors of $440 – for a total loss of $9,636.22). During the same
period the prior year, between October 1, 2014 and February 15, 2015 – before the Liability Shift –
Milam’s Market and Grove Liquors were assessed final responsibility by MasterCard and Visa for
only four chargebacks.
113.
Add to that the more than $700 in American Express chargebacks in February alone
and the nearly $200 in Discover chargebacks and the result is that, because of the Liability Shift that
they could not avoid despite their diligence and expenditure, Milam’s Market and Grove Liquors
have lost – and Issuing Banks have unjustly gained – some ten thousand dollars in four and a half
months.
114.
The amount of similar chargebacks for which the Class members have been made to
pay as a result of the Liability Shift is enormous, and certainly runs into billions of dollars – with the
Issuing Banks having been enriched by the same amount.
115.
In exchange for this newly bestowed, unavoidable liability, Milam’s Market, Grove
Liquors and the Class members have received . . . nothing. Interchange fees, which defendants have
said exist in part to pay for fraud, are still paid for by the merchant, and have not decreased. The
Liability Shift was unilaterally imposed to the benefit of defendants, with no compensation,
consultation or consideration of any kind made to the Class members.
RELEVANT MARKET
116.
There exists a relevant market, the product dimension of which is no broader than
General Purpose Cards (both credit and charge cards). United States v. Visa U.S.A., Inc., 163 F.
Supp. 2d 322, 335 (S.D.N.Y. 2001). The geographic dimension of this market is the United States
(“General Purpose Card Market”). Id. at 339-40. Cash and checks are not substitutes for payment
cards, and the rules shifting liability to merchants from the Issuing Banks apply in the United States
and its territories.
117.
Together, the card-issuing defendants possess market power over the market for
General Purpose Cards, collectively accounting for roughly 75% of the transactions in the General
Purpose Card Market.
118.
There exists a relevant market, the product dimension of which is no broader than
General Purpose Card Network Services. Visa, 163 F. Supp. 2d at 338. The geographic dimension
of this market is the United States (“General Purpose Card Network Services Market”). General
Purpose Card networks provide the infrastructure and mechanisms through which general purpose
card transactions are conducted, including the authorization, settlement and clearance of
transactions.
119.
Visa, MasterCard and American Express separately, and the owners of EMVCo
collectively, possess market power over the market for General Purpose Card Network Services,
collectively having nearly 100% of the General Purpose Card Network Services Market.
120.
The shift in liability from the card issuers to the merchants is not attributable to
increases in the level of costs associated with the operations of the networks.
121.
There is virtually no elasticity of demand. Merchants have no choice but to continue
to accept General Purpose Cards. See Visa, 163 F. Supp. 2d at 340 (noting that merchants must
accept Visa and MasterCard or else risk losing business to merchants who do accept them). Because
of defendants’ collusion and market power, a small but significant increase in the costs of providing
General Purpose Card Network Services would not result in the loss of business.
122.
There are significant barriers to entry in the General Purpose Card Network Services
Market. Because of these barriers, the only successful market entrant since the 1960’s has been
Discover, which was introduced by Sears and benefited from its extensive network of stores, its
extensive base of customers who carried Sears’ store card, and its relationship with Dean Witter.
New entry into the General Purpose Card Network Services Market would cost more than 1 billion
dollars and would involve a “‘chicken-and-egg’ problem of developing a merchant acceptance
network without an initial network of cardholders who, in turn, are needed to induce merchants to
accept the system’s cards in the first place.” Visa, 163 F. Supp. 2d at 342.
CLASS ACTION ALLEGATIONS
123.
Plaintiffs bring this action as a class action pursuant to Rules 23(a) and (b)(2) and
(b)(3) of the Federal Rules of Civil Procedure on behalf of all Class members, defined as those
merchants who have been unlawfully subjected to the so-called Liability Shift for the assessment of
MasterCard, Visa, Discover and American Express credit and charge card chargebacks, despite
having purchased EMV-chip-compliant POS card readers and having otherwise complied with the
directives of the Networks and Issuing Banks, for the period from October 1, 2015 until the present
(the “Class”).
124.
The Class consists of merchants located throughout the United States. While
plaintiffs do not know the exact number of the members of the Class, plaintiffs believe there are (at
least) hundreds of thousands of members in the Class, thus the members of the Class are so
numerous that joinder of all Class members is completely impracticable, if not impossible. The
exact number of the Class members is not presently known, but can be determined through
appropriate discovery.
125.
Plaintiffs will fairly and adequately protect the interests of the members of the Class
and have retained counsel competent and experienced in class actions, antitrust and financial
services litigation.
126.
Plaintiffs’ claims arise out of the same common course of conduct giving rise to the
claims of the other members of the Class. Plaintiffs’ interests are coincident with, and not
antagonistic to, those of the other members of the Class.
127.
Plaintiffs have no interests that are adverse or antagonistic to those of the Class.
128.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Because the damages suffered by many individual Class members
may be relatively small, the expense and burden of individual litigation make it virtually impossible
for the Class members to individually seek redress for the wrongful conduct alleged in this
Complaint.
129.
The prosecution of separate actions by individual members of the Class would create
a risk of inconsistent or varying adjudications, establishing incompatible standards of conduct for
defendants.
130.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting any individual members of the Class. This is
particularly true given the nature of defendants’ conspiracy, which was generally applicable to all the
Class members, thereby making appropriate relief with respect to the Class as a whole. Such
questions of law and fact common to the Class include, but are not limited to:
(a)
whether defendants and their co-conspirators engaged in a combination and
conspiracy among themselves to institute the October 1, 2015 Liability Shift while knowing that, for
millions of merchants, compliance with the nebulous and uncertain certification requirements would
be impossible, thus subjecting the Class to charges which would not have been borne by the Class
without the Liability Shift;
(b)
the identity of the participants of the alleged conspiracy;
(c)
the duration of the alleged conspiracy and the acts carried out by defendants
and their co-conspirators in furtherance of the conspiracy;
(d)
whether the alleged conspiracy violated the Sherman Antitrust Act or
California’s Cartwright Act;
(e)
whether defendants and their co-conspirators fraudulently concealed the
conspiracy’s existence from plaintiffs and the members of the Class;
(f)
the appropriate injunctive and related equitable relief for the Class; and
(g)
the appropriate Class-wide measure of damages for the Class.
PLAINTIFFS AND THE CLASS SUFFERED ANTITRUST INJURY
131.
By reason of the alleged violations of the antitrust laws, plaintiffs and the members of
the Class have sustained injury to their businesses or property, having paid certain chargebacks that
they would not have paid in the absence of defendants’ illegal contract, combination or conspiracy,
and, as a result, have suffered damages in an amount presently undetermined. This is an antitrust
injury of the type that the antitrust laws were meant to punish and prevent.
DEFENDANTS HAVE A HISTORY OF ANTICOMPETITIVE CONDUCT
132.
In 1998, the Antitrust Division of the U.S. Department of Justice (“DOJ”) sued Visa
and MasterCard, alleging that the joint governance of the two networks and certain rules that
prevented banks from issuing cards on competitive networks (the “exclusionary rules”) violated §1
of the Sherman Act. After a 34-day trial the court found the exclusionary rules violated the antitrust
laws, and that decision was affirmed by the Second Circuit. Visa, 163 F. Supp. 2d 322. The court
found that the Visa and MasterCard Networks, together with their Member Banks, implemented and
enforced illegal exclusionary agreements requiring any U.S. bank that issued Visa or MasterCard
General Purpose Cards to refuse to issue American Express and Discover cards. Id. at 405-06.
133.
The court concluded that the “exclusionary rules undeniably reduce output and harm
consumer welfare,” that Visa and MasterCard had “offered no persuasive procompetitive
justification for them,” that “the Member Banks agreed not to compete by means of offering
American Express and Discover branded cards,” that “[s]uch an agreement constitutes an
unreasonable horizontal restraint [that] cannot be permitted,” and that “these rules constitute
agreements that unreasonably restrain interstate commerce in violation of Section 1 of the Sherman
Act.” Id.
134.
In affirming the court’s “comprehensive and careful opinion,” United States v. Visa
U.S.A., Inc., 344 F.3d 229, 234 (2d Cir. 2003), the United States Court of Appeals for the Second
Circuit underscored the crucial role played by the member banks in agreeing to, and abiding by, the
Visa and MasterCard versions of the exclusionary rules:
Visa U.S.A. and MasterCard, however, are not single entities; they are consortiums
of competitors. They are owned and effectively operated by some 20,000 banks,
which compete with one another in the issuance of payment cards and the acquiring
of merchants’ transactions. These 20,000 banks set the policies of Visa U.S.A. and
MasterCard. These competitors have agreed to abide by a restrictive exclusivity
provision to the effect that in order to share the benefits of their association by
having the right to issue Visa or MasterCard cards, they must agree not to compete
by issuing cards of American Express or Discover. The restrictive provision is a
horizontal restraint adopted by 20,000 competitors.”
Id. at 242. Thus, “the restraint imposed by the consortium members [the member banks] is on
themselves. Each has agreed not to compete with the others in a manner which the consortium
considers harmful to its combined interests.” Id.
135.
That same year, this Court granted partial summary judgment in a class action
brought by merchants against Visa and MasterCard, challenging the networks’ “Honor-All- Cards”
rules that required all merchants that accepted Visa and MasterCard-branded credit cards to also
accept the networks’ offline-debit cards. In that decision, the Court concluded that Visa possessed
market power in the credit-card and debit-card markets as a matter of law. And while the Court did
not make the same conclusion as a matter of law with respect to MasterCard, it did note the existence
of evidence that would support a finding of market power for MasterCard, such as its high market
shares in the credit-card and debit-card markets, evidence of collusion between it and Visa, and the
fact that merchants had not switched to other forms of payment even in the face of frequent and
significant increases in interchange fees. In re Visa Check/MasterMoney Antitrust Litig., No. 96-cv-
5238, 2003 WL 1712568, at *3-*4 (E.D.N.Y. Apr. 1, 2003). On the eve of trial in Visa Check, Visa
and MasterCard settled with the merchant class, agreeing to abolish the challenged portion of the
“Honor-All-Cards” rule, to reduce interchange fees for offline-debit cards and to pay the merchant
class approximately $3 billion over ten years.
136.
Beyond the domestic threats to MasterCard’s anticompetitive collaboration with its
member banks, competition and regulatory authorities in many jurisdictions around the globe have
concluded that Visa and MasterCard’s collectively fixed uniform schedule of fees and other
restraints are anticompetitive and illegal.
137.
For example, the European Commission (“E.C.”) ruled on December 19, 2007 that
MasterCard’s cross-border interchange fee violates Article 81(1) of the E.C. Treaty, its counterpart
to §1 of the Sherman Antitrust Act.
138.
In its 241-page decision, the E.C. rejected the arguments that MasterCard’s
restructuring absolved them of continuing antitrust liability2 and that the relevant product market is
broader than payment cards.3
2
European Commission, Commission Decision of December 19, 2007 Relating to a Proceeding
Under Article 81 of the EC Treaty and Article 53 of the EEA Agreement COMP/34.579; COMP
36.518; COMP 58.580, http://ec.europa.eu/competition/antitrust/cases/dec_docs/34579/34579_1889
_2.pdf (“E.C. Decision”) at 102-106.
3
Id. at 77-90.
139.
Similarly, in 2005 the antitrust-enforcement body in the United Kingdom, the Office
of Fair Trading (“OFT”), concluded after a four-year investigation that MasterCard’s domestic
interchange fees violated the U.K. equivalent to §1 of the Sherman Antitrust Act.4 In reaching that
conclusion, the OFT found that MasterCard had market power in the relevant markets for payment-
card issuance, acquiring and a “wholesale” market.5
140.
As to American Express, the DOJ and 17 state attorneys general went to trial against
American Express during the summer of 2014. That trial focused on credit card “swipe fees” which
generate over $50 billion annually for credit card networks. In 2015, the court overseeing the action
in the U.S. District Court for the Eastern District of New York found in favor of the DOJ’s lawsuit
claiming that American Express’ rules for merchants violate antitrust laws.
141.
Many of the defendants have also been the subject of civil antitrust actions related to
payment cards, including In re Payment Card Interchange Fee and Merchant Discount Antitrust
Litigation, No. 05-md-1720, pending in the Eastern District of New York, where Defendants were
charged by a nationwide class of merchants with a massive conspiracy between the Member Banks
and Visa and MasterCard related to interchange fees and acceptance rules. Defendants in that action
agreed to a settlement of more than $5 billion as well as to agreement requiring significant changes
to rules affecting merchants.
COUNT I
Violation of §§1 and 3 of the Sherman Antitrust Act, 15 U.S.C. §§1 and 3
Agreement Restraining Trade
142.
Plaintiffs hereby incorporate each preceding and succeeding paragraph as though
fully set forth herein.
143.
Defendants, and their co-conspirators, entered into and engaged in a conspiracy in
unreasonable restraint of trade in violation of §§1 and 3 of the Sherman Antitrust Act, 15 U.S.C. §§1
4
See Decision of the Office of Fair Trading of September 6, 2008: Investigation of the multilateral
interchange fees provided for in the UK domestic rules of MasterCard UK Members Forum Limited
(formerly known as MasterCard/Europay UK Limited) (No. CA98/05/05), http://webarchive.
nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/shared_oft/ca98_public_register/
decisions/mastercard.pdf (“U.K. OFT Decision”).
5
U.K. OFT Decision at 50-52.
and 3. The conspiracy consisted of a continuing agreement, understanding, or concerted action
between and among defendants and their co-conspirators in furtherance of which defendants agreed
to shift the liability of fraudulent payment card transactions from the card-issuing banks to
merchants.
144.
Defendants’ unlawful conduct was through mutual understandings, combinations or
agreements by, between, and among defendants and other unnamed co-conspirators. Defendants’
conspiracy is a per se violation of the Sherman Antitrust Act and is, in any event, an unreasonable
and unlawful restraint of trade.
145.
There is no legitimate business justification for, or procompetitive benefits caused by,
defendants’ unreasonable restraint of trade. Any ostensible procompetitive benefit was pretextual or
could have been achieved by less restrictive means.
146.
Defendants’ conspiracy, and the resulting impact on the prices of credit card
acceptance occurred in and affected interstate commerce and commerce in and between the
Territories of the United States.
147.
As a direct, intended, foreseeable, and proximate result of defendants’ conspiracy and
overt acts taken in furtherance thereof, plaintiffs and each member of the Class have suffered injury
to their business or property. Plaintiffs’ and each Class member’s damages are directly attributable
to defendants’ conduct, which resulted in all Class members paying for fraudulent payment card
transactions and associated fees during the class period they would not have otherwise paid for but-
for defendants’ agreement.
148.
Plaintiffs’ and the Class’s injuries are of the type the antitrust laws were designed to
prevent, and flow from that which makes defendants’ conduct unlawful.
149.
Plaintiffs and the Class are entitled to treble damages, attorneys’ fees, reasonable
expenses, and cost of suit for the violations of the Sherman Antitrust Act.
COUNT II
Violations of the Cartwright Act
150.
Plaintiffs hereby incorporate each preceding and succeeding paragraph as though
fully set forth herein.
151.
The acts and practices detailed above violate the Cartwright Act, Cal. Bus. & Prof.
Code §16700 et seq.
152.
The conspiracy consisted of a continuing agreement, understanding, or concerted
action between and among defendants and their co-conspirators in furtherance of which defendants
agreed to shift the liability of fraudulent payment card transactions from the card-issuing banks to
merchants.
153.
It is appropriate to bring this action under the Cartwright Act because many of the
illegal agreements were made in California, the purchasers reside in California, some defendants
have their principal place of business in California, and because overt acts in furtherance of the
conspiracy and wrongful charges flowing from those acts occurred in California.
154.
Defendants’ unlawful conduct was through mutual understandings, combinations or
agreements by, between, and among defendants and other unnamed co-conspirators. Defendants’
conspiracy is a per se violation of the Cartwright Act and is, in any event, an unreasonable and
unlawful restraint of trade.
155.
There is no legitimate business justification for, or procompetitive benefits caused by,
defendants’ unreasonable restraint of trade. Any ostensible procompetitive benefit was pretextual or
could have been achieved by less restrictive means.
156.
As a direct, intended, foreseeable, and proximate result of defendants’ conspiracy and
overt acts taken in furtherance thereof, plaintiffs and each member of the Class have suffered injury
to their business or property. Plaintiffs’ and each Class member’s damages are directly attributable
to defendants’ conduct, which resulted in all Class members paying for fraudulent payment card
transactions and associated fees during the class period they would not have otherwise paid for but-
for defendants’ agreement.
157.
Plaintiffs’ and the Class’s injuries are of the type the antitrust laws were designed to
prevent, and flow from that which makes defendants’ conduct unlawful.
158.
Plaintiffs and the Class are entitled to treble damages, attorneys’ fees, reasonable
expenses, and cost of suit for the violations of the Cartwright Act.
COUNT III
Unjust Enrichment
159.
Plaintiffs hereby incorporate each preceding and succeeding paragraph as though
fully set forth herein.
160.
In an effort to recoup the billions of dollars required to issue new chip-enabled cards,
defendants, through the Networks EMVCo, conspired and agreed to shift the burden for fraudulent
transactions from the defendant Issuing Banks to the Class members for transactions involving chip-
enabled cards – even in cases where the merchants, such as plaintiffs here, purchased and installed
chip-enabled readers before October 1, 2015.
161.
To deal with the substantial costs to implement chip cards, defendants conspired to
and changed the benefit/liability scheme of the card payment system by shifting the liability to the
Class members for fraudulent transactions knowing that the EMV system would not be fully
operational on October 1, 2015.
162.
Defendants knew that the verification process would not be fully operational by
October 1, 2015, but implemented the Liability Shift knowing that merchants who purchased and
installed equipment would be bearing the cost of the Liability Shift for fraudulent transactions even
after they purchased and timely installed approved EMV chip-reading equipment.
163.
Nevertheless, defendants set October 1, 2015 as the Liability Shift Date, without any
consideration or benefit to the plaintiffs. Instead, since October 1, 2015, defendants have received a
direct benefit from the Class members as a result of the detrimental liability shift to the Class.
164.
The defendant Issuing Banks market to their customers fraud protection, namely that
the cardholders will not be financially responsible if their cards are lost, stolen or used fraudulently.
165.
As a result of their inequitable conduct, the defendant Issuing Banks have been
unjustly enriched by the Class members, who are now assuming fraud-related losses; losses that
were previously incurred by the defendant Issuing Banks.
166.
Defendant Issuing Banks have accepted and retained the benefit conferred on them by
plaintiffs and the Class members as a result of the liability shift.
167.
In light of defendants’ conduct, it is inequitable for the defendant Issuing Banks to
retain the benefit of the Liability Shift – the shifting of fraud-related losses to the Class members –
without paying the value to the plaintiffs and Class members.
168.
Because of the acts of defendants and their co-conspirators as alleged herein,
defendants have been unjustly enriched at the expense of plaintiffs and the Class.
169.
Plaintiffs and the Class seek restitution of the direct benefit they have provided to
defendants and all monies of which they were unfairly and improperly deprived, as described herein.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs, on behalf of themselves and the Class, pray that the Court:
A.
Determine that this action may be maintained as a class action pursuant to Fed. R.
Civ. P. 23(a) and (b)(3), and direct that reasonable notice of this action, as provided by Fed. R. Civ.
P. 23(c)(2), be given to the Class, and declare plaintiffs B & R Supermarket, Inc. d/b/a Milam’s
Market and Grove Liquors LLC, as named representatives of the Class;
B.
Conduct expedited discovery proceedings leading to a prompt trial on the merits
before a jury on all claims and defenses;
C.
Enter joint and several judgments against defendants and in favor of plaintiffs and the
Class;
D.
Award the Class damages (i.e., three times overcharges) in an amount to be
determined at trial, plus interest in accordance with law;
E.
Award plaintiffs and the Class their costs of suit, including reasonable attorneys’ fees
as provided by law;
F.
Order that defendants, their directors, officers, employees, agents, successors,
members, and all persons in active concert and participation with them be enjoined and restrained
from, in any manner, directly or indirectly, committing any additional violations of the law as
alleged herein; and
G.
Award such further and additional relief as is necessary to correct for the
anticompetitive market effects caused by defendants’ unlawful conduct, as the Court may deem just
and proper under the circumstances.
JURY DEMAND
Plaintiffs seek trial by jury of all matters so triable.
DATED: March 8, 2016
ROBBINS GELLER RUDMAN
& DOWD LLP
PATRICK J. COUGHLIN
DAVID W. MITCHELL
ALEXANDRA S. BERNAY
CARMEN A. MEDICI
s/ Patrick J. Coughlin
PATRICK J. COUGHLIN
655 West Broadway, Suite 1900
San Diego, CA 92101-8498
Telephone: 619/231-1058
619/231-7423 (fax)
DEVINE GOODMAN RASCO &
WATTS-FITZGERALD, LLP
JOHN W. DEVINE
LAWRENCE D. GOODMAN
ROBERT J. KUNTZ, JR.
2800 Ponce De Leon Blvd., Suite 1400
Coral Gables, FL 33134
Telephone: 305/374-8200
305/374-8208 (fax)
Attorneys for Plaintiffs
I:\Admin\CptDraft\Antitrust\Operative - Cpt Chip Card Antitrust.docx
| antitrust |
1uevEYcBD5gMZwczDAwg | X
Docket No.:
Plaintiffs,
COMPLAINT
-against-
Defendants.
X
Plaintiffs, CARLOS FUNEZ and VENANCIO CORDOVA, on behalf of themselves and
PRELIMINARY STATEMENT
1.
Defendants have profited at the expense of their former employees who performed
1
2.
In addition, Defendants failed to timely pay Plaintiffs' wages, and/or made only
NATURE OF THE ACTION
3.
Plaintiffs seek to recover unpaid wages that Defendants owe them under the Fair
JURISDICTION AND VENUE
4.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§1331 and 1337
5.
In addition, the Court has jurisdiction over Plaintiffs' claims under the FLSA
6.
Venue is proper in the Eastern District of New York pursuant to 28 U.S.C. §1391
7.
Defendants do business within the Eastern District of New York and maintain a
THE PARTIES
8.
The Plaintiff, CARLOS FUNEZ ("FUNEZ"), is a resident of the County of Nassau,
9.
At all times relevant to the complaint, Plaintiff FUNEZ was an "employee" within
2
10.
Plaintiff FUNEZ was employed by the defendants as a manual laborer from in or
11.
The Plaintiff, VENANCIO CORDOVA ("CORDOVA"), is a resident of the
12.
At all times relevant to the complaint, Plaintiff CORDOVA was an "employee"
13.
Plaintiff CORDOVA was employed by the defendants as a manual laborer from in
14.
Defendant TRIPLE S MASON CONTRACTORS, INC., was and still is a domestic
15.
At all times relevant, defendant, TRIPLE S MASON CONTRACTORS, INC., was
16.
Defendant TRIPLE S CONTRACTORS, CORP., was and still is a domestic
17.
At all times relevant, defendant, TRIPLE S CONTRACTORS, CORP., was and
18.
The defendant, MICHAEL SACKARIS ("SACKARIS"), resides at in Holbrook,
19.
The defendant, SACKARIS, is the President or Chief Executive Officer of TRIPLE
3
20.
The defendant SACKARIS is a shareholder of the defendant TRIPLE S MASON
21.
The defendant SACKARIS has authority to make payroll and personnel decisions
22.
The defendant, MICHAEL SACKARIS, is active in the day to day management of
23.
The defendant, SACKARIS, is the President or Chief Executive Officer of TRIPLE
24.
The defendant SACKARIS is a shareholder of the defendant TRIPLE S
25.
The defendant MICHAEL SACKARIS has authority to make payroll and personnel
26.
The defendant, MICHAEL SACKARIS, is active in the day to day management of
27.
The defendant, MICHAEL SACKARIS, by virtue of his position as manager and/or
FACTS
28.
Defendants are engaged in commercial and residential construction.
29.
Plaintiff FUNEZ worked as a manual laborer for Defendants from in or about July
430.
Plaintiff CORDOVA worked as a manual laborer for Defendants from in or about
31.
The Defendants had control over the conditions of Plaintiffs' employment, their
32.
Plaintiff FUNEZ regularly worked from approximately 6:00 a.m. to 4:00 p.m.,
33.
Plaintiff FUNEZ worked more than forty hours in most workweeks in which he
34.
Plaintiff CORDOVA regularly worked from approximately 6:00 a.m. to 4:00
35.
Plaintiff CORDOVA worked more than forty hours in most workweeks in which
36.
Plaintiff FUNEZ was paid fifteen ($15) dollars per hour for all hours worked in
37.
Plaintiff CORDOVA was paid twenty ($20) dollars per hour for all hours worked
38.
Defendants failed to compensate the Plaintiffs for time worked in excess of forty
5
39.
Defendants willfully disregarded and purposefully evaded record keeping
40.
Defendants paid Plaintiffs, at times, wholly or partially in cash, without providing
41.
Defendants unlawfully failed to pay Plaintiffs proper compensation in violation of
42.
Throughout Plaintiffs' employment, Defendants failed to pay them regularly for all
43.
For example, for the week ending 7/10/14, Plaintiff FUNEZ worked 52.5 hours but
44.
The following week, the week ending on 7/17/14, Plaintiff FUNEZ worked 51.5
45.
For example, for the week ending 10/19/12, Plaintiff CORDOVA worked 38.5
6
46.
The following week, the week ending on 10/26/12, Plaintiff worked 49 hours but
47.
Defendants failed to pay Plaintiffs for all hours worked throughout their
48.
Defendants failed to timely pay Plaintiffs' wages in violation of the FLSA's prompt
COLLECTIVE ACTION ALLEGATIONS
49.
At all times relevant, Plaintiffs and other FLSA Collective Action Plaintiffs are and
50.
Upon information and belief, there are many current and former employees who
51.
Plaintiffs seek to proceed as a collective action with regard to the First Claim and
7
All persons who are currently, or have been employed by the
Defendants, at any time during the three (3) years prior to the filing
of their respective consent forms, who worked as manual laborers.
52.
The First and Second Claim for Relief are properly brought under and maintainedRULE 23 CLASS ACTION ALLEGATIONS
NEW YORK STATE LABOR LAW
53.
Plaintiffs bring New York Labor Law claims on behalf of themselves and a class
54.
The Class Members are readily ascertainable. The number and identity of the Class
8
55.
The proposed Class is numerous such that a joinder of all members is impracticable,
56.
Defendants have acted and/or have refused to act on grounds generally applicable
57.
There are questions of law and fact common to the Class which predominate over
(a)
whether Defendants failed and/or refused to pay the Plaintiffs and Class
Members the overtime wages for hours worked beyond forty hours in a
single workweek;
(b)
whether Defendants failed to pay Plaintiffs and Class Members in
accordance with the agreed terms of employment;
(c)
whether Defendants made unlawful deductions to the wages of Plaintiffs
and Class Members;
(d)
whether Defendants failed to keep and maintain true and accurate payroll
records for all hours worked by Plaintiffs and the Class;
(e)
whether Defendants' policies, practices, programs, procedures, protocols,
and plans regarding keeping and maintaining payroll records complied with
the law;
(f)
whether Defendants failed to furnish the Plaintiffs and Class members with
an accurate statement with every payment of wages, listing hours worked,
rates of pay, gross wages, and deductions and allowances, as required by
law;
9
(g)
what was the nature and extent of the Class-wide injury and the appropriate
measure of damages for the class; and
(h)
whether Defendants' general practice of failing and/or refusing to pay the
Plaintiff and Class overtime pay was done willfully and/or with reckless
disregard of the federal and state wage and hour laws.
58.
Plaintiffs' claims are typical of the claims of the Class that they seek to represent.
59.
Plaintiffs' claims are typical of those claims that could be alleged by any member
60.
Plaintiffs are able to fairly and adequately protect the interests of the Class and have
61.
Plaintiffs have retained counsel competent and experienced in class actions, wage
62.
A class action is superior to other available methods for the fair and efficient
1063.
Class action treatment will permit a large number of similarly situated persons to
64.
The members of the Class have been damaged and are entitled to recovery as a
65.
Furthermore, current employees are often afraid to assert their rights out of fear of
FIRST CLAIM FOR RELIEF
(FAIR LABOR STANDARDS ACT)
66.
Plaintiffs allege and incorporate by reference all allegations in all preceding
67.
Defendants employed Plaintiffs for workweeks longer than forty (40) hours and
11
68.
Defendants' violations of the FLSA, as described in this Complaint have been
69.
Because defendants' violations of the FLSA have been willful, a three-year statute
70.
As a result of defendants' unlawful acts, Plaintiffs are entitled to recover overtime
71.
Due to defendants' violations of the New York Labor Law, Plaintiffs are entitled
SECOND CLAIM FOR RELIEF
(NEW YORK LABOR LAW: UNPAID WAGES)
72.
Plaintiffs allege and incorporate by reference all allegations in all preceding
73.
Defendants employed Plaintiffs and Class Members for workweeks longer than
74.
By Defendants' failure to pay Plaintiffs and Class Members overtime wages for
12
75.
Due to Defendants' violations of the New York Labor Law, Plaintiffs and Class
THIRD CLAIM FOR RELIEF
(VIOLATION OF LABOR LAW SECTION 191)
76.
Plaintiffs allege and incorporate by reference all allegations in all preceding
77.
Plaintiffs and Class Members were entitled to be paid their weekly wages "not later
78.
Defendants violated Labor Law §191 by failing to pay Plaintiffs and Class
79.
Plaintiffs and Class Members are entitled to recover from Defendants unpaid
FOURTH CLAIM FOR RELIEF
(VIOLATION OF LABOR LAW SECTION 193)
80.
Plaintiffs allege and incorporate by reference all allegations in all preceding
81.
Labor Law §193 prohibits employers from making any deductions from wages,
82.
Defendants made deductions to wages, and/or shifted the cost of doing business to
83.
The deductions made by Defendants were for the benefit of the Defendants.
13
84.
Plaintiffs and Class Members have been damaged in an amount to be determined
FIFTH CLAIM FOR RELIEF
FOR VIOLATION OF NEW YORK LABOR LAW SECTION 195
85.
Plaintiffs allege and incorporate by reference all allegations in all preceding
86.
Defendants failed to provide Plaintiffs and Class Members with the notice and
87.
Due to defendant's failure to provide Plaintiffs and Class Members with the notice
88.
Due to defendant's failure to provide Plaintiffs and Class Members with the notice
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of all other similarly situated
(i)
Unpaid wages and an additional and equal amount as liquidated damages pursuant
(ii)
Issuance of a declaratory judgment that the practices complained of in this
14(iii)
Unpaid overtime pay pursuant to New York Labor Law, Article 19, §§650 et seq.,
(iv)
Damages pursuant to Labor Law Section 191;
(v)
Damages pursuant to Labor Law Section 193;
(iv)
Damages pursuant to New York State Labor Law Section 195;
(v)
Award of reasonable attorneys' fees and costs incurred in prosecuting these claims;
(vi)
Such other relief as this Court deems just and proper.
December 14, 2016
LAW OFFICE OF PETER A. ROMERO PLLC
By:
Park
Peter A. Romero (PR-1658)
103 Cooper Street
Babylon, New York 11702
(631) 257-5588
promero@romerolawny.com
Attorneys for Plaintiffs
15
CONSENT TO SUE
By my signature below, I hereby authorize the filing and prosecution of claims in my name
9/12/16
Date
CONSENT TO SUE
By my signature below, I hereby authorize the filing and prosecution of claims in my name
30/11/016
30
Date | employment & labor |
zsReDYcBD5gMZwcztkiN | Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 323-306-4234
Fax: 866-633-0228
tfriedman@ toddflaw.com
abacon@ toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
JESUS MENDEZ, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
MARS IT CORP. d/b/a MARS
SOLUTIONS GROUP, and DOES 1
through 10, inclusive, and each of them,
Defendants.
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
DEMAND FOR JURY TRIAL
Plaintiff JESUS MENDEZ (“Plaintiff”), individually and on behalf of all
others similarly situated, alleges the following upon information and belief based
upon personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action individually and on behalf of all others
similarly situated seeking damages and any other available legal or equitable
remedies resulting from the illegal actions of Defendant, in negligently, knowingly,
and/or willfully contacting Plaintiff on Plaintiff’s cellular telephone in violation of
the Telephone Consumer Protection Act, 47. U.S.C. § 227, et seq. (“TCPA”).
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff,
a resident of California, seeks relief on behalf of a Class, which will result in at
least one class member belonging to a different state than that of Defendant, a
Wisconsin corporation. Plaintiff also seeks $1,500.00 in damages for each call in
violation of the TCPA, which, when aggregated among a proposed class in the
thousands, exceeds the $5,000,000.00 threshold for federal court jurisdiction.
Therefore, both diversity jurisdiction and the damages threshold under the Class
Action Fairness Act of 2005 (“CAFA”) are present, and this Court has jurisdiction.
Jurisdiction is also proper under 28 U.S.C. § 1331 because Plaintiff’s claims arise
under a law of the United States, the TCPA.
3.
Venue is proper in the United States District Court for the Northern
District of California pursuant to 28 U.S.C. § 1391(b) because a substantial part of
the events or omissions giving rise to Plaintiff’s claims occurred within this
District.
PARTIES
4.
Plaintiff, JESUS MENDEZ (“Plaintiff”), is a natural person residing
in San Jose, California, and is a “person” as defined by 47 U.S.C. § 153 (39).
5.
Defendant, MARS IT CORP. d/b/a MARS SOLUTIONS GROUP
(“Defendant”), is a recruiting company, and is a “person” as defined by 47 U.S.C.
§ 153 (39).
6.
The above-named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning on or about August 30, 2019, Plaintiff received an
unsolicited text message from Defendant on Plaintiff’s cellular telephone number
ending in -3228, in an attempt to solicit Plaintiff to purchase Defendant’s services.
9.
During this time, Defendant began to use Plaintiff’s cellular telephone
for the purpose of sending Plaintiff spam advertisements and/or promotional offers,
via text messages, including a text message sent to and received by Plaintiff on or
about August 30, 2019 from Defendant’s phone number, (262) 372-6471.
10.
On or about August 30, 2019, Plaintiff received a text from Defendant
that read: “Hi Jesus, My Name is Shane i am a Lead Recruiter at Mars Solutions
Group and i am contacting you regarding a job opening just want to check and see
if you are available in the job market. i have send you the job details to your email
please check my email or give me a call on my direct line 262-299-”.
11.
This text message placed to Plaintiff’s cellular telephone was placed
via Defendant’s SMS Blasting Platform, i.e., an “automatic telephone dialing
system,” (“ATDS”) as defined by 47 U.S.C. § 227(a)(1) as prohibited by 47 U.S.C.
§ 227(b)(1)(A).
12.
The telephone number that Defendant, or its agent, called was
assigned to a cellular telephone service for which Plaintiff incurs a charge for
incoming calls pursuant to 47 U.S.C. § 227(b)(1).
13.
Defendant’s text messages constituted calls that were not for
emergency purposes as defined by 47 U.S.C. § 227(b)(1)(A).
14.
During all relevant times, Defendant did not possess Plaintiff’s “prior
express consent” to receive text messages using an automatic telephone dialing
system on his cellular telephone pursuant to 47 U.S.C. § 227(b)(1)(A).
CLASS ALLEGATIONS
15.
Plaintiff brings this action individually and on behalf of all others
similarly situated, as a member the classes (hereafter “The Class”) defined as
follows:
All persons within the United States who received any
solicitation/telemarketing text messages from Defendant
to said person’s cellular telephone made through the use
of any automatic telephone dialing system and such
person had not previously consented to receiving such
calls, or who had revoked such consent, within the four
years prior to the filing of this Complaint through the date
of class certification.
16.
Plaintiff represents, and is a member of, The Class, consisting of all
persons within the United States who received any solicitation/telemarketing text
messages from Defendant to said person’s cellular telephone made through the use
of any automatic telephone dialing system and such person had not previously
consented to receiving such calls, or who had revoked such consent, within the four
years prior to the filing of this Complaint through the date of class certification.
17.
Defendant, its employees and agents are excluded from The Class.
Plaintiff does not know the number of members in The Class, but believes the Class
members number in the thousands, if not more. Thus, this matter should be
certified as a Class Action to assist in the expeditious litigation of the matter.
18.
The Class is so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Class
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Class includes thousands of members. Plaintiff alleges that The Class
members may be ascertained by the records maintained by Defendant.
19.
Plaintiff and members of The Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiff
and Class members via their cellular telephones thereby causing Plaintiff and Class
members to incur certain charges or reduced telephone time for which Plaintiff and
Class members had previously paid by having to retrieve or administer messages
left by Defendant during those illegal calls, and invading the privacy of said
Plaintiff and Class members.
20.
Common questions of fact and law exist as to all members of The
Class which predominate over any questions affecting only individual members of
The Class. These common legal and factual questions, which do not vary between
Class members, and which may be determined without reference to the individual
circumstances of any Class members, include, but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any telemarketing/solicitation
call/text message (other than a call made for emergency
purposes or made with the prior express consent of the called
party) to a Class member using any automatic telephone dialing
system to any telephone number assigned to a cellular telephone
service;
b.
Whether Plaintiff and the Class members were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such
conduct in the future.
21.
As a person that received telemarketing/solicitation calls from
Defendant using an automatic telephone dialing system, without Plaintiff’s prior
express consent, Plaintiff is asserting claims that are typical of The Class.
22.
Plaintiff will fairly and adequately protect the interests of the members
of The Class. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
23.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Class members is impracticable. Even if every Class member could afford
individual litigation, the court system could not. It would be unduly burdensome
to the courts in which individual litigation of numerous issues would proceed.
Individualized litigation would also present the potential for varying, inconsistent,
or contradictory judgments and would magnify the delay and expense to all parties
and to the court system resulting from multiple trials of the same complex factual
issues. By contrast, the conduct of this action as a class action presents fewer
management difficulties, conserves the resources of the parties and of the court
system, and protects the rights of each Class member.
24.
The prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Class members not parties to such
adjudications or that would substantially impair or impede the ability of such non-
party Class members to protect their interests.
25.
Defendant has acted or refused to act in respects generally applicable
to The Class, thereby making appropriate final and injunctive relief with regard to
the members of the Class as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. § 227(b)
26.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-25.
27.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227(b), and in particular
47 U.S.C. § 227(b)(1)(A).
28.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b),
Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
29.
Plaintiff and the Class members are also entitled to and seek injunctive
relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the
Telephone Consumer Protection Act
47 U.S.C. § 227(b)
30.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-25.
31.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227(b),
and in particular 47 U.S.C. § 227(b)(1)(A).
32.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(b), Plaintiff and the Class members are entitled an award of $1,500.00
in statutory damages, for each and every violation, pursuant to 47 U.S.C. §
227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
33.
Plaintiff and the Class members are also entitled to and seek injunctive
relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. § 227(b)
As a result of Defendant’s negligent violations of 47 U.S.C. §
227(b)(1), Plaintiff and the Class members are entitled to and request
$500 in statutory damages, for each and every violation, pursuant to
47 U.S.C. § 227(b)(3)(B).
Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the
Telephone Consumer Protection Act
47 U.S.C. § 227(b)
As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. § 227(b)(1), Plaintiff and the Class members are entitled to
and request treble damages, as provided by statute, up to $1,500, for
each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B) and
47 U.S.C. § 227(b)(3)(C).
Any and all other relief that the Court deems just and proper.
34.
Pursuant to the Seventh Amendment to the Constitution of the United
States of America, Plaintiff is entitled to, and demands, a trial by jury.
Respectfully Submitted this 11th Day of December, 2020.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: /s/ Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
| privacy |
s1Yb_4gBF5pVm5zY_iYI | BURSOR & FISHER, P.A.
L. Timothy Fisher (State Bar No. 191626)
1990 North California Blvd., Suite 940
Walnut Creek, CA 94596
Telephone: (925) 300-4455
Facsimile: (925) 407-2700
E-mail: ltfisher@bursor.com
Attorney for Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case No.
2:22-cv-979
CLASS ACTION COMPLAINT
MOHAMED SUUFI and SAM KOCH,
individually and on behalf of all others
similarly situated,
Plaintiffs,
v.
JURY TRIAL DEMANDED
MEDIALAB.AI, INC.,
Defendant.
Plaintiffs Mohamed Suufi and Sam Koch (“Plaintiffs”), on behalf of
themselves and all other persons similarly situated, by and through their attorneys,
make the following allegations pursuant to the investigation of their counsel and
based upon information and belief, except as to allegations specifically pertaining to
themselves and their counsel, which are based on personal knowledge.
NATURE OF THE ACTION
1.
This is a class action suit brought on behalf of all persons who have
accounts with Facebook and Imgur and who viewed videos on Imgur.com.
2.
MediaLab.Ai, Inc., (“Defendant” or “Imgur”) develops, owns, and
operates a popular website, Imgur.com, which Defendant hosts and disseminates
images, GIFs, and videos.1 Defendant makes money by collecting and sharing the
personal information of Imgur’s subscribers.2 In 2014, for example, Imgur’s Head
of Special Initiatives said he planned to monetize the site by doing a “deep dive into
the data to analyze who uses Imgur,” along with discovering “why, where, what, and
when” users and subscribers view content.3
3.
Plaintiffs bring this action for damages and other legal and equitable
remedies resulting from the illegal actions of Defendant in knowingly disclosing
1 Shannon Liao, Imgur adds 30-second video uploads so your GIFs can have
soundtracks, THE VERGE (MAY 28, 2018) (“Imgur is launching video after years of
hosting still images and GIFs on its platform. … And Imgur is likely going to use the
opportunity to insert video ads to help make the service more profitable.”); Josh
Constine, Gif lord Imgur caves to video to hasten profitability, TechCrunch (May 29,
2018) (“Starting today, everyone can watch videos on Imgur, while iOS users can
post video, with that opening to more people soon.”); see also IMGUR BLOG, UPLOAD
VIDEOS (WITH SOUND!) ON IMGUR FOR IOS (“Imgur’s mission is to surface the
world’s most entertaining content, and we’re excited to introduce short-form video to
our platform. … You can choose to include, or remove, sound from your post, have
multiple videos in one post, or mix with images and GIFs.”).
2 Megan Ross Dickey, This Is The Future Of Imgur, The Massive Photo-Sharing
Startup Yahoo Wants to Buy, BUS. INSIDER (Mar. 18, 2014).
3 Id.
personally identifiable information—including a record of every video clip viewed
by the user—to unrelated third parties.
4.
The VPPA prohibits “[a] video tape service provider who knowingly
discloses, to any person, personally identifiable information concerning any
consumer of such provider.” 18 U.S.C. § 2710(a)(4). “Personally identifiable
information” (“PII”) is defined as “information which identifies a person as having
requested or obtained specific video materials or services from a video tape service
provider.” 18 U.S.C. § 2710(a)(3).
5.
The United States Congress passed the VPPA in 1988, seeking to confer
onto consumers the power to “maintain control over personal information divulged
and generated in exchange for receiving services from video tape service providers.”
S. Rep. No. 100-599, at 8. “The Act reflects the central principle of the Privacy Act
of 1974: that information collected for one purpose may not be used for a different
purpose without the individual’s consent.” Id.
6.
Defendant violated the VPPA by knowingly transmitting Plaintiffs’ and
the putative class’s personally identifiable information to unrelated third parties.
THE PARTIES
7.
Plaintiff Sam Koch is a resident of Somerville, Massachusetts. In June
2007, Mr. Koch created a Facebook account, and in April 2014, he created an Imgur
account. To sign up for Imgur, Mr. Koch provided his email and created a username
and password. Mr. Koch frequented Imgur to, among other things, watch videos.
Unbeknownst to Mr. Koch, every time he watched a video on Imgur’s website,
Imgur compelled his browser to send first-party and third-party cookies to Facebook.
These cookies contained his Facebook ID, and Imgur transmitted this identifier
alongside event data that tracked what buttons he clicked and what pages he viewed.
Along with the Facebook ID, Imgur also compelled Mr. Koch’s browser to send
other identifiers to Facebook, like his email, phone number and username. Imgur
likewise disclosed these identifiers alongside event data. By transmitting Mr. Koch’s
Facebook ID and other identifiers alongside data that revealed the videos he
watched, Imgur violated the VPPA. Mr. Koch discovered Imgur surreptitiously
disclosed his personally identifiable information in December 2021.
8.
Plaintiff Mohamed Suufi is a resident of Cambridge, Massachusetts. In
May 2015, Mr. Suufi created a Facebook account, and in July 2018, he created an
Imgur account. To sign up for Imgur, Mr. Suufi provided his email and created a
username and password. Mr. Suufi frequented Imgur to, among other things, watch
videos. Unbeknownst to Mr. Suufi, every time he watched a video on Imgur’s
website, Imgur compelled his browser to send first-party and third-party cookies to
Facebook. These cookies contained his Facebook ID, and Imgur transmitted this
identifier alongside event data that tracked what buttons he clicked and what pages
he viewed. Along with the Facebook ID, Imgur also compelled Mr. Suufi’s browser
to send other identifiers to Facebook, like email, phone number and username.
Imgur likewise disclosed these identifiers alongside event data. By transmitting Mr.
Suufi’s Facebook ID and other identifiers alongside data that revealed the videos he
watched, Imgur violated the VPPA. Mr. Suufi discovered Imgur surreptitiously
disclosed his personally identifiable information in December 2021.
9.
Defendant MediaLab.Ai, Inc. is a Delaware corporation with its
principal place of business at 1222 6th Street, Santa Monica, California 90401.
Defendant develops, owns, and operates a popular website, Imgur.com, which
disseminate images and videos.
JURISDICTION AND VENUE
10.
This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331
because Plaintiffs bring this civil action under the laws of the United States.
11.
Venue is proper in this District pursuant to 28 U.S.C. § 1391 because
Defendant’s principal place of business is in this District.
FACTUAL ALLEGATIONS COMMON TO ALL CLAIMS
A.
Facebook and The Facebook Pixel
12.
Facebook is the largest social networking site on the planet, touting 2.9
billion monthly active users.4 Facebook describes itself as a “real identity
platform,”5 meaning users are allowed only one account and must share “the name
they go by in everyday life.”6 To that end, when creating an account, users must
provide their first and last name, along with their birthday and gender.7
13.
Facebook generates revenue by selling advertising space on its website.8
14.
Facebook sells advertising space by highlighting its ability to target
users.9 Facebook can target users so effectively because it surveils user activity both
on and off its site.10 This allows Facebook to make inferences about users beyond
what they explicitly disclose, like their “interests,” “behavior,” and “connections.”11
Facebook compiles this information into a generalized dataset called “Core
4 Sean Burch, Facebook Climbs to 2.9 Billion Users, Report 29.1 Billion in Q2 Sales,
YAHOO (July 28, 2021), https://www.yahoo.com/now/facebook-climbs-2-9-billion-
202044267.html.
5 Sam Schechner and Jeff Horwitz, How Many Users Does Facebook Have? The
Company Struggles to Figure It Out, WALL. ST. J. (Oct. 21, 2021).
6 FACEBOOK, COMMUNITY STANDARDS, PART IV INTEGRITY AND AUTHENTICITY,
https://www.facebook.com/communitystandards/integrity_authenticity.
7 FACEBOOK, SIGN UP, https://www.facebook.com/
8 Mike Isaac, Facebook’s profit surges 101 percent on strong ad sales., N.Y. TIMES
(July 28, 2021), https://www.nytimes.com/2021/07/28/business/facebook-q2-
earnings.html.
9 FACEBOOK, WHY ADVERTISE ON FACEBOOK,
https://www.facebook.com/business/help/205029060038706.
10 FACEBOOK, ABOUT FACEBOOK PIXEL,
https://www.facebook.com/business/help/742478679120153?id=1205376682832142.
11 FACEBOOK, AD TARGETING: HELP YOUR ADS FIND THE PEOPLE WHO WILL LOVE
YOUR BUSINESS, https://www.facebook.com/business/ads/ad-targeting.
Audiences,” which advertisers use to apply highly specific filters and parameters for
their targeted advertisements.12
15.
Advertisers can also build “Custom Audiences.”13 Custom Audiences
enables advertisers to reach “people who have already shown interest in [their]
business, whether they’re loyal customers or people who have used [their] app or
visited [their] website.”14 With Custom Audiences, advertisers can target existing
customers directly, and they can also build “Lookalike Audiences,” which “leverages
information such as demographics, interests, and behavior from your source
audience to find new people who share similar qualities.”15 Unlike Core Audiences,
Custom Audiences requires an advertiser to supply the underlying data to Facebook.
They can do so through two mechanisms: by manually uploading contact
information for customers, or by utilizing Facebook’s “Business Tools,” which
collect and transmit the data automatically.16 One such Business Tool is the
Facebook Tracking Pixel.
16.
The Facebook Tracking Pixel is a piece of code that advertisers, like
Defendant, can integrate into their website. Once activated, the Facebook Tracking
Pixel “tracks the people and type of actions they take.”17 When the Facebook
Tracking Pixel captures an action, it sends a record to Facebook. Once this record is
12 FACEBOOK, EASIER, MORE EFFECTIVE WAYS TO REACH THE RIGHT PEOPLE ON
FACEBOOK, https://www.facebook.com/business/news/Core-Audiences.
13 FACEBOOK, ABOUT CUSTOM AUDIENCES,
https://www.facebook.com/business/help/744354708981227?id=2469097953376494.
14 FACEBOOK, ABOUT EVENTS CUSTOM AUDIENCE,
https://www.facebook.com/business/help/366151833804507?id=300360584271273.
15 FACEBOOK, ABOUT LOOKALIKE AUDIENCES,
https://www.facebook.com/business/help/164749007013531?id=401668390442328.
16 FACEBOOK, CREATE A CUSTOMER LIST CUSTOM AUDIENCE,
https://www.facebook.com/business/help/170456843145568?id=2469097953376494;
FACEBOOK, CREATE A WEBSITE CUSTOM AUDIENCE,
https://www.facebook.com/business/help/1474662202748341?id=2469097953376494.
17 FACEBOOK, RETARGETING, https://www.facebook.com/business/goals/retargeting.
received, Facebook processes it, analyzes it, and assimilates it into datasets like the
Core Audiences and Custom Audiences.
17.
Advertisers control what actions—or, as Facebook calls it, “events”—
the Facebook Tracking Pixel collects. The Facebook Tracking Pixel can capture the
website’s metadata, along with what pages a visitor views and what buttons a visitor
clicks.18 Advertisers can also configure the Facebook Tracking Pixel to track other
events. Facebook offers a menu of “standard events” from which advertisers can
choose, including what content a visitor views or purchases.19 Advertisers can also
create their own tracking parameters by building a “custom event.” 20
18.
Advertisers control how the Facebook Tracking Pixel identifies visitors.
The Facebook Tracking Pixel is configured to automatically collect “HTTP Headers”
and “Pixel-specific Data.”21 HTTP Headers collect “IP addresses, information about
the web browser, page location, document, referrer and persons using the website.”22
Pixel-specific Data includes “the Pixel ID and cookie.”23
B.
Imgur and The Facebook Pixel
19.
Imgur delivers a library of videos, featuring them on its homepage and
embedding them with tags.
20.
Imgur hosts the Facebook Tracking Pixel and transmits four distinct
events to Facebook:
18 See FACEBOOK, FACEBOOK PIXEL, ACCURATE EVENT TRACKING, ADVANCED,
https://developers.facebook.com/docs/facebook-pixel/advanced/; see also FACEBOOK,
BEST PRACTICES FOR FACEBOOK PIXEL SETUP,
https://www.facebook.com/business/help/218844828315224?id=1205376682832142.
19 FACEBOOK, SPECIFICATIONS FOR FACEBOOK PIXEL STANDARD EVENTS,
https://www.facebook.com/business/help/402791146561655?id=1205376682832142.
20 FACEBOOK, ABOUT STANDARD AND CUSTOM WEBSITE EVENTS,
https://www.facebook.com/business/help/964258670337005?id=1205376682832142.
21 FACEBOOK, FACEBOOK PIXEL, https://developers.facebook.com/docs/facebook-
pixel/.
22 Id.
23 Id.
Figure 1
21.
Three of the events—PageView, Microdata, and Button Click—reveal
what video a subscriber has watched.
22.
PageView transmits the Universal Resource Locator (“URL”) accessed:
Figure 2
23.
Microdata transmits the title and description of the video:
Figure 3
24.
Button Click discloses the video’s title and registers every button
clicked, including when a visitor clicks pause or play:
Figure 4
25.
The data from PageView, Microdata, and Button Click independently
and jointly permit an ordinary person to identify a particular video’s title and
content.
26.
A visitor who is logged into Facebook while watching a video on Imgur
will transmit the c_user cookie to Facebook. The c_user cookie contains an
unencrypted Facebook ID. When accessing the above video, for example, eleven
cookies were sent to Facebook, including the c_user cookie and corresponding
Facebook ID:
Figure 5
27.
When a visitor’s browser has recently logged out of Facebook, Imgur
will compel the browser to send a smaller set of cookies:24
Figure 6
28.
The fr cookie contains, at least, an encrypted Facebook ID and browser
identifier.25 The _fbp cookie contains, at least, an unencrypted value that uniquely
identifies a browser.26 The datr cookies also identifies a browser. 27 Facebook, at a
minimum, uses the fr and _fbp cookies to identify users.28
29.
If a visitor has never created a Facebook account, three cookies are
transmitted:
24 Figures 5 and 6 omit a duplicate _fbp cookie that is sent as a first-party cookie.
25 DATA PROTECTION COMMISSIONER, FACEBOOK IRELAND LTD, REPORT OF RE-
AUDIT (Sept. 21, 2012), http://www.europe-v-facebook.org/ODPC_Review.pdf.
26 FACEBOOK, CONVERSION API, https://developers.facebook.com/docs/marketing-
api/conversions-api/parameters/fbp-and-fbc/.
27 FACEBOOK, COOKIES & OTHER STORAGE TECHNOLOGIES,
https://www.facebook.com/policy/cookies/.
28 FACEBOOK, COOKIES & OTHER STORAGE TECHNOLOGIES,
https://www.facebook.com/policy/cookies/.
Figure 7
30.
Without a corresponding Facebook ID, the fr cookie contains, at least,
an abbreviated and encrypted value that identifies the browser. The _fbp cookie
contains, at least, an unencrypted value that uniquely identifies a browser. Facebook
uses both for targeted advertising.29
31.
The fr cookie will expire after 90 days unless the visitor’s browser logs
back into Facebook.30 If that happens, the time resets, and another 90 days begins to
accrue.31
32.
The _fbp cookie will expire after 90 days unless the visitor’s browser
accesses the same website.32 If that happens, the time resets, and another 90 days
begins to accrue.33
33.
The Facebook Tracking Pixel uses both first- and third-party cookies. A
first-party cookie is “created by the website the user is visiting”—i.e., Imgur.34 A
third-party cookie is “created by a website with a domain name other than the one
the user is currently visiting”—i.e., Facebook.35 The _fbp cookie is always
transmitted as a first-party cookie. A duplicate _fbp cookie is sometimes sent as a
29 See FACEBOOK, COOKIES & OTHER STORAGE TECHNOLOGIES,
https://www.facebook.com/policy/cookies
30 See FACEBOOK, COOKIES & OTHER STORAGE TECHNOLOGIES,
https://www.facebook.com/policy/cookies/.
31 Confirmable through developer tools.
32 See FACEBOOK, COOKIES & OTHER STORAGE TECHNOLOGIES,
https://www.facebook.com/policy/cookies/.
33 Also confirmable through developer tools.
34 PC MAG, FIRST-PARTY COOKIES, https://www.pcmag.com/encyclopedia/term/first-
party-cookie. This is confirmable by using developer tools to inspect a website’s
cookies and track network activity.
35 PC MAG, THIRD-PARTY COOKIES,
https://www.pcmag.com/encyclopedia/term/third-party-cookie. This is also
confirmable by tracking network activity.
third-party cookie, depending on whether the browser has recently logged into
Facebook.
34.
Facebook, at a minimum, uses the fr, _fbp, and c_user cookies to link to
Facebook IDs and corresponding Facebook profiles.
35.
Facebook ID is personally identifiable information. Anyone can
identify a Facebook profile—and all personal information publicly listed on that
profile—by appending the Facebook ID to the end of Facebook.com/.
36.
Through the Facebook Tracking Pixel’s code, these cookies combine
the identifiers with the event data, allowing Facebook to know, among other things,
what Imgur videos a subscriber has watched.36
37.
Imgur also uses “Automatic Matching for Partner Integrations”:
Figure 8
38.
“Partner Integrations” means Imgur employs another third-party to
“install Meta Business Tools.”37 Automatic Matching means Imgur configures its
Pixel to “look for recognizable form field and other sources on your website that
contain information such as first name, last name and email.” 38 The Facebook
36 FACEBOOK, GET STARTED, https://developers.facebook.com/docs/meta-pixel/get-
started.
37 FACEBOOK, ABOUT FACEBOOK PARTNER INTEGRATIONS,
https://www.facebook.com/business/help/1179210765468894?id=1205376682832142
38 FACEBOOK, ABOUT ADVANCED MATCHING FOR WEB,
https://www.facebook.com/business/help/611774685654668?id=1205376682832142
Tracking Pixel’s code will collect that information, “along with the event, or action,
that took place.”39 This information is “hashed,”40 meaning it is “[a] computed
summary of digital data that is a one-way process.” In other words, it “cannot be
reversed back into the original data.”41
39.
Imgur discloses this information so it can better match visitors to their
Facebook profiles, thereby allowing Imgur to precisely target its advertisements and
measure its analytics:
Figure 9
40.
When first signing up, Imgur contains form fields for a username, email,
and phone number:
39 Id.
40 DEFINITION OF HASH, https://www.pcmag.com/encyclopedia/term/hash
41 Id.
Figure 10
41.
When later logging in, Imgur contains form fields for username or
email:
Figure 11
42.
When subscribers enter their username, email, or phone number into
these form fields, Imgur’s Pixel transmits this information to Facebook. When
subscribers later utilize Imgur, the Facebook Tracking Pixel will transmit these
identifiers alongside the event data shown above. The identifiers enable the social
media site to match that event data with a Facebook profile.
43.
Imgur knows Facebook will match the Automatic Matching parameters
with a subscriber’s subsequent activity, thereby helping Imgur “[i]ncrease the
number of attributed conversions,” “[i]ncrease [its] Custom Audience size,” and
“[d]ecrease the cost per conversion.”42
44.
By compelling a visitor’s browser to disclose the Advanced Matching
parameters alongside event data for videos, Imgur knowingly discloses information
sufficiently permitting an ordinary person to identify a specific individual’s video
viewing behavior.
45.
By compelling a visitor’s browser to disclose the c_user cookie
alongside event data for videos, Imgur knowingly discloses information sufficiently
permitting an ordinary person to identify a specific individual’s video viewing
behavior.
46.
By compelling a visitor’s browser to disclose the fr and _fbp cookies
alongside event data for videos, Imgur knowingly discloses information sufficiently
permitting an ordinary person to identify a specific individual’s video viewing
behavior.
47.
Facebook confirms it matches activity on Imgur with a subscriber’s
profile. Facebook allows users to download their “Off-Facebook activity,” which is
a “summary of activity that businesses and organizations share with us about your
interactions, such as visiting their apps or websites.”43 Here, that report confirms
Imgur discloses an individual’s video-viewing history:44
42 FACEBOOK, ABOUT ADVANCED MATCHING FOR WEB,
https://www.facebook.com/business/help/611774685654668?id=1205376682832142.
43 FACEBOOK, WHAT IS OFF-FACEBOOK ACTIVITY?,
https://www.facebook.com/help/2207256696182627.
44 The Off-Facebook Activity report provides some information but is woefully
incomplete. It only logs activity that a user sends when logged into Facebook, and it
only includes a single event description, even when multiple are captured. See id.
Figure 12
48.
The “ID” shown here matches the Facebook Pixel ID visible in the first
image. The Facebook Pixel ID is a numerical code that uniquely identifies each
Pixel.45 In practice, this means Imgur’s Facebook Tracking Pixel has a Pixel ID that
differs from all other websites. All subscribers who view videos on Imgur’s website
can pull their off-site activity report and see the same Pixel ID.
49.
Individuals can create an account and subscribe to Imgur by clicking the
“Sign up” button:
45 FACEBOOK, GET STARTED, https://developers.facebook.com/docs/meta-pixel/get-
started.
Figure 13
50.
After clicking sign up, users must input their email and phone number
and create a username and password. See Figure 11.
51.
Imgur incentivizes users to become subscribers:
Figure 14
52.
Imgur provides these benefits so it can exploit the personal information
that Plaintiffs and putative Class members provide.
53.
By creating and utilizing an account, Plaintiffs and Class members
subscribed to Imgur.
CLASS ACTION ALLEGATIONS
54.
Plaintiffs bring this action as a class action under Federal Rule of Civil
Procedure 23 on behalf of a Class consisting of all persons in the United States who
have a Facebook account, signed up for an Imgur account, and watched videos on
Imgur’s website.
55.
Excluded from the Class are Defendant, the officers and directors of the
Defendant at all relevant times, members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which either Defendant
have or had a controlling interest.
56.
Plaintiffs are members of the Class they seek to represent.
57.
The Class is so numerous that joinder of all members is impractical.
Although Plaintiffs do not yet know the exact size of the Class, Imgur touted 120
million active users in 2015.46 Upon information and belief, the Class includes more
than one million members.
58.
The Class is ascertainable because the Class Members can be identified
by objective criteria – account holders with a Facebook account who viewed videos.
Individual notice can be provided to Class Members “who can be identified through
reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B).
59.
There are numerous questions of law and fact common to the Class
which predominate over any individual actions or issues, including but not limited
to:
(a)
Whether Defendant collected Plaintiffs’ and the Class’s PII;
(b)
Whether Defendant unlawfully disclosed and continues to
disclose its users’ PII in violation of the VPPA;
(c)
Whether Defendant’s disclosures were committed knowingly;
and
(d)
Whether Defendant disclosed Plaintiffs’ and the Class’s PII
without consent.
46 Josh Constine, Get Addicted Too, TECHCRUNCH (Nov. 11, 2015),
https://techcrunch.com/2015/11/11/its-pronounced-image-er/.
60.
Plaintiffs’ claims are typical of the claims of the members of the Class
as all members of the Class are similarly affected by Defendant’s wrongful conduct.
Plaintiffs have no interests antagonistic to the interests of the other members of the
Class. Plaintiffs and all members of the Class have sustained economic injury
arising out of Defendant’s violations of common and statutory law as alleged herein.
61.
Plaintiffs are adequate representatives of the Class because their
interests do not conflict with the interests of the Class Members they seek to
represent, they have retained counsel competent and experienced in prosecuting class
actions, and they intend to prosecute this action vigorously. The interests of the
Class Members will be fairly and adequately protected by Plaintiffs and their
counsel.
62.
The class mechanism is superior to other available means for the fair
and efficient adjudication of the claims of Plaintiffs and the Class Members. Each
individual Class Member may lack the resources to undergo the burden and expense
of individual prosecution of the complex and extensive litigation necessary to
establish Defendant’s liability. Individualized litigation increases the delay and
expense to all parties and multiplies the burden on the judicial system presented by
the complex legal and factual issues of this case. Individualized litigation also
presents a potential for inconsistent or contradictory judgments. In contrast, the class
action device presents far fewer management difficulties and provides the benefits of
single adjudication, economy of scale, and comprehensive supervision by a single
court on the issue of Defendant’s liability. Class treatment of the liability issues will
ensure that all claims are consistently adjudicated.
COUNT I
Violation of the Video Privacy Protection Act
18 U.S.C. § 2710, et seq.
63.
Plaintiffs repeat the allegations contained in the paragraphs above as if
fully set forth herein.
64.
Plaintiffs bring this Count individually and on behalf of the members of
the Class.
65.
Defendant is a “video tape service provider” because it disseminates
countless videos on its website and thus “engag[es] in the business, in or affecting
interstate or foreign commerce, of rental, sale, or delivery of prerecorded video
cassette tapes or similar audio visual materials.” 18 U.S.C. § 2710(a)(4).
66.
Plaintiffs and members of the Class are “consumers” because they
subscribed to Imgur by creating an account. 18 U.S.C. § 2710(a)(1).
67.
Imgur disclosed to a third party, Facebook, Plaintiffs’ and the Class
members’ personally identifiable information. Imgur utilized the Pixel to compel
Plaintiffs’ web browser to transfer Plaintiffs’ identifying information, like their
Facebook ID, along with Plaintiffs’ event data, like the title of the videos they
viewed and what buttons they pressed when doing so.
68.
Plaintiffs and the Class members viewed video clips using Imgur’s
website.
69.
Imgur disclosed Plaintiffs’ PII knowingly because it used that data to
build audiences on Facebook and retarget them for their advertising campaigns.
70.
Plaintiffs and class members did not provide Defendant with any form
of consent—either written or otherwise—to disclose their PII to third parties.
71.
Nor were Defendant’s disclosures made in the “ordinary course of
business” as the VPPA defines that term. In particular, Imgur’s disclosures to
Facebook were not necessary for “debt collection activities, order fulfillment, request
processing, [or] transfer of ownership.” 18 U.S.C. § 2710(a)(2).
72.
On behalf of themselves and the Class, Plaintiffs seek: (i) declaratory
relief; (ii) injunctive and equitable relief as is necessary to protect the interests of
Plaintiffs and the Class by requiring Defendant to comply with VPPA’s requirements
for protecting a consumer’s PII; (iii) statutory damages of $2,500 for each violation
of the VPPA pursuant to 18 U.S.C. § 2710(c); and (iv) reasonable attorneys’ fees and
costs and other litigation expenses.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for relief and judgment, as follows:
A.
Determining that this action is a proper class action;
B.
For an order certifying the Class under Rule 23 of the Federal Rules of
Civil Procedure, naming Plaintiffs as representative of the Class, and naming
Plaintiffs’ attorneys as Class Counsel to represent the Class;
C.
For an order declaring that Defendant’s conduct violates the statutes
referenced herein;
D.
For an order finding in favor of Plaintiffs and the Class on all counts
asserted herein;
E.
An award of statutory damages to the extent available;
F.
For punitive damages, as warranted, in an amount to be determined at
trial;
G.
For prejudgment interest on all amounts awarded;
H.
For injunctive relief as pleaded or as the Court may deem proper; and
I.
For an order awarding Plaintiff and the Class their reasonable attorneys’
fees and expenses and costs of suit.
JURY DEMAND
Plaintiffs hereby demand a trial by jury on all claims so triable in this action.
Dated: February 11, 2022
BURSOR & FISHER, P.A.
By: /s/ L. Timothy Fisher
L. Timothy Fisher
L. Timothy Fisher (State Bar No. 191626)
1990 North California Blvd., Suite 940
Walnut Creek, CA 94596
Telephone: (925) 300-4455
Facsimile: (925) 407-2700
E-mail: ltfisher@bursor.com
Attorney for Plaintiffs
| privacy |
wdRbD4cBD5gMZwcz01Qd | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
) Civil
10
Action
)
No. CIV 7233
)
) CLASSACTION
Plaintiff,
)
)
V.
) COMPLAINT FOR VIOLATIONS OF THE
) FEDERAL SECURITIES LAWS
)
)
Defendants.
)
J.S.B.C. S.D.
N.Y.
) JURY TRIAL DEMAND
CASHIERS
Plaintiff Mingli Li, by and through Plaintiff's attorneys, alleges the following upon
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of purchasers of Duoyuan Global Water's securities
2.
Defendant Duoyuan Global Water purports to be a China-based domestic water
3.
Duoyuan Global Water, primarily through Defendant Wenhua Guo ("Guo") - the
- 2 -
4.
On September 13, 2010, DYP announced a series of alarming management changes,
5.
On this news, shares of Duoyuan Global Water declined $8.60 per share, or 41.55%,
6.
The concerns raised by DYP's September 13, 2010, announcement were grave. For
7.
Throughout the Class Period, Defendants made false and/or misleading statements,
- 3 -
8.
As a result of Defendants' wrongful acts and omissions alleged herein, and the
JURISDICTION AND VENUE
9.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act
10.
This Court has jurisdiction over the subject matter of this action pursuant to 28
11.
Venue is proper in this Judicial District pursuant to 28 U.S.C. $1391(b) and Section
12.
In connection with the acts, transactions, and conduct alleged herein, Defendants
4PARTIES
13.
Plaintiff Mingli Li, as set forth in the accompanying certification, incorporated by
14.
Defendant Duoyuan Global Water is incorporated under the laws of the British Virgin
15.
Defendant Guo was, at all relevant times, Chairman of the Board of Directors and
16.
Defendant Stephen C. Park ("Park") was, at all relevant times, CFO and Director of
17.
Defendants Guo and Park are collectively referred to hereinafter as the "Individual
- 5 -
CLASS ACTION ALLEGATIONS
18.
Plaintiff brings this action as a class action pursuant to Federal Rules of Civil
19.
The members of the Class are so numerous that joinder of all members is
- 6 -
20.
Plaintiff's claims are typical of the claims of the members of the Class as all members
21.
Plaintiff will fairly and adequately protect the interests of the members of the Class
22.
Common questions of law and fact exist as to all members of the Class and
(a)
Whether the federal securities laws were violated by Defendants' acts as
(b)
Whether statements made by Defendants to the investing public during the
(c)
To what extent the members of the Class have sustained damages and the
23.
A class action is superior to all other available methods for the fair and efficient
- 7 -SUBSTANTIVE ALLEGATIONS
Background
24.
Defendant Duoyuan Global Water purports to be a China-based domestic water
25.
Duoyuan Global Water, primarily through Defendant Guo - the Company's CEO,
Materially False and Misleading
Statements Issued During the Class Period
26.
The Class Period begins on November 9, 2009. On November 9, 2009, the Company
Mr. Wenhua Guo, the Company's Chairman and ChiefExecutive Officer, stated, "We
are pleased with the Company's third quarter financial results, which reflect increased
- 8 -
demand across all three product lines, our comprehensive and high quality product
offering, as well as our low cost manufacturing base, extensive distribution network
and strong competitive position. All of these factors contributed to our quarterly
financial results today and lay the groundwork for continued growth in the future."
Financial Outlook
Mr. Stephen C. Park concluded, "As we come off a fantastic third quarter, which is
seasonally our strongest quarter, our competitive position remains strong and we are
poised for future growth supported by our trusted brand name and vast distribution
network. With this in mind, we are targeting revenue of approximately RMB190
million in the fourth quarter of 2009."
27.
On January 11, 2010, in connection with the SPO, the Company filed with the SEC
Concurrent positions held by Wenhua Guo, our chairman and chief executive
officer, with other businesses could impede his ability to devote sufficient time
to our business and could pose conflicts of interest.
Wenhua Guo serves as chairman of Duoyuan Printing, Inc., a public company. He is
also the beneficial owner of 100% of the equity interest in our majority shareholder,
Duoyuan Investments Limited, which owns a controlling interest in Duoyuan
Printing, Inc. Through its subsidiaries in China, Duoyuan Printing, Inc. is principally
engaged in the manufacture and sale of offset printing equipment to the Chinese
market. Mr. Guo devotes most of his business time to our affairs and the remainder
of his business time to the affairs of these printing equipment-related companies. Mr.
Guo's decision-making responsibilities for these printing equipment-related
companies are in the areas of public relations, management of human resources, risk
management and strategic planning. As a result, conflicts of interest may arise from
time to time. Additionally, even though Mr. Guo is accountable to us and our
shareholders as a fiduciary, which requires that he exercise good faith and due care
in handling our affairs, his existing responsibilities to other entities may limit the
amount of time he can spend on our affairs.
*
*
9 -
Other Income
Other income is primarily comprised of interest income earned on our cash deposits
and rental income which we received in 2006, 2007 and the first half of 2008 from
the lease of our office space located at No. 3 Jinyuan Road to Duoyuan Digital
Printing Technology Industries (China) Co. Ltd., an entity controlled by our chairman
and chief executive officer, Wenhua Guo. For further details, see "Related Party
Transactions - Real Property Related Transactions."
*
*
Other Income
Other income increased RMB2.0 million, or 80.4%, from RMB2.5 million in 2006
to RMB4.5 million in 2007. This increase was primarily the result of a non-recurring
rental charge Duoyuan Digital Printing Technology Industries (China) Co. Ltd., an
entity controlled by Wenhua Guo, our chairman and chief executive officer, for the
office space located at No. 3 Jinyuan Road. Interest income remained relatively
unchanged from 2006 to 2007.
*
*
*
Our Directors
Wenhua Guo. Mr. Guo is the founder of our company and has served as our
chairman and chief executive officer since the commencement of our operations in
1992. Before Mr. Guo founded our company, he was a physics teacher at Beijing
Chemical Institute. Mr. Guo served as chief executive officer of Duoyuan Printing,
Inc., a public company, from October 2006 to June 2009 and currently serves as
chairman of the board of directors of Duoyuan Printing, Inc. Mr. Guo obtained a
bachelor's degree in physics from Beijing Normal University in 1983.
*
*
Real Property Related Transactions
Prior to the sale transaction described below, our subsidiary, Duoyuan Beijing,
owned an office building located at No. 3 Jinyuan Road, Daxing Industrial
Development Area, Beijing, China, with 15,400 square meters of building area and
related land-use-rights with respect to approximately 7,230 square meters of land
area.
Duoyuan Beijing had leased since December 25, 2002 approximately 3,000 square
meters of office space located at No. 3 Jinyuan Road to Duoyuan Digital Printing
Technology Industries (China) Co. Ltd., or Press China, an entity controlled by
- 10 -Wenhua Guo, our chairman and chief executive officer. The annual lease payments
totaled RMB1.1 million in 2006, 2007 and 2008, respectively. This lease agreement
was renewed on December 25, 2007 for a term of one year ending on December 31,
2008. On June 27, 2008, Duoyuan Beijing and Press China agreed to amend this
lease agreement to reflect a new termination date of June 30, 2008.
*
*
*
With respect to the loans made by Duoyuan Beijing to Beijing Huiyuan, the largest
amount outstanding under these loans was approximately RMB32.4 million during
2005, 2006 and 2007. As of December 31, 2007, the amount outstanding under these
loans was approximately RMB27.4 million. Pursuant to a repayment agreement dated
December 10, 2007 between Duoyuan Beijing, Beijing Huiyuan and Wenhua Guo,
Mr. Guo assumed personal responsibility for repayment in full of Beijing Huiyuan's
outstanding balance payable to Duoyuan Beijing. Mr. Guo's obligation to pay the
outstanding balance was secured by a pledge of his shares of Duoyuan Printing, Inc.,
a public company. Similarly, on December 12, 2007, Mr. Guo entered into a loan
repayment agreement with Duoyuan Huanan and Duoyuan Beijing to repay Duoyuan
Huanan's obligation to Duoyuan Beijing that at the time was RMB1 17.0 million. This
obligation was also collateralized by a pledge of Mr. Guo's personal shares in
Duoyuan Printing, Inc. In December 2007, RMB0.6 million in interest was paid
towards this obligation. These obligations were settled by March 31, 2008. We do not
intend to make any similar loans to Mr. Guo in the future. See Note 8 to our Notes
to Combined and Consolidated Financial Statements December 31, 2006, 2007 and
2008 included elsewhere in this prospectus.
28.
On January 19, 2010 and January 20, 2010, the Company filed with the SEC
29.
On January 28, 2010, the Company filed the SPO Registration Statement with the
- 11 -
30.
On March 8, 2010, the Company issued a press release entitled, "Duoyuan Global
Mr. Wenhua Guo, the Company's Chairman and Executive Officer, stated, "We
are pleased with the Company's fourth quarter and full year financial results, which
reflect increased demand across all three product lines, driven by our comprehensive
and high quality product offering, our low cost manufacturing base, extensive
distribution network and our focus on continually developing new products. We plan
to launch 36 products throughout the remainder of this year. We are confident that
our competitive strengths and formidable cash position enable us to capitalize on the
compelling market opportunities at hand."
Fourth Quarter 2009 Financial Highlights
*
Revenue increased 29.6% to RMB193.8 million ($28.4 million(1)) from
RMB149.5 million in the prior year period.
* Gross margin increased to 47.3% from 44.1% in the prior year period.
* Operating income increased 114.5% to RMB55.0 million ($8.1 million) from
RMB25.6 million in the prior year period.
* Net income increased 157.5% to RMB39.8 million ($5.8 million) from RMB15.5
million in the comparable period of 2008.
*
Diluted earnings per ADS(2) was $0.27. Each ADS represents two of the
Company's ordinary shares.
*
*
*
Mr. Stephen C. Park, the Chief Financial Officer of Duoyuan, stated, "We are excited
to move forward into 2010 in a highly flexible financial position. As demand
continues to increase for water treatment equipment driven by stringent government
regulations and the ongoing need for advanced water treatment equipment for
commercial, industrial and residential uses, we believe we are well-positioned to
capture the growing market opportunities."
"We intend to use the proceeds to continue to expand our manufacturing facilities,
to increase in-house production of key components used in existing or new product
offerings, and to launch new products. The final phase of our Langfang expansion
project is expected to be completed and fully operational by the end of the second
quarter of 2010. We will also break ground in March this year on a new facility in
Daxing, Beijing, where our headquarters are located, to address the growing demand
for our products in 2011 and beyond."
- 12 -"Additionally, we remain focused on enhancing our R&D capabilities, evidenced by
our plan to build a new R&D center in the third quarter of this year. We look forward
to executing our near-term growth strategies with a considerably strong cash
position."
Financial Outlook
Mr. Stephen C. Park concluded, "As we move forward into 2010, our competitive
position remains strong and we are poised for future growth supported by our trusted
brand name and vast distribution network. With this in mind, we expect to generate
revenue of approximately RMB157 million in the first quarter of 2010."
31.
On May 12, 2010, the Company issued a press release entitled, "Duoyuan Global
First Quarter 2010 Financial Highlights
-- Revenue increased 33.0% to RMB160.5 million ($23.5 million)( (1) from
RMB120.6 million in the prior year period.
-- Gross profit increased 37.4% to RMB 74.9 million ($11.0 million) from
RMB54.5 million in the prior year period.
Gross margin increased to 46.6% from 45.1% in the prior year period.
-- Diluted earnings per ADS was $0.17. Each ADS represents two of the company's
ordinary shares.
Mr. Wenhua Guo, the Company's Chairman and Chief Executive Officer, stated,
"Our first quarter results continue to demonstrate our sustained growth and presence
in China's water treatment industry, with revenue growing 33% year over year. These
encouraging results attest to the increasing recognition of the Duoyuan brand and our
reputation as a high quality and top value manufacturer. Our performance also
reflects growing demand for our products across all product lines, driven by our
comprehensive and high quality product offering, our low cost manufacturing base,
extensive distribution network and our focus on continually developing new
products. We remain on schedule to launch 36 new products during 2010, eight of
which have already been launched, consisting of two products in our water
purification product category and six products in our wastewater treatment product
category. We look forward to building upon this momentum as we enhance the
diversity of our product portfolio throughout 2010. We are confident that we'll
capitalize on the opportunities created by intensified government efforts to monitor
wastewater discharge and the growing consumer awareness of water quality concerns
in China."
- 13 -
Guo continued, "We are pleased to announce significant progress in several of our
growth initiatives. We continue to move forward in our expansion at Langfang and
in the coming weeks we are installing a new aerator production line imported from
Germany. We also finalized the land use rights for our new manufacturing facilities
in Daxing and progress continues there as we focus on significantly enhancing our
production capacity for our existing and new market products over the next two
years."
Guo then remarked, "We are also excited to announce that we are in the process of
negotiating two licensing opportunities. These opportunities would expand our
portfolio offerings into the drip irrigation and high-end membrane technology
market. Today, we already have more than 100 products in our portfolio and moving
forward, we will continue to grow the depth and breadth of our offerings. As demand
continues to increase for water treatment equipment, we believe we are
well-positioned and uniquely diversified across the sector to capture compelling
market opportunities."
*
Mr. Stephen C. Park, Chief Financial Officer, stated, "As we move forward through
2010, our competitive position remains strong and we are poised for future growth
supported by our trusted brand name and extensive distribution network. With this
in mind, we expect to generate revenue of approximately RMB280 million in the
second quarter of 2010."
32.
On June 18, 2010, the Company filed its Annual Report with the SEC on Form 20-F
Wenhua Guo, our chairman and chief executive officer and 48.6% beneficial
owner of our ordinary shares, has substantial influence over our company, and
his interests may not be aligned with the interests of our other shareholders.
Wenhua Guo, our chairman and chief executive officer, beneficially owns 48.6% of
our ordinary shares. As a result, he has significant influence over our business,
including decisions regarding mergers, consolidations and the sale of all or
substantially all of our assets, election of directors and other significant corporate
actions. This concentration of ownership may also have the effect of discouraging,
delaying or preventing a future change of control, which in turn could prevent our
shareholders from recognizing a gain in the event that a favorable offer is extended
and may materially and adversely affect the market price of our ADSs.
- 14 -
In addition, on December 1, 2007, we transferred all our Duoyuan-related trademarks
to Duoyuan Investments Limited, our majority shareholder, which is wholly owned
by Mr. Guo. On September 17, 2008 and May 27, 2009, Duoyuan Investments
Limited granted us an exclusive, royalty-free perpetual license to use these
trademarks for our business, which license may terminate in certain instances. Mr.
Guo's refusal to allow us to use the Duoyuan name on reasonable terms or at all
could have the effect of discouraging, delaying or preventing a future change of
control, which in turn could prevent our shareholders from recognizing a gain in the
event that a favorable offer is extended and may materially and adversely affect the
market price of our ADSs.
Limitations on our use of the "Duoyuan" name and third-party use of our
trademarks and the "Duoyuan" name may dilute their value and materially and
adversely affect our reputation, goodwill and brand.
On December 1, 2007, we transferred all our Duoyuan-related trademarks to
Duoyuan Investments Limited, our majority shareholder, which is wholly owned by
Mr. Wenhua Guo, our chairman and chief executive officer. On September 17, 2008
and May 27, 2009, Duoyuan Investments Limited granted us an exclusive,
royalty-free perpetual license to use these trademarks for our business. Such license
would terminate upon certain events, including a change in control. Duoyuan
Investments Limited and Duoyuan Printing, Inc. may use these trademarks for other
products, which may create confusion regarding our brand. In addition, some of our
distributors use the Chinese characters of our name, "Duoyuan", in their company
name and we may be unable to prevent such use. The use of "Duoyuan" in their legal
names by these distributors may confuse our end-user customers who may associate
our name with the distributor and incorrectly believe our distributors are our
affiliates. Due to ambiguities in Chinese intellectual property law, the cost of
enforcement and our prior lack of enforcement, we may be unable to prevent third
parties from using the Duoyuan trademark and our name, Duoyuan.
Concurrent positions held by Wenhua Guo, our chairman and chief executive
officer, with other businesses could impede his ability to devote sufficient time
to our business and could pose conflicts of interest.
Wenhua Guo serves as chairman of Duoyuan Printing, Inc., a public company. He is
also the beneficial owner of 100% of the equity interest in our majority shareholder,
Duoyuan Investments Limited, which owns a controlling interest in Duoyuan
Printing, Inc. Through its subsidiaries in China, Duoyuan Printing, Inc. is principally
- 15 -engaged in the manufacture and sale of offset printing equipment to the Chinese
market. Mr. Guo devotes most of his business time to our affairs and the remainder
of his business time to the affairs of these printing equipment-related companies. Mr.
Guo's decision-making responsibilities for these printing equipment-related
companies are in the areas of public relations, management of human resources, risk
management and strategic planning. As a result, conflicts of interest may arise from
time to time. Additionally, even though Mr. Guo is accountable to us and our
shareholders as a fiduciary, which requires that he exercise good faith and due care
in handling our affairs, his existing responsibilities to other entities may limit the
amount of time he can spend on our affairs.
*
*
*
Other Income
Other income is primarily comprised of interest income earned on our cash deposits
and rental income which we received in 2007 and the first half of 2008 from the lease
of our office space located at No. 3 Jinyuan Road to Duoyuan Digital Printing
Technology Industries (China) Co. Ltd., an entity controlled by our chairman and
chief executive officer, Wenhua Guo.
33.
On August 18, 2010, the Company issued a press release entitled, "Duoyuan Global
Second Quarter 2010 Financial Highlights
-- Revenue increased 37.4% to RMB293.6 million ($43.3 million(1)) from
RMB213.7 million in the prior year period.
-- Gross profit increased 34.1% to RMB140.4 million ($20.7 million) from
RMB104.7 million in the prior year period.
-- Gross margin was 47.8% compared to 49.0% in the prior year period.
-- Diluted earnings per ADS was $0.45. Each ADS represents two of the
Company's ordinary shares.
*
*
*
Mr. Wenhua Guo, the Company's Chairman and Chief Executive Officer, stated,
"Our second quarter results demonstrate our sustained growth and presence in
China's water treatment industry as well as contributions from our new, higher
margin product launches. We will continue to drive growth through new products
- 16 -
developed through both our research and development efforts as well as partnership
agreements and opportunities. Moving forward, we are confident in our ability to
maintain our growth trajectory through our comprehensive and high quality product
offerings, our low cost manufacturing base, our extensive distribution network and
our focus on continually developing new products."
*
*
Financial Outlook
Mr. Stephen C. Park, Chief Financial Officer, stated, "As we move forward through
2010, our competitive position remains strong and we are poised for future growth
supported by our trusted brand name and extensive distribution network. With this
in mind, we expect to generate revenue of approximately RMB326 million in the
third quarter of 2010."
34.
The statements contained in 9/26-33 were materially false and/or misleading when
The Truth Begins To Emerge
35.
On September 13, 2010, DYP issued a press release entitled, "Duoyuan Printing
BEIJING, September 13, 2010 - Duoyuan Printing, Inc. (NYSE: DYP) ("Duoyuan
Printing" or the "Company"), a leading offset printing equipment supplier in China,
today announced several management changes as well as the dismissal of Deloitte
Touche Tohmatsu CPA Ltd.("Deloitte") as its independent registered public
accounting firm. The Company is currently in discussion with an auditing firm to
replace Deloitte.
- 17 -Effective immediately, Mr. Xiqing Diao has been appointed Duoyuan Printing's
CEO. Previously the Company's COO, Mr. Diao has been with the Company since
2005 and served as interim CEO in 2009. Ms. Baiyun Sun has been appointed CFO.
Ms. Sun has been with Duoyuan Printing since 1994 previously serving as the
Company's controller. Mr. Wenzhong Liu, previously vice president of sales and
marketing, has been appointed COO and Mr. Lianjun Cai, a Company director, has
been appointed chairman of the audit committee.
Immediately subsequent to the Company's termination of Deloitte, Mr. William Suh
resigned as Duoyuan Printing's CFO and Mr. Christopher Holbert resigned as
Duoyuan Printing's CEO. Mr Holbert will remain with the Company as vice
president of international markets. Mr. James Zhang resigned as director and
chairman of the audit committee and Ms. Naoko Hatakeyama and the Honorable
Paula J. Dobriansky also subsequently resigned as directors. Mr. Xiqing Diao has
also resigned as a director in order to maintain the required proportion of independent
directors on Duoyuan Printing's board.
Duoyuan Printing's Chairman Mr. Wenhua Guo stated, "The audit committee's
decision to change auditing firms was based on its desire to resolve open issues and
file our 10-K on a timely basis. We will work closely with our new auditors to
address the open issues aired by Deloitte. We believe that our several internal
reassignments are the best way to move the company forward and complete our
annual audit. We believe we now have the right people in important roles to execute
the company's business strategy and to meet our current reporting obligations."
36.
On September 13, 2010, DYP filed a Current Report on Form 8-K with the SEC.
Item 4.01 Changes in Registrant's Certifying Accountant.
Effective as of September 6, 2010, Deloitte Touche Tohmatsu CPA Ltd. ("Deloitte")
was dismissed by the Audit Committee (the "Audit Committee") of Duoyuan
Printing, Inc. (the "Company") as the independent registered public accounting firm
of the Company.
During the period of Deloitte's engagement from March 2, 2010 to September 6,
2010, no audit performed by Deloitte had been completed and, therefore, no audit
reports had been issued that (i) contained an adverse opinion or disclaimers of
opinion or (ii) were qualified or modified as to uncertainty, audit scope or accounting
principles.
- 18 -
During the period from March 2, 2010 to September 6, 2010, there were no
disagreements between the Company and Deloitte on matters of accounting
principles or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Deloitte, would have
caused Deloitte to make reference to the subject matter of the disagreement in their
reports on the financial statements, except for the following:
Deloitte requested that the Company provide permission to access
original bank statements to complete its audit procedures to verify
the identity of certain individuals and entities associated with third
party distributors and vendors. As of the time of Deloitte's
dismissal, the Company had not granted such permission because
it believed the method and scope of the request was overly broad for
the purpose of verifying the identity of such individuals and entities.
Deloitte informed the Chairman of the Audit Committee of such
disagreement and the matter was not resolved by the time of
Deloitte's dismissal.
During the period from March 2, 2010 to September 6, 2010, there were no
"reportable events" as that term is defined in
Item 304(a)(1)(v) of Regulation S-K, except the following:
In the course of its audit procedures, Deloitte identified supporting
documentation for approximately RMB24 million of expenses
related to advertising and tradeshow costs, the authenticity of which
could not be verified to Deloitte's satisfaction. Deloitte suggested to
the Audit Committee that it investigate these expenses. The Audit
Committee has undertaken an independent investigation. At the
time of its dismissal, Deloitte had not received subsequent
information from the Audit Committee on the progress or outcome
of the investigation.
In the course of its audit procedures, Deloitte received information
regarding certain distributors and vendors that appeared
inconsistent with certain information that the Company had
provided. Deloitte informed the Company and the Audit Committee
of the inconsistencies. The Company worked to address these
inconsistencies, but at the time of its dismissal, Deloitte had not
received complete explanations from the Company to address all of
its concerns.
Deloitte advised the Audit Committee that it was informed by the
Chief Executive Officer and Chief Financial Officer of the
- 19 -
Company that they felt they did not have access to the information
on the open matters referred to above nor were they in a position to
assist the investigation. Deloitte expressed its concerns as to the
impact of this on its ability to rely on the future representations
from those members of management that it would otherwise seek
to obtain as part of its normal audit procedures.
The Company has authorized Deloitte to respond fully to the inquiries of the
Company's successor accountant concerning the subject matter of each of the
disagreement and reportable events referred to above.
The Company provided Deloitte with a copy of the disclosures it is making in this
Current Report on Form 8-K (the "Report") prior to the time the Report was filed
with the Securities and Exchange Commission (the "SEC"). The Company requested
that Deloitte furnish a letter addressed to the SEC stating whether or not it agrees
with the statements made herein. The Company will file the letter from Deloitte as
an amendment to this Report within two business days of receipt.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers; Compensatory Arrangements of Certain
Officers.
(a) On September 6, 2010, following the decision to dismiss Deloitte as the
independent registered public accounting firm of the Company:
Mr. James Zhang, Chairman of the Audit Committee tendered his
resignation from the Board of Directors of the Company (the
"Board") effective immediately over the disagreement with the
Company and the Board for dismissing Deloitte as the independent
registered public accounting firm of the Company. Mr. Zhang had
served as the Chairman of the Audit Committee and a member of the
Board since September 2009. Mr. Zhang's resignation letter is
included as Exhibit 99.2 to this Current Report; and
The Honorable Paula J. Dobriansky tendered her resignation from the
Board effective immediately, which was later followed by a formal
letter. The Honorable Paula J. Dobriansky had served as a member of
the Board since May 2010. Ms Dobriansky's resignation letter is
included as Exhibit 99.3 to this Current Report.
On September 8, 2010:
Ms. Naoko Hatakeyama tendered her resignation from the Board
effective immediately. Ms. Hatakeyama had served as a member of
- 20 -the Board since May 2010. Ms. Hatakeyama's resignation letter is
included as Exhibit 99.4 to this Current Report; and
Mr. Xiqing Diao tendered his resignation from the Board effective
immediately in an effort to maintain a majority of independent
directors on the Board to stay in compliance with relevant listing
standards. Mr. Diao had served as a member of the Board since
November 2005, and will remain with the Company as its new Chief
Executive Officer as described in more detail below.
The circumstances representing the disagreement that caused the resignation of the
above Directors, if any, are provided in their respective resignation letters, if
applicable, which are incorporated herein by reference in their entirety.
The Company provided each of the above Directors (the "Resigning Directors") with
a copy of the disclosures it is making in the Report prior to the time the Report was
filed with the SEC. The Company provided each of the Resigning Directors with the
opportunity to furnish a letter addressed to the Company stating whether or not he or
she agrees with the statements made herein. The Company will file the letter from
each of Resigning Directors as an amendment to this Report within two business days
of receipt.
(b) Following the decision to dismiss Deloitte as the independent registered public
accounting firm of the Company:
On September 6, 2010, Mr. William D. Suh tendered his resignation
from the position of Chief Financial Officer of the Company effective
immediately. Mr. Suh had served as the Chief Financial Officer of the
Company since October 2008; and
On September 8, 2010, Mr. Christopher Patrick Holbert tendered his
resignation from the position of Chief Executive Officer of the
Company effective September 8, 2010 18:00 p.m. Beijing Time. Mr.
Holbert had served as the Chief Executive Officer of the Company
since August 2009.
(c) On September 8, 2010, the Board also made the following changes:
Mr. Lianjun Cai was elected as Chairman of the Audit Committee
effective immediately. In making this election, the Board determined
that Mr. Lianjun Cai had sufficient accounting and related financial
management expertise to serve as the Chairman of the Audit
Committee.
- 21 -
Mr. Xiqing Diao was appointed as the Chief Executive Officer of the
Company effective September 8, 2010 18:00 p.m. Beijing Time. At
the same time, Mr. Diao stepped down from the position of the Chief
Operating Officer of the Company. Mr. Diao has served as a Director
and the Chief Operating Officer of the Company since November
2005. Mr. Diao also served as the interim Chief Executive Officer of
the Company from July 9, 2009 to August 26, 2009. He served as
vice general manager of Duoyuan Clean Water Technology Industries
(China) Co., Ltd. ("Duoyuan Water") from August to November
2005, assistant general manager of Duoyuan Electric (Tianjin) Auto
Water Pump Co., Ltd., an automobile parts manufacturer, from
January to July 2005, and general manager of Operations of Duoyuan
Electric Group from January 2003 to December 2004. From May
2001 to December 2002, Mr. Diao served as general manager of No.
1 Division of Duoyuan Water. He was also certified as an
ISO9001:2000 Internal Auditor and an ISO14000 Internal Auditor in
2004. Mr. Diao received a bachelor's degree in mechanics from
Tianjin Textile Technology Institute, China.
Ms. Baiyun Sun was appointed as the Chief Financial Officer of the
Company effectively immediately. Ms. Sun served as the Controller
of the Company from October 1, 2008 to September 8, 2010. Prior to
that, she served as interim Chief Financial Officer of the Company
from December 20, 2007 to March 1, 2008 and from May 21, 2008
to October 1, 2008. Prior to that, she served as the Chief Financial
Officer of the Company from October 6, 2006 to July 18, 2007, a
Director and vice president of the Company between June 2001 and
April 2007 and chief accountant of Duoyuan Electric Group from
January 1994 to May 2001. Ms. Sun received a bachelor's degree in
accounting from Beijing Finance and Commerce Institute, China.
Mr. Wenzhong Liu was appointed as the Chief Operating Officer of
the Company effectively immediately. Mr. Liu has served as vice
president of sales and marketing of the Company since November
2005. He served as assistant general manager of sales at Duoyuan
Digital Press Technology Industries (China) Co., Ltd. ("Duoyuan
China") from July to October 2005, interim general manager of sales
at Duoyuan China from November 2004 to June 2005, and sales
representative at Duoyuan China from January 2001 to October 2004.
Mr. Liu received a bachelor's degree in science from Luoyang
Engineering Institute, China.
- 22 -Mr. Christopher Patrick Holbert was appointed as Vice President of
International Markets effective immediately.
37.
On this news, shares of DGW declined $8.60 per share, or 41.55%, to close on
38.
On September 14, 2010, Duoyuan Global Water announced that its Board of Directors
The Board of Directors voted unanimously to take proactive action following a recent
announcement by Duoyuan Printing, Inc. ("Duoyuan Printing"), that may have been
perceived to involve the Company [which is an affiliate of Duoyuan Printing], as
Wenhua Guo (the Company's Chairman and CEO) is also Duoyuan Printing's
Chairman of the Board and its largest shareholder. While there are presently no
known accounting or corporate governance issues to be reviewed and the Company
consistently has received unqualified audits from Grant Thornton, an international
accounting firm, for four successive years, the Company's Board of Directors is of
the opinion that the appointment of an independent third party is necessary to ensure
the highest level of transparency and accountability.
UNDISCLOSED ADVERSE FACTS
39.
The market for Duoyuan Global Water's securities was open, well-developed and
- 23 -
40.
During the Class Period, Defendants materially misled the investing public, thereby
41.
At all relevant times, the material misrepresentations and omissions particularized
LOSS CAUSATION
42.
Defendants' wrongful conduct, as alleged herein, directly and proximately caused the
43.
During the Class Period, Plaintiff and the Class purchased Duoyuan Global Water's
- 24 -
SCIENTER ALLEGATIONS
44.
As alleged herein, Defendants acted with scienter in that Defendants knew that the
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
45.
The market for Duoyuan Global Water's securities was open, well-developed and
- 25 -46.
During the Class Period, the artificial inflation of Duoyuan Global Water's stock was
47.
At all relevant times, the market for Duoyuan Global Water's securities was an
(a)
Duoyuan Global Water stock met the requirements for listing, and was listed
(b)
As a regulated issuer, Duoyuan Global Water filed periodic public reports
(c)
Duoyuan Global Water regularly communicated with public investors via
(d)
Duoyuan Global Water was followed by securities analysts employed by
- 26 -
48.
As a result of the foregoing, the market for Duoyuan Global Water's securities
NO SAFE HARBOR
49.
The statutory safe harbor provided for forward-looking statements under certain
- 27 -
FIRST CLAIM
Violation of Section 10(b) of The Exchange Act
and Rule 10b-5 Promulgated Thereunder Against All Defendants
50.
Plaintiff repeats and realleges each and every allegation contained above as if fully
51.
During the Class Period, Defendants carried out a plan, scheme and course of conduct
52.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made untrue
53.
Defendants, individually and in concert, directly and indirectly, by the use, means or
- 28 -54.
These defendants employed devices, schemes and artifices to defraud, while in
55.
Each of the Individual Defendants' primary liability, and controlling person liability,
- 29 -
56.
The defendants had actual knowledge of the misrepresentations and/or omissions of
57.
As a result of the dissemination of the materially false and/or misleading information
58.
At the time of said misrepresentations and/or omissions, Plaintiff and other members
- 30 -
59.
By virtue of the foregoing, Defendants have violated Section 10(b) of the Exchange
60.
As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and the
SECOND CLAIM
Violation of Section 20(a) of
The Exchange Act Against the Individual Defendants
61.
Plaintiff repeats and realleges each and every allegation contained above as if fully
62.
The Individual Defendants acted as controlling persons of Duoyuan Global Water
- 31 -63.
In particular, each of these Defendants had direct and supervisory involvement in the
64.
As set forth above, Duoyuan Global Water and the Individual Defendants each
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class members
- 32 -
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
POMERANTZ HAUDEK GROSSMAN
& GROSS LLP
By:
ones
Marc I. Gross
Jeremy A. Lieberman
Fei-Lu Qian
100 Park Avenue, 26th Floor
New York, New York 10017
Telephone:
(212) 661-1100
Facsimile:
(212) 661-8665
POMERANTZ HAUDEK GROSSMAN
& GROSS LLP
Patrick V. Dahlstrom
10 South LaSalle Street, Suite 3505
Chicago, IL 60603
Telephone:
(312) 377-1181
Facsimile:
(312) 377-1184
GLANCY BINKOW & GOLDBERG LLP
Lionel Z. Glancy
Michael Goldberg
Robert V. Prongay
1801 Avenue of the Stars, Suite 311
Los Angeles, California 90067
Telephone:
(310) 201-9150
Facsimile:
(310) 201-9160
E-mail:
info@glancylaw.com
LAW OFFICES OF HOWARD G. SMITH
Howard G. Smith
3070 Bristol Pike, Suite 112
- 33 -
Bensalem, PA 19020
Telephone:
(215) 638-4847
Facsimile:
(215) 638-4867
E-mail:
legul2010@aol.com
Attorneys for Plaintiff Mingli Li
- 34 -
SWORN CERTIFICATION OF PLAINTIFF
Duoyuan Global Water, Inc., SECURITIES LITIGATION
I, Mingli Li, certify that:
1.
I have reviewed the complaint and authorized its filing.
2.
1 did not purchase Duoyuan Global Water, Inc., the security that is the subject of this action at the
direction of plaintiff's counsel or in order to participate in any private action arising under this title.
3.
I am willing to serve as a representative party on behalf of a class and will testify at deposition and trial,
if necessary.
4. My transactions in Dunyunn Global Water, Inc. during the class period set forth in the Complaint are as
follows:
I bought 52 shares on 8/3/09 at $30.0 per share.
I bought $22 shares on 12/21/09 at 345 per share.
I bought 5 shares on 1/20/10 at 33. per share.
I bought 200 shares on 1/20/10 at 33. per share.
I bought
50 shares on 1 122/ 10 at $290 per share.
I sold
shares on
/
/
at $
per share.
I sold
shares on
/
/
at $
per share.
I sold
shares on
/
/
at $
per share.
I sold
shares on
/
at $
per share.
I sold
shares on
/
/
at $
per share.
(List Additional Transactions on a Separate Page if Necessary)
5.
I have not served as a representative party on behalf of a class under this title during the last three years
except as stated:
6.
I will not accept any payment for serving as a representative party, except to receive my pro rata share
of any recovery or as ordered or approved by the court including the award to a representative plaintiff
of reasonable costs and expenses (including lost wages) directly relating to the representation of the
class.
Check here if you are a current employee or former employee of the defendant Company.
I declare under penalty of perjury that the foregoing are true and correct statements.
Dated: 9/17/2010
Mingl (Please Sign Your Li
Name Above) | securities |
TBVmF4cBD5gMZwczBAWo | IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WISCONSIN
AMY CHILDERS, BARRY EARLS,
THOMAS FETSCH, CODY ITALIA,
DAVID KIEL, NAZAR MANSOOR,
DEBBIE RIDER, TRENT SHORES, STEVE
SCHUSSLER, CASSIE LIETAERT, RYAN
INGALLS, CHRIS JESSE, and KAREN
FLECKENSTEIN, individually and on behalf
of a class of similarly situated individuals,
Plaintiffs,
v.
No. _20-CV-107____________________
MENARD, INC., a Delaware corporation, and
JOHN DOES 1-10,
Defendants.
JURY TRIAL DEMANDED
CLASS ACTION COMPLAINT
Plaintiffs AMY CHILDERS, BARRY EARLS, THOMAS FETSCH, CODY ITALIA,
DAVID KIEL, NAZAR MANSOOR, DEBBIE RIDER, TRENT SHORES, STEVE SCHUSSLER,
CASSIE LIETAERT, RYAN INGALLS, CHRIS JESSE, and KAREN FLECKENSTEIN (each
individually a “Plaintiff” and collectively “Plaintiffs”) on their own behalf and on behalf of a class
comprised of individuals similarly situated bring this Class Action Complaint and Demand for Jury
Trial against MENARD, INC. (“Menards” or “Defendant”) and JOHN DOES 1-10 for violating the
terms and conditions of its offered rebates. Plaintiffs and the Class Members purchased Menards’
items to which the rebate applied, timely submitted paperwork for the advertised rebate, but never
received the advertised rebate at all or in the appropriate amount. Plaintiffs bring this case to enjoin
Menards’ ongoing misleading, unfair and deceptive conduct and its systematic and ongoing breach of
rebate contracts with its customers. By this class action lawsuit, Plaintiffs seek damages, restitution,
injunctive relief and attorneys’ fees against Menards for the conduct detailed herein. Plaintiffs allege
the following based upon their own personal knowledge, acts and experiences or upon information
and belief, including due investigation conducted by their attorneys.
NATURE OF THE ACTION
1.
The home improvement, “do it yourself” retail sector is big and has grown significantly
in recent years. Between June 2018 and June 2019, American consumers spent nearly $322 billion on
remodeling and home improvement, a 6.8% increase from the prior year.1
2.
Menards is the largest privately-held home improvement company in the country, with
over 300 locations and revenue of approximately $10 billion annually. It is the third largest home
improvement store in the country, behind only Home Depot and Lowe’s.
3.
Positioning itself as a lower cost alternative to Home Depot and Lowe’s is a critical
part of Menards’ marketing strategy. Through its ubiquitous sales, promotions and advertising, its
customers and the public generally are implored to “save big money at Menards.”
4.
One of the most vital strategies Menards employs is its rebate programs. These rebate
programs, particularly its much-hyped store-wide “11% Off Everything” rebate promotion, are a
prominent component of Menards’ advertising and marketing efforts, both inside and outside of its
5.
Menards’ 11% Rebate promotion, which is a mail-in program, allows Menards to sell
items at full price to customers, despite the promise of the 11% discount through the rebate.
1
See
https://www.housingwire.com/articles/49589-renovation-spending-will-slow-in-2020-after-record-setting-year-
harvard-report-says/ (last visited January 22, 2020).
2
However, rather than discount the cost of a given item by placing that item on sale (and thereby
guarantee that it would not receive revenue from the discounted portion), Menards created a rebate
mail-in program designed to reduce the issuance and redemption of rebates.
6.
Menards benefits from the increased sales that accompany substantial rebate offers
(because consumers think they are getting a deal), as well as the profit margins accruing from the sale
of full-price goods (because consumers rarely receive the appropriate rebate amount).
7.
A consumer would reasonably expect to receive 11% off its entire purchase based
upon Menards’ representations. But, Menards systematically and intentionally fails to pay the 11%
rebate to consumers who have followed the rebate process, upheld the terms of the agreement
Menards itself has established, purchased items eligible for the 11% rebate, and timely submitted the
necessary paperwork to redeem that rebate. Many Plaintiffs received only a portion of the stated rebate
without any explanation as to why their rebate was reduced. Worse, many Plaintiffs never received
their rebates at all.
8.
In both instances, Menards breached its contract with Plaintiffs and the Class. Menards
makes a business practice of this breach; systematically and repeatedly violating its rebate agreements
with its customers by failing to pay owed rebates at all or only paying them in part.
9.
Menards’ rebate process systematically denies its customers the full value of the rebates
that they earned by following the terms of Menards’ rebate program, purchasing items during the
rebate promotional period, and timely submitting the required rebate paperwork.
10.
In reality, and as detailed below, customers do not actually “save big money” at
Menards. A substantial number of customers never receive the savings and benefits promised by
Menards’ rebate campaigns.
3
11.
Plaintiffs bring this action to put an end to Menards’ unfair, deceptive and illegal
practices, including its ongoing misrepresentations and breaches of its rebate program, and to compel
Menards to compensate its customers for the promised rebates to which they are entitled.
PARTIES
12.
Plaintiff Debbie Rider is a natural person and, at all relevant times, a resident of the
State of Illinois.
13.
Plaintiff Steve Schussler is a natural person and, at all relevant times, a resident of the
State of Illinois.
14.
Plaintiff Trent Shores is a natural person and, at all relevant times, a resident of the
State of Illinois.
15.
Plaintiff Barry Earls is a natural person and, at all relevant times, a resident of the State
of Michigan.
16.
Plaintiff Ryan Ingalls is a natural person and, at all relevant times, a resident of the
State of Michigan.
17.
Plaintiff David Kiel is a natural person and, at all relevant times, a resident of the State
of Michigan.
18.
Plaintiff Cassie Lietaert is a natural person and, at all relevant times, a resident of the
State of Michigan.
19.
Plaintiff Nazar Mansoor is a natural person and, at all relevant times, a resident of the
State of Michigan.
20.
Plaintiff Cody Italia is a natural person and, at all relevant times, a resident of the State
of Missouri.
21.
Plaintiff Thomas Fetsch is a natural person and, at all relevant times, a resident of the
State of North Dakota.
4
22.
Plaintiff Karen Fleckenstein is a natural person and, at all relevant times, a resident of
the State of Ohio.
23.
Plaintiff Amy Childers is a natural person and, at all relevant times, a resident of the
State of Wisconsin.
24.
Plaintiff Chris Jesse is a natural person and, at all relevant times, a resident of the State
of Wisconsin.
25.
Defendant Menard Inc. is a Delaware corporation with its principal place of business
located in Eau Claire, Wisconsin. Menards owns and operates over 300 stores in 14 states across the
Midwestern portion of the country and is the third-largest chain of home improvement stores in the
United States.
26.
Upon information and belief, Menards also controls Rebates International® and
RebateInternational.com® (“Rebates International”), a rebate clearinghouse which operates the
Menards rebate program. Menards registered trademarks on October 11, 2005 and renewed the service
marks in 2015.2
JURISDICTION AND VENUE
27.
This Court has subject matter jurisdiction over this action pursuant to the Class
Action Fairness Act, 28 U.S.C. § 1332(d)(2) and (6), because the amount in controversy exceeds
the value of $5,000,000, exclusive of interests and costs, because the Class consists of 100 or
more putative Class Members, and because a number of named Plaintiffs and Class Members are
diverse from Menards, a Delaware corporation with its principal place of business in Wisconsin.
2
See http://tmsearch.uspto.gov/bin/showfield?f=doc&state=4806:i81n93.2.2 (last accessed January 22, 2020); see
also http://tmsearch.uspto.gov/bin/showfield?f=doc&state=4804:1etkna.2.1 (last accessed January 22, 2020).
5
28.
This Court has personal jurisdiction over Menards because it is a corporation with
a principal place of business in Wisconsin, authorized to do business in Wisconsin, transacts
business in Wisconsin, and maintains sufficient minimum contacts in Wisconsin.
29.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because a substantial
part of the events giving rise to this claim occurred in this District, Menards regularly conducts
business and has its principal place of business in this District, and some of the named Plaintiffs reside
in and suffered harm in this District as a result of Menards’ acts set forth more fully below.
COMMON FACTUAL ALLEGATIONS
Menards Uses a Mail-in Rebate Program to Market to Customers in a Competitive Home-
Improvement Marketplace.
30.
The amount of money American consumers spent on home improvement has
skyrocketed over the past several years.
31.
In order to gain a competitive advantage in this growing home improvement
marketplace, Menards has attempted to position itself as the low-cost or value option for shoppers.
To that end, Menards uses its rebate offers to market to customers with the promise that they will
“save big money at Menards.”
32.
Menards’ marketing prominently promotes its rebate programs, which offer
consumers product-specific rebates and the occasional (and much-advertised) 11% rebate off
everything in the store.
33.
A mail-in rebate program allows Menards to advertise huge price savings to
consumers, all the while designing the program to ensure that some portion of those rebates will never be issued or
redeemed.
34.
Menards’ rebate program truly is the best of all worlds for Menards. It sells items at
full (or an inflated) price knowing that—as a result of its deceptive, unfair and illegal practices—a
substantial number of consumers will never receive their bargained-for rebates.
6
Menards Deceives Customers through its Mail-In Rebate Program.
35.
Menards employs unfair and deceptive practices in its mail-in rebate program to reduce
the issuance and redemption of rebates.
36.
Specifically, Menards’ rebate process is designed to deny rebates that its customers
earned by the terms of its rebate program after purchasing items during the rebate promotions and
timely submitting the required paperwork.
37.
Menards offers a variety of mail-in rebate offers, all of which operate in essentially the
same manner.
38.
Menards’ mail-in rebate program works as follows:
39.
First, a customer purchases a product subject to a mail-in rebate.
40.
Second, the customer goes from the checkout aisle to a separate service desk in each
retail location. The service desk displays a selection of dozens of rebate forms applicable to different
products. At the service desk, the customer must identify the forms that correspond to the particular
rebate(s) the customer seeks to submit.3
3
For online customer purchases of products eligible for rebates, customers can elect to have their rebate receipt
supplied as an attachment to their order confirmation. To redeem the rebate, customers can complete the rebate form
from Menards’ online Rebate Center and mail it with their rebate receipt. See Rebates, available at
https://www.menards.com/main/rebates/c-12553.htm (last accessed January 20, 2020).
7
41.
After purchase, the Menards cashier provides the customer with their purchase receipt,
and with what Menards calls a “rebate receipt.” The customer then takes the rebate receipt to the
rebate desk to obtain a redemption ticket corresponding to the rebate receipt, as shown below:
42.
From there, a customer must complete the redemption ticket and mail it, along with
the corresponding original rebate receipt, to Rebates International at a P.O. Box in Elk Mound,
Wisconsin. Customers can package multiple rebate receipts and redemption tickets in a single
envelope, if they so desire.
43.
Menards provides its customers very little information regarding its mail-in rebate
program. Neither Menards nor Rebates International provide phone numbers for customers to inquire
about the status of their submitted rebates.
8
44.
Menards provides a few terms and conditions on mail-in rebates. After customers
make a purchase subject to a rebate, they are informed that they must (i) include the original rebate
receipt, (ii) send it to a specified P.O. Box (“Save 11%, PO Box: 155, Elk Mound, WI 54739-0155”),
(iii) no later than a certain deadline (typically around 21 days from the close of the rebate), and (iv)
allow 6-8 weeks for processing.
45.
If Menards issues a rebate, it comes in the form of a check that can only be used for
additional purchases at Menards.4
46.
As detailed in the hundreds of online consumer complaints about Menards’ rebate
program, customers have little to no visibility into their rebates after they comply with the steps
outlined above.
47.
Menards’ rebate form asks consumers to “Allow 6-8 weeks for processing” but
Menards typically takes far longer than that to issue rebates, as set forth more fully in Plaintiffs’
allegations below.
48.
The only way consumers can contact Rebates International is through an online form
e-mail submission or a P.O. Box number in Elk Mound, Wisconsin.
49.
Menards also tells customers they can theoretically track the status of their rebates
online through Rebates International’s rebate tracker.5 Menard’s rebate tracker allows customers to
track the mail-in rebates they have submitted by entering into the Rebates International website either:
1) the tracking number the customer received when they filled out their rebate paperwork; or 2) their
first initial, last name, house number and zip code.
4
Plaintiffs here are not challenging the fact that Menards’ “rebates” are actually in-store credit usable only for
additional purchases. There is a pending class action lawsuit, Rikkers v. Menard, Inc., No. 17-CV-1208 (E.D. Wis. filed Sept.
6, 2017), by which a different class of individuals is challenging Menards’ practice of sending consumers rebates in the
form of in-store credit checks instead of cash.
5
See https://www.rebateinternational.com/RebateInternational/tracking.do (last visited January 22, 2020).
9
50.
However, and as detailed below, for many Menards’ rebate customers, Menards fails
to acknowledge the receipt of their rebate form submissions on Rebates International’s online rebate
tracker, making it impossible for customers to determine what happened to the missing rebates. That
is, after timely submitting the required rebate paperwork, customers enter the required information
into the rebate tracker, but Menards states that it has no information about the customers’ submitted
rebates.
51.
For many Menards’ rebate customers, this lack of transparency leads to frustration as
they attempt to find out why their rebates are denied or arbitrarily devalued. Some portion of those
rebate customers become so frustrated with the clandestine process that they give up trying to obtain
their contractually-obligated rebates, further enriching Menards. Menard’s many mail-in rebate offers
include Menards’ famous 11% Off Everything rebates (which can apply either store-wide or to
particular items), as well as product-specific rebates for other amounts. The store-wide rebate
advertisements6 are unambiguous:
6
See e.g., https://milled.com/menards/11-off-everything-Yl9JCL4uQYcGTQ7P (last visited January 22, 2020).
10
52.
In fine print at the bottom of the page, the terms and conditions appear as follows:
“Mail-In Rebate. Rebate is in the form of a merchandise credit check, valid in-store only.
Merchandise credit check is not valid towards purchases made on MENARDS.COM®.
Limited to stock on hand. No sorry slips. First come, first served. Future sale price
adjustments, exchanges and merchandise returns will void the 11% rebate on the items
adjusted, exchanged and/or returned. Rebate is valid on special ordered products but does not
extend to the special ordering of any normally stocked items. Not good with any other
coupons or offers, except Menards® coupons, Menards rebates and manufacturer coupons.
Multiple receipts may accompany one rebate certificate. Menards reserves the right to limit
purchases of any and all items to reasonable job lot quantities. Excludes event tickets, gift
cards, propane purchases, delivery and handling charges, all rental items, minuteKEY®,
processing fees, packaging charges and extended service agreements.”7
7
See https://milled.com/menards/11-off-everything-Yl9JCL4uQYcGTQ7P (last visited January 22, 2020).
11
53.
As shown below, Menards also provides product-specific rebates which are separate
from the “11% Off Everything” program. These product-specific rebates similarly make promises
regarding the amount of the rebates, the form they will take, the steps necessary for redemption and,
crucially, the restrictions Menards places on the rebate—the number of items that can be submitted
for rebate and that the rebate is in the form of merchandise credit8:
54.
The terms and conditions on these flyers, as shown above, are the only terms and
conditions available to consumers at the time of purchase.
Consumers Have Long Complained About the Deceptiveness of Menards’ Mail-in Rebate
Program, but the Program Remains the Same.
8
See http://www.valuetactics.com/wp-content/uploads/2015/10/menards-tempt1a.jpg (last visited January 22,
12
55.
Menards’ customers have long been complaining about the unfair and deceptive rebate
program for years, accusing Menards of being “con artists” for perpetrating a “scam” and a “ripoff”
for refusing to process customer rebates.9
56.
The internet is rife with complaints about Menards’ rebate program, with consumers
airing their grievances on Twitter, Facebook, the Better Business Bureau website,10 and a number of
consumer complaint message boards,11 as highlighted below:
“I bought over $900.00 worth of merchandise at Menards in Toledo, [OH] on 8-25-2018
I have a rebate coming for $99.68 that I have been waiting 9 weeks so far and haven’t seen
yet. I spoke with the manager at the Menards store once and the *** manager twice. […]
Each time all they say is wait longer. I found out the rebate was issued on 9-25-18 and I
told the manager this info, and all he keeps saying is wait a little longer. It is now 10-24-
2018 and still nothing [.] They keep saying they will e-mail to find out about my rebate.
They said they have no phone number to call.”12
“Will not be shopping @Menards w/its 11% rebate scam. Mail-in but no coupons at cash
register. Only at Cust. Serv. Desk. Mail in for store rebate – NOT cash back. How many
people don’t bother? Most people, probably. Lowes w/better quality – here I come!”13
57.
The majority of the complaints reference consumers who never obtained their rebate
checks altogether. A sampling of these complaints includes:
“Menards RIPOFF 11% Rebate! Have any of you been ripped off and not received your
Rebate?? During the Menards 11% rebate we purchased a new Ultra deck and spent
$14,800 the rebate should have totaled $1,608.96. We applied for the rebates in
September. The rebate company said they have mailed several refunds that we have not
9
See infra, n. 15-17.
10
See,
e.g.,
https://www.bbb.org/us/wi/elk-mound/profile/business-services/rebate-international-0694-
44002999 (last visited January 22, 2020); https://www.bbb.org/us/wi/elk-mound/profile/business-services/rebate-
international-0694-44002999/complaints (last visited January 22, 2020); https://www.bbb.org/us/il/hanover-
park/profile/building-materials/menard-inc-0694-5000090/complaints (last visited January 22, 2020).
11
See https://menards.pissedconsumer.com/11-rebate-scam-201810241387951.html (last visited January 22,
2020); https://www.consumeraffairs.com/retail/menards.html (last visited January 22, 2020).
12
See https://menards.pissedconsumer.com/11-rebate-scam-201810241387951.html (last visited January 22,
2020).
13
See
Pamela
Kramer
(@pamkramer),
Twitter
(April
12,
2018
at
8:26
AM),
available
at
https://twitter.com/pamkramer/status/984422515996069888.
13
received. Has this happened to anyone else? I will be filing a legal complaint with the
Minnesota Attorney General.”14
“Too bad I rang up $1600 plus and never received rebate. Contact customer service no
response MENARDS rip-off con artists.”15
“@Menards 11% Rebate is a total scam. My second over $200 rebate never shows up.
And u can’t speak to one person about it to help you. #SCAM.”16
“I keep stellar records and have over 14 rebates that show processed on Menard’s web
site, yet have not received one penny from them. […] We have several rebates that show
were issued but we never received them.”17
58.
Other complaints are from consumers who got a reduced rebate, but never found out
why. A sampling of these complaints includes:
“Back in July I spent almost $2500 at Menards in Owensboro Ky was to get back $252
and some change back I have sent email mailed them and Menards letters and Rebate
international sent an email stating the check was not cashed of course it wasn’t cashed I
never got it they said they would issue another one guess what still haven’t got it. I’m
calling the BBB and everyone that might can help this is b[redacted] I’ll take my business
else where’s can’t trust them to do what right by the customer.”18
“I have never shopped at Menards but decided when I needed to purchase building
materials that I would take advantage of the 11% Rebate. All receipts and forms were sent
in within the correct time frame, but after waiting for several weeks and after multiple
emails, I received a response that they could issue a stop payment, issue another check and
within three days of the email, they would mail the rebate check. I have submitted THREE
different rebates to other companies since my initial rebate application to Rebates
International and have already received ALL THREE of those rebates. According to the
Rebates International website the check was process and should have been mailed, but
here I am again after several weeks with no response and no rebate. The excuse has been
14
See
Bill
Dobbins,
Facebook
(December
17,
2017
at
4:51
PM),
available
at
https://www.facebook.com/pg/Thedobbinsgroup/posts/?ref=page_internal (last visited January 22, 2020).
15
See
Dan
Lange
(@dlange529),
Twitter
(May
17,
2018
at
11:20
AM),
available
at
https://twitter.com/dlange529/status/997149935580729344 (last visited January 22, 2020).
16
See
Ben
Eisenhart
(@BEisenhart),
Twitter
(Sept.
11,
2017
at
10:25
PM),
available
at
https://twitter.com/BEisenhart/status/907444981207629825 (last visited January 22, 2020).
17
See
Menards
–
Over
14
not
received
11%
rebates,
pissedconsumer.com,
available
at
menards.pissedconsumer.com/over-14-not-received-11-rebates-201704031029419.html (last visited January 22, 2020).
18
Rebates International-Menards Reviews, Revdex.com, available at https://www.revdex.com/reviews/rebates-
international-menards/3005226 (last visited January 22, 2020).
14
that they use a postcard to send the rebate, but all the information that I have discovered
is that while a postcard is not first class mail, a postcard should arrive within 5-10 business
days. THAT HAS NOT BEEN MY EXPERIENCE!”19
59.
Despite advertising hundreds of millions of dollars in available rebates every year and
representing to customers that they would “save big money”, Menards does not honor the benefit of
the bargain it strikes with its customers. Menards systematically and routinely denies or substantially
underpays promised rebates and takes steps to further drive down the redemption rate.
FACTS SPECIFIC TO PLAINTIFFS
Plaintiff Debbie Rider
60.
On or about March 2018, Plaintiff Debbie Rider, an Illinois resident, went to a
Menards location in Forsyth, Illinois, to purchase a washer, dryer, microwave and building supplies
during the 11% off everything promotion.
61.
Rider purchased these products from Menards for a total of approximately $878.77.
62.
After completing her purchase, Rider went to the rebate center within the Menards
location and retrieved the store-wide 11% off rebate coupons.
63.
Shortly after her purchases, Rider filled out the rebate coupons and, as instructed by
Menards, included her receipts in envelopes addressed to P.O. Box 99, Elk Mound, WI 54739-0155.
64.
Rider then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate. After eight weeks, Rider checked the
Rebates
International
rebate
tracker
(https://www.rebateinternational.com/
RebateInternational/tracking.do); but did not see a rebate.
19
Rebates International-Menards Reviews: Mar. 3, 2019 Complaint from angrymenardscustomer, Revdex.com, available
at https://www.revdex.com/reviews/rebates-international-menards/3005226 (last visited January 22, 2020).
15
65.
Rider contacted Rebates International to follow up regarding the status of her rebate.
Rebates International informed Rider via telephone that they did not receive her rebate voucher or
receipt, even though she had received smaller rebates from Menards without issue in the past.
66.
Menards breached its contract with Rider by failing to send the rebate checks to Rider
at all, or by failing to send the full amount promised.
67.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Rider was denied the approximately $96.66 in rebates to which
she was entitled.
Plaintiff Steve Schussler
68.
On September 9, 2017, Plaintiff Steve Schussler, an Illinois resident, purchased from
his local Menards store in Matteson, Illinois, wood for his deck during the Menards 11% Off
Everything promotion for a total of approximately $3,429.09.
69.
After completing his purchase, Schussler went to the rebate center within the Menards
location and retrieved the store-wide 11% off rebate coupon.
70.
Shortly thereafter, Schussler filled out the rebate coupon and, as instructed by
Menards, included it in a single envelope addressed to P.O. Box 99, Elk Mound, WI 54739-0155.
71.
Schussler then waited well beyond the six-to-eight week period for rebate processing
and mailing quoted by Menards, without receiving any rebate. Schussler never received a rebate.
72.
Menards breached its contract with Schussler by failing to send the rebate checks to
Schussler at all, or by failing to send the full amount promised.
73.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Schussler was denied the approximately $377.20 in rebates to
which he was entitled.
Plaintiff Trent Shores
16
74.
On or about July 12, 2017, Plaintiff Trent Shores, an Illinois resident, purchased from
his local Menards store in Galesburg, Illinois, siding during Menards’ 11% Off Everything promotion
for a total of approximately $3,850.75. Shores was told during his purchase by Menards’s employees
that even though the siding was a special purchase, it still qualified for the 11% Off Everything sale.
75.
After completing his purchase, Shores went to the rebate center within the Menards
location and retrieved the store-wide 11% off rebate coupon.
76.
Within a week of completing his purchase, Shores filled out the rebate coupon and, as
instructed by Menards, included it in a single envelope addressed to P.O. Box 99, Elk Mound, WI
54739-0155.
77.
Shores then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate. Shores and his wife emailed Rebates
International to follow up regarding the status of this rebate on numerous occasions. Ultimately,
Shores was told that Rebates International did not receive his paperwork, and a rebate would not be
forthcoming.
78.
In or about November 2017, Shores purchased a dishwasher during a Menards 11%
Off Everything sale. The sale was advertised at the front of the Menards store, and in numerous
locations throughout the store, including right in front of the dishwasher that he purchased.
79.
Shores purchased the dishwasher for approximately $700.
80.
After purchasing the dishwasher, Shores went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupon.
81.
Within a week of completing his purchase, Shores filled out the rebate coupon and
again mailed it to the Elk Mound, Wisconsin address as instructed by Menards.
82.
Shores did not receive any rebate for his dishwasher purchase, either.
17
83.
As a result of Menards’ repeated failure to provide him with the advertised rebate,
Shores and his wife no longer shop at Menards.
84.
Menards breached its contract with Shores by failing to send the rebate checks to
Shores at all, or by failing to send the full amount promised.
85.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Shores was denied the approximately $500.58 in rebates to which
he was entitled.
Plaintiff Barry Earls
86.
On or about June 17, 2017, Plaintiff Barry Earls, a Michigan resident, went to a
Menards location in South Haven, Michigan, to purchase a garage pole barn garage package during
the 11% Off Everything promotion.
87.
Earls purchased the pole barn garage package for a total of approximately $6,959.60.
88.
After completing his purchase, Earls went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupon.
89.
Within one week of completing his purchase, Earls filled out the rebate coupon and,
as instructed by Menards, included it in a single envelope addressed to P.O. Box 995, Elk Mound, WI
54739-0155.
90.
Upon information and belief, Earls’ purchase was eligible for approximately $756.56
in rebates based upon the 11% Off Everything promotion.
91.
However, on or about November 2017, Earls only received a rebate for approximately
92.
In November 2017, Earls contacted Rebates International via e-mail to dispute the
amount of his rebate. Per Rebates International’s instructions, Earls resubmitted his paperwork.
However, that same month Earls received a letter from Rebates International, without further
18
explanation, stating that the remainder of his rebate would not be forthcoming. Earls discussed this
letter from Rebates International with a store manager from Menards shortly thereafter. The store
manager told him that she did not understand why Earls did not receive the full amount of rebate
because he “did everything right.”
93.
Earls has only ever received approximately $456 in rebates, despite completing all the
prerequisites of Menards’ rebate program.
94.
Menards breached its contract with Earls by failing to send the rebate checks to Earls
at all, or by failing to send the full amount promised.
95.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Menards denied Earls approximately $300 in rebates to which he
was entitled.
Plaintiff Ryan Ingalls
96.
In or about January 2019, Plaintiff Ryan Ingalls, a Michigan resident, went to a
Menards location in South Haven, Michigan, to purchase electrical and roofing materials during the
11% Off Everything promotion.
97.
Ingalls purchased PVC boxes, ridge vents, and concealed stringer hangers from
Menards for a total of approximately $177.41.
98.
After completing his purchase, Ingalls went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupon.
99.
Within one week of completing his purchase, Ingalls filled out the rebate coupon and,
as instructed by Menards, included it in a single envelope addressed to P.O. Box 99, Elk Mound, WI
54739-0155.
100.
Ingalls then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate.
19
101.
Ingalls
checked
the
Rebates
International
rebate
tracker
(https://www.rebateinternational.com/RebateInternational/tracking.do); but did not see a rebate for
his purchase of $177.41.
102.
Ingalls purchased products that Menards advertised as eligible for rebate under the
11% rebate campaign.
103.
Upon information and belief, and unbeknownst to Ingalls and undisclosed by Menards
prior to the completion of the sale, Menards denied Ingalls the advertised 11% rebate.
104.
Menards breached its contract with Ingalls by failing to send the rebate checks to
Ingalls at all, or by failing to send the full amount promised.
105.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate of $19.50, Ingalls was denied the full amount of the rebate to
which he was entitled.
Plaintiff David Kiel
106.
In or about late July 2017, Plaintiff David Kiel, a Michigan resident, went to a Menards
location in Bay City, Michigan, to purchase carpet, padding and tile flooring during Menards’ 11% Off
everything promotion.
107.
Kiel purchased these products from Menards for a total of approximately $2,816.
108.
After completing his purchase, Kiel went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupon.
109.
Within a few days of completing his purchase, Kiel and his wife filled out the rebate
coupon and, as instructed by Menards, included it in a single envelope addressed to P.O. Box 99, Elk
Mound, WI 54739-0155.
110.
Kiel then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate. Kiel tried checking the Rebates International
20
rebate tracker (https://www.rebateinternational.com/ RebateInternational/tracking.do); but the
website was confusing, and he was discouraged because there was no phone number to contact
Rebates International directly to discuss his rebate. Kiel never received any rebate from Menards.
111.
Menards breached its contract with Kiel by failing to send the rebate checks to Kiel at
all, or by failing to send the full amount promised.
112.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Kiel was denied the approximately $256 in rebates to which he
was entitled.
Plaintiff Cassie Lietaert
113.
In or about September, 2017, Plaintiff Cassie Lietaert, a Michigan resident, went to a
Menards location in Traverse City, Michigan, to purchase a refrigerator during the 11% Off
Everything promotion.
114.
Lietaert purchased the refrigerator from Menards for a total of approximately $956.71.
115.
After completing her purchase, Lietaert went to the rebate center within the Menards
location and retrieved the store-wide 11% off rebate coupon.
116.
Within less than one week of completing her purchase, Lietaert filled out the rebate
coupon and, as instructed by Menards, included it in a single envelope addressed to P.O. Box 99, Elk
Mound, WI 54739-0155.
117.
Lietaert then waited well beyond the six-to-eight week period for rebate processing
and mailing quoted by Menards, without receiving any rebate. After ten weeks, Lietaert checked the
Rebates
International
rebate
tracker
(https://www.rebateinternational.com
/RebateInternational/tracking.do); and found that the rebate had been processed, but she never
received a rebate voucher.
21
118.
Lietaert contacted Rebates International regarding the status of her rebate, and in
November 2017, Rebates International informed Lietaert via email that it had never received her
119.
Menards breached its contract with Lietaert by failing to send the rebate checks to
Lietaert at all, or by failing to send the full amount promised.
120.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Menards unfairly and deceptively denied Lietaert the
approximately $105.23 in rebates to which she was entitled.
Plaintiff Nazar Mansoor
121.
Between May and July 2018, Plaintiff Nazar Mansoor, a Michigan resident, went to a
Menards location in Livonia, Michigan, to purchase masonry, stain gallons, and tools during the 11%
Off Everything promotion.
122.
Mansoor purchased these products from Menards for a total of approximately
$380.00.
123.
After completing his purchases, Mansoor went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupons associated with his purchases.
124.
Within two to three days of completing his purchases, Mansoor filled out the
appropriate rebate coupons and, as instructed by Menards, included them in the envelopes he
addressed to P.O. Box 99, Elk Mound, WI 54739-0155.
125.
Mansoor then waited well beyond the six-to-eight week period for rebate processing
and mailing quoted by Menards, without receiving any rebate. After eight weeks, Mansoor stopped by
the customer service desk at the Menards in Livonia, Michigan to inquire about the status of his rebate.
Mansoor was told that he probably had not received the rebate yet and should keep checking his mail.
One month later, Mansoor again visited his local Menards store and asked the customer service desk
22
about the status of his rebate. He was told that Menards did not handle the rebates, and that he would
have to check with Rebates International.
126.
Mansoor contacted Rebates International in late 2018 via the contact information
form at www.rebatesinternational.com. However, Mansoor never received a response to his inquiry.
127.
Mansoor continued to visit the customer service desk of his local Menards until
January 2019 to inquire about the status of his rebate. To this date, Mansoor has not received a rebate
128.
Menards breached its contract with Mansoor by failing to send the rebate checks to
Mansoor at all, or by failing to send the full amount promised.
129.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Mansoor was denied the approximately $98 in rebates to which
he was entitled.
Plaintiff Cody Italia
130.
In the past five years, Plaintiff Cody Italia, a Missouri resident, has spent a total of
approximately $5,000 at Menards. Italia has spent a minimum of approximately $21 on dog food on
a bi-weekly basis in the past eighteen months.
131.
On or about February 2, 2019, Italia went to a Menards location in Popular Bluff,
Missouri, to purchase dog food during the 11% Off Everything promotion.
132.
Italia purchased these products from Menards for a total of approximately $21.99.
133.
After completing his purchase, Italia went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupon.
134.
That same day, Italia filled out the rebate coupon and, as instructed by Menards,
included it in a single envelope addressed to P.O. Box 99, Elk Mound, WI 54739-0155.
23
135.
Italia then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate. Italia checked the Rebates International
rebate tracker (https://www.rebateinternational.com/RebateInternational/tracking.do); but did not
see a rebate.
136.
Italia contacted the Menards by phone regarding the status of his rebate, but he never
received an explanation or a rebate voucher.
137.
Menards denied Italia the approximately $2.42 in rebates to which he was entitled
based on rebate restrictions not disclosed to Italia or the public prior to purchase.
138.
Italia purchased products that Menards advertised as eligible for rebate under the 11%
rebate campaign that were also eligible for a separate product-specific rebate.
139.
Menards breached its contract with Italia by failing to send the rebate checks to Italia
at all, or by failing to send the full amount promised.
140.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Italia was denied the approximately $2.42 in rebates to which he
was entitled.
Plaintiff Thomas Fetsch
141.
Plaintiff Thomas Fetsch, a North Dakota resident, spends approximately $5,000 on
tools, building materials, and groceries per year at Menards stores in North Dakota. However, he has
only received a handful of rebates through the program since 2015.
142.
Between February and July 2016, Fetsch went to a Menards location in Bismarck,
North Dakota, to purchase a shop vacuum, smoker pellets, tool sets, and other household supplies
during the 11% Off Everything promotion.
143.
Fetsch purchased the products from Menards for a total of approximately $1,430.
24
144.
After completing his purchases during each visit, Fetsch went to the rebate center
within the Menards location and retrieved the store-wide 11% Off rebate coupon.
145.
The same day he completed his purchase, Fetsch filled out the rebate coupon and, as
instructed by Menards, included it in a single envelope addressed to P.O. Box 99, Elk Mound, WI
54739-0155.
146.
Fetsch then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate. After waiting for six to eight weeks, Fetsch
checked
the
Rebates
International
rebate
tracker
(https://www.rebateinternational.com
/RebateInternational/tracking.do); and found that there were no pending rebates. There was no
indication that his rebates had been processed.
147.
Fetsch contacted Rebates International regarding the status of his rebates, and in
December 2016, Rebates International informed Fetsch via e-mail that they did not have a record of
his original or rebate receipts.
148.
Menards breached its contract with Fetsch by failing to send the rebate checks to
Fetsch at all, or by failing to send the full amount promised.
149.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Fetsch was denied approximately $157.31 in rebates to which he
was entitled.
Plaintiff Karen Fleckenstein
150.
In or about July 2019, Plaintiff Karen Fleckenstein, an Ohio resident, went to a
Menards location in Mentor, Ohio, to purchase fence panels during the 11% Off Everything
promotion.
151.
Fleckenstein purchased multiple items, including food, children’s toys, and post cap
lights, for Menards for a total of approximately $33.47.
25
152.
After completing her purchase, Fleckenstein went to the rebate center within the
Menards location and collected the store-wide 11% off rebate coupon.
153.
Within one week of completing her purchase, Fleckenstein filled out the rebate coupon
and, as instructed by Menards, included it in a single envelope addressed to P.O. Box 99, Elk Mound,
WI 54739-0155.
154.
Fleckenstein then waited well beyond the six-to-eight week period for rebate
processing and mailing quoted by Menards, without receiving any rebate. Fleckenstein checked the
Rebates
International
rebate
tracker
(https://www.rebateinternational.com/
RebateInternational/tracking.do) but did not see a rebate.
155.
To this date Fleckenstein has not received a rebate voucher from Menards for
approximately $3.68.
156.
Menards breached its contracts with Fleckenstein by failing to send the rebate check
to Fleckenstein at all or by failing to send the full amount promised.
157.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate, Fleckenstein was denied the approximately $3.68 in rebates to
which she was entitled.
Plaintiff Amy Childers
158.
In or about October 2018, Plaintiff Amy Childers, a Wisconsin resident, visited the
www.menards.com website to purchase fence panels online during the advertised 11% Off Everything
promotion.
159.
Childers purchased the fence panels from Menards for a total of approximately
$1,327.56.
160.
After completing her purchase, Childers then downloaded the appropriate rebate
coupon corresponding to her purchase from the online Menards Rebate Center.
26
161.
Within one week of completing her purchase, Childers filled out the rebate coupon,
attached her original receipt and, as instructed by Menards, included it in a single envelope addressed
to P.O. Box 995, Elk Mound, WI 54739-0155.
162.
Childers then waited well beyond the six-to-eight week period for rebate processing
and mailing quoted by Menards, without receiving any rebate.
163.
After eight weeks, Childers checked the Rebates International rebate tracker
(https://www.rebateinternational.com/RebateInternational/tracking.do); and found that the rebate
had still not been processed and was never even entered into the online tracking system.
164.
In December 2018, Rebates International informed Childers via email that her
purchase did not qualify for the Menards 11% Off rebate because the items that she purchased were
already on sale and therefore did not qualify for a rebate.
165.
The fact that the fence panels did not qualify for a rebate because they were on sale
when she purchased them was not disclosed to Childers prior to her purchase. Before purchasing the
fencing panels online, Childers saw language on Menards’ webpage that there was an “11% Rebate on
Everything.” There was no disclosure, at any point before she bought the panels, that the fencing
panels she was about to purchase were on sale and ineligible for the 11% rebate.
166.
Menards breached its contract with Childers by failing to send the rebate checks to
Childers at all, or by failing to send the full amount promised.
167.
Menards unfairly and deceptively denied Childers the approximately $146.03 in rebates
to which she was entitled.
Plaintiff Chris Jesse
168.
On August 23, 2017, Plaintiff Chris Jesse, a Wisconsin resident, went to a Menards
location in Antigo, Wisconsin, to purchase building materials, a furnace, boiler, and piping during the
11% Off Everything promotion.
27
169.
Jesse purchased the building materials, furnace, boiler and piping for a total of
approximately $2,825.35.
170.
After completing his purchase, Jesse went to the rebate center within the Menards
location and retrieved the store-wide 11% Off rebate coupon. His purchase was eligible for
approximately $310 in rebates based upon the 11% Off Everything promotion.
171.
On the same day after completing his purchase, Jesse filled out the rebate coupon and,
as instructed by Menards, included it in a single envelope addressed to P.O. Box 995, Elk Mound, WI
54739-0155.
172.
Jesse then waited well beyond the six-to-eight week period for rebate processing and
mailing quoted by Menards, without receiving any rebate. Jesse checked the Rebates International
rebate tracker (https://www.rebateinternational.com/RebateInternational /tracking.do) and found
no record that his rebate had been issued. Jesse also contacted Menards customer service, who
mentioned that they had no record of his rebate.
173.
Because of Menards’ unfair and deceptive practices and breach of its representations
regarding the promised 11% rebate Menards unfairly and deceptively denied Jesse the approximately
$310 in rebates to which he was entitled.
CLASS ACTION ALLEGATIONS
174.
Plaintiffs bring this action pursuant to Fed. R. Civ. P. 23(b)(3) on behalf of themselves
and classes of similarly situated individuals defined as follows:
Nationwide Mail-In Rebate Class: All customers who have a processed
rebate registered in the Rebates International rebate tracker but who did
not realize the full 11% rebate which was promised under Menards’ 11%
Off Everything promotion.
Illinois Mail-In Rebate Class: All residents of the State of Illinois who
have a processed rebate registered in the Rebates International rebate
tracker but who did not realize the full 11% rebate promised under
Menards’11% Off Everything promotion.
28
Michigan Mail-In Rebate Class: All residents of the State of Michigan
who have a processed rebate registered in the Rebates International rebate
tracker but who did not realize the full 11% rebate which was promised
under Menards’11% Off Everything promotion.
Missouri Mail-In Rebate Class: All residents of the State of Missouri
who have a processed rebate registered in the Rebates International rebate
tracker but who did not realize the full 11% rebate which was promised
under Menards’11% Off Everything promotion.
North Dakota Mail-In Rebate Class: All residents of the State of North
Dakota who have a processed rebate registered in the Rebates
International rebate tracker but who did not realize the full 11% rebate
which was promised under Menards’11% Off Everything promotion.
Ohio Mail-In Rebate Class: All residents of the State of Ohio who have
a processed rebate registered in the Rebates International rebate tracker
but who did not realize the full 11% rebate which was promised under
Menards’11% Off Everything promotion.
Wisconsin Mail-In Rebate Class: All residents of the State of Wisconsin
who have a processed rebate registered in the Rebates International rebate
tracker but who did not realize the full 11% rebate which was promised
under Menards’ 11% Off Everything promotion.
175.
Excluded from the Classes identified above are (1) Menards, Menards’ agents,
subsidiaries, parents, successors, predecessors, and any entity or entities in which Menards or its
parents have a controlling interest, and that entity’s or those entities’ current and former employees,
officers, and directors, (2) the Judge to whom this case is assigned and the Judge’s immediate family,
(3) persons who execute and file a timely request for exclusion from the Class, (4) persons who have
had their claims in this matter finally adjudicated and/or otherwise released, and (5) the legal
representatives, successors, and assigns of any such excluded person.
176.
Numerosity: The exact size of each Class is unknown and is not available to Plaintiffs
at this time, but individual joinder in this case is impracticable. The Classes likely consist of thousands
of individuals as evidenced, among other things, by the numerous complaints submitted online. Class
members will be identified through Menards’ records.
29
177.
Commonality and Predominance: There are many questions of law and fact
common to the claims of Plaintiffs and the other members of the Classes, and those questions
predominate over any questions that may affect individual members of the Classes. Common
questions for the Classes include but are not limited to the following:
a)
Whether Menards had a policy or practice of sending rebate checks to
consumers through junk mailers in order to deceive Plaintiffs and other members of
the Classes into discarding them and thus not using the rebate checks inside;
b)
Whether Menards engaged in deceptive and misleading practices through its
mail-in rebate program as described herein and violated public policy;
c)
Whether Menards engaged in practices through its mail-in rebate program as
described herein in order to breach its contracts with Plaintiffs and other members of
the Classes;
d)
Whether Menards engaged in practices as described herein which resulted in a
breach of the implied covenant of good faith and fair dealing with Plaintiffs and other
members of the Classes;
e)
Whether Menards engaged in practices as described herein in order to retain
monies belonging to Plaintiffs and other members of the Classes and unjustly enriched
itself;
g)
Whether as a result of Menards’ policies and practices, Plaintiffs and the other
members of the Classes have suffered monetary losses;
h)
Whether Plaintiffs and the members of the Classes are entitled to monetary,
punitive and/or restitutionary remedies and, if so, the nature of those remedies; and
i)
Whether Menards should be enjoined from continuing to engage in such
practices.
178.
Typicality: Plaintiffs’ claims are typical of the claims of the other members of their
respective Classes. Plaintiffs and the members of the Classes sustained damages as a result of Menards’
uniform wrongful conduct regarding valid rebates it offered to Plaintiffs and the members for the
Classes.
179.
Adequacy: Plaintiffs will fairly and adequately represent and protect the interests of
the Classes, and have retained counsel competent and experienced in complex litigations and class
30
actions. Plaintiffs have no interests antagonistic to those of the Classes, and Defendant has no
defenses unique to Plaintiffs.
180.
Superiority: This case is appropriate for certification because class proceedings are
superior to all other available methods for the fair and efficient adjudication of this controversy. The
injuries suffered by the individual members of the Classes are likely to have been relatively small
compared to the burden and expense of individual prosecution of the litigation necessitated by
Defendant’s actions. Absent a class action, it would be difficult, if not impossible, for the individual
members of the Classes to obtain effective relief from Defendant. Even if members of the Classes
themselves could sustain such individual litigation, it would not be preferable to a class action because
individual litigation would increase the delay and expense to all parties and the Court and require
duplicative consideration of the legal and factual issues presented herein. By contrast, a class action
presents far fewer management difficulties and provides the benefits of single adjudication, economy
of scale, and comprehensive supervision by a single Court. Economies of time, effort, and expense
will be fostered, and uniformity of decisions will be ensured.
FIRST CAUSE OF ACTION
Breach of Contract
(On Behalf of Plaintiffs and the Nationwide Mail-In Rebate Class)
181.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
182.
By filling in and submitting their redemption tickets to redeem their 11% rebate for
their purchases at Menards stores, Plaintiffs and the Nationwide Mail-In Rebate Class entered into
specific agreements with Menards. Through the redemption tickets, Menards offered rebates and
Plaintiffs and the Nationwide Mail-In Rebate Class members agreed to purchase products under the
premise that they would receive the corresponding rebate checks, to be used at Menards for future
purchases.
31
183.
Specifically, through weekly advertisements, in-store signs, online advertisements,
rebate forms, and receipts, Menards represented and promised to provide Plaintiffs and the
Nationwide Mail-In Rebate Class rebate checks for a specified amount after they purchased certain
products and properly submitted a mail-in rebate.
184.
Based on the rebate forms that they filled out and submitted, Plaintiffs and the
Nationwide Mail-In Rebate Class agreed to purchase the products that were eligible for rebate. That
is, Plaintiffs and the Nationwide Mail-In Rebate Class paid, and Menards accepted, the purchase price
for the products and submitted valid rebate applications, and therefore performed their obligations
under the specific rebate forms.
185.
Menards materially breached its specific contracts with Plaintiffs and the Nationwide
Mail-In Rebate Class by failing to send the rebate checks at all or by failing to send the full amount
promised to Plaintiffs and the Nationwide Mail-In Rebate Class members.
186.
These breaches of contract have directly and proximately caused Plaintiffs and the
Nationwide Mail-In Rebate Class economic injury, including the amount of the rebates that should
have been conspicuously issued for individuals who properly submitted rebate applications, as well as
the interest that should have been accrued following the promised six-to-eight week processing time.
SECOND CAUSE OF ACTION
Breach of the Implied Covenant of Good Faith and Fair Dealing
(On Behalf of Plaintiffs and the Nationwide Mail-In Rebate Class)
187.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
188.
If the Court finds Menards ultimately fulfilled the terms of its contracts, then Menards
has still breached the implied covenant of good faith and fair dealing.
189.
Implicit in Menards’ specific contracts, namely its rebate forms, with Plaintiffs and
Nationwide Mail-In Rebate Class were provisions prohibiting Menards from engaging in conduct that
32
frustrated or impaired Plaintiffs’ and the Nationwide Mail-In Rebate Class’s rights to receive the full
benefits of the agreements.
190.
Menards acted unreasonably and evaded the spirit of the bargain, and thus breached
the implied covenant of good faith and fair dealing, by failing to send the rebate checks at all or by
failing to send the full amount promised to Plaintiffs and the Nationwide Mail-In Rebate Class
members.
191.
The aforementioned breaches have directly and proximately caused Plaintiffs and the
Nationwide Mail-In Rebate Class economic injury, including, but not limited to, denying them the
money that was promised through the rebate program, as well as the interest that should have been
accrued following the promised six-to-eight week processing time.
THIRD CAUSE OF ACTION
Unjust Enrichment
In the Alternative to Claims for Breach of Contract and Implied Covenant of Good Faith and
Fair Dealing
(On Behalf of Plaintiffs and the Nationwide Mail-In Rebate Class)
192.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
193.
If the Court finds Plaintiffs’ and the Nationwide Mail-In Rebate Class’s contracts with
Menards invalid, non-existent, or unenforceable, Plaintiffs and the members of the Nationwide Mail-
In Rebate Class may be left without any adequate remedy at law.
194.
Plaintiffs and the Nationwide Mail-In Rebate Class have conferred a benefit upon
Menards in the form of the money it charged and collected from them when they purchased products
with the promise of a rebate.
195.
Menards’ practice of failing to send the promised rebate checks at all or by failing to
send the full amount promised to Plaintiffs and the Nationwide Mail-In Rebate Class members
resulted in Plaintiffs and members of the Nationwide Mail-In Rebate Class being denied the benefit
of redeeming their full rebates as promised. Further, Menards benefits because its rebate program is
33
designed to reduce the issuance of and to discourage customers’ redemption of rebates, because rebate
checks are mailed to customers in cardstock junk mailers displaying advertisements. Menards
appreciates and/or has knowledge of the benefits conferred upon it by Plaintiffs and the Nationwide
Mail-In Rebate Class.
196.
Under principles of equity and good conscience, Menards should not be permitted to
retain the monies belonging to Plaintiffs and the Nationwide Mail-In Rebate Class that they unjustly
received as a result of its wrongful conduct described herein.
197.
Accordingly, Plaintiffs, on behalf of themselves and the other members of the
Nationwide Mail-In Rebate Class, seek restitution and disgorgement of all amounts that should have
been paid to them, by which Menards has been unjustly enriched.
FOURTH CAUSE OF ACTION
Violation of Wis. Stat. § 100.18
(On Behalf of Plaintiffs and the Wisconsin Mail-In Rebate Class)
198.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
199.
Wis. Stat. § 100.18 prohibits a corporation from making any advertisement,
announcement, representation, or statement of fact which is untrue, deceptive, or misleading with the
intent to sell, distribute, increase the consumption of or in any way dispose of any real estate,
merchandise, securities, employment, services, or anything offered by such corporation.
200.
Wis. Stat. § 100.18 applies to Menards’ actions and conduct described herein because
Menards advertised, announced, represented, and otherwise made statements of fact in connection
with the sale of merchandise in Wisconsin.
201.
Menards’ actions in affirmatively representing and advertising specific rebates and then
imposing undisclosed rebate limitations violates Wis. Stat. § 100.18(1) and (9)(a) and, as described
herein, have resulted, and will result, in damages to Plaintiffs and the members of the Wisconsin Mail-
In Rebate Class.
34
202.
Upon information and belief, and given the fact that Menards offered, implemented
and/or managed the Menards rebate program, Menards knew or should have known that it
deceptively and unfairly advertised the Menards rebate program to consumers, and misrepresented
the amount of the rebate checks mailed to customers.
203.
Specifically, Menards promised consumers, through its “11% Off Everything” rebate
promotion, that if they purchased any product at Menards during the promotion and timely sent in a
completed rebate form, they would receive a rebate check amounting to 11% of the value of their
purchase within 6-8 weeks.
204.
Despite those promises, Menards did not provide a full rebate check to the members
of the Wisconsin Mail-In Rebate Class and minimized its rebate obligations.
205.
Menards also sent Plaintiffs’ rebate checks far outside the six to eight week processing
period, if it sent the checks at all.
206.
Menards represented to consumers that the “after mail-in rebate” prices listed in store
could feasibly be obtained by the average consumer following the prescribed rebate process.
207.
As a direct and proximate cause of Menards’ deceptive and unfair trade practices,
Plaintiffs and the Wisconsin Mail-In Rebate Class suffered actual damages, including monetary losses
for the amount of the rebate check they should have (but did not) receive, as well as monetary losses
for the purchase price of the product altogether (as they would have chosen not to purchase the
product or to purchase it elsewhere).
208.
Menards’ failure to fulfill its rebate obligations to Plaintiffs and the Wisconsin Mail-In
Rebate Class members was unfair, deceptive, and misleading.
209.
Menards’ conduct is in violation of Wis. Stat. § 100.18(1) and (9)(a), and Plaintiffs and
the members of the Wisconsin Mail-In Rebate Class are thus entitled to damages totaling twice the
amount of pecuniary loss, costs, reasonable attorney’s fees, injunctive relief prohibiting Defendant’s
35
untrue, deceptive, and misleading advertising going forward, and any other penalties or awards that
may be appropriate under applicable law.
FIFTH CAUSE OF ACTION
Violation of the Illinois Consumer Fraud and Deceptive Business Practices Act
815 ILCS 505/1, et seq.
(On Behalf of Plaintiffs and the Illinois Mail-In Rebate Class)
210.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
211.
The Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1,
et seq. (“ICFA”), protects both consumers and competitors by promoting fair competition in
commercial markets for goods and services.
212.
The ICFA prohibits any unlawful, unfair, or fraudulent business acts or practices
including the employment of any deception, fraud, false pretense, false promise, false advertising,
misrepresentation, or the concealment, suppression, or omission of any material fact, with intent that
others rely upon the concealment, suppression, or omission of such material fact, or the use or
employment of any practice described in Section 2 of the “Uniform Deceptive Trade Practices Act”.
815 ILCS 505/2.
213.
The ICFA applies to Menards’ actions and conduct described herein because its
conduct resulted in the sale of goods and services in Illinois.
214.
As a corporation, Menards is a “person” as defined by Section 505/1(c) of the ICFA.
215.
The goods Menards sold to Plaintiffs were “merchandise” within the meaning of
Section 505/1(b) of the ICFA, and the Menards’ sale of those items was considered “trade” or
“commerce” under Section 505/1(f) of the ICFA.
216.
Menards’ actions in affirmatively representing and advertising specific rebates and
failing to pay offends public policy, deceived Plaintiffs and the Illinois Mail-In Rebate Class and as
36
described herein, and have resulted, and will result in, damages to Plaintiffs and the members of the
Illinois Mail-In Rebate Class.
217.
Upon information and belief, and given the fact that Menards offered, implemented
and/or managed the Menards rebate program, Menards knew or should have known that it
deceptively and unfairly advertised the Menards rebate program to consumers, and misrepresented
the amount of the rebate checks mailed to customers.
218.
Specifically, Menards promised consumers, through its “11% Off Everything” rebate
promotion, that if they purchased any product at Menards during the promotion and timely sent in a
completed rebate form, they would receive a rebate check amounting to 11% of the value of their
purchase within six to eight weeks.
219.
Despite those promises, Menards did not provide a full rebate check to the members
of the Illinois Mail-In Rebate Class and minimized its rebate obligations.
220.
Menards also sent Plaintiffs’ rebate checks far outside the six to eight week processing
period, if it sent the checks at all.
221.
Defendant represented to consumers that the “after mail-in rebate” prices listed in
store could feasibly be obtained by the average consumer following the prescribed rebate process.
222.
As a direct and proximate cause of Menards’ deceptive and unfair trade practices,
Plaintiffs and the Illinois Mail-In Rebate Class suffered actual damages, including monetary losses for
the amount of the rebate check they should have (but did not) received, and monetary losses for the
purchase price of the product altogether (as they would have chosen not to purchase the product or
to purchase it elsewhere).
223.
As a result of Defendant’s material misrepresentations regarding Menards, Defendant
violated section 501/2(a)(9) of the Uniform Deceptive Trade Practices Act (“DTPA”) which
proscribes “advertis[ing] goods or services with intent not to sell them as advertised.”
37
224.
Menards’ failure to fully and timely fulfill its rebate obligations to Plaintiffs and the
Illinois Mail-In Rebate Class members was unfair and deceptive.
225.
Menards’ conduct is in violation of the ICFA, and Plaintiffs and the members of the
Illinois Mail-In Rebate Class are thus entitled to damages totaling twice the amount of pecuniary loss,
costs, reasonable attorney’s fees, injunctive relief prohibiting Defendant’s unfair and deceptive
advertising going forward, and any other penalties or awards that may be appropriate under applicable
SIXTH CAUSE OF ACTION
Violation of the Michigan Consumer Protection Act
Mich. Comp. Laws § 445.901, et seq.
(On Behalf of Plaintiffs and the Michigan Mail-In Rebate Class)
226.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
227.
The Michigan Consumer Protection Act, Mich. Comp. Laws §445.901, et seq.
(“MCPA”), prohibits unfair, unconscionable, or deceptive methods, acts or practices in the conduct
of trade or commerce.
228.
Namely, under §445.903, the MCPA prohibits false advertising in the conduct of trade
or commerce.
229.
The MCPA applies to Menards’ actions and conduct described herein because the
deceptive methods, acts and practices occurred in the conduct of trade or commerce in Michigan.
230.
As a corporation, Menards is a “person” as defined by MCPA Section 445.902(d).
231.
Menards’ actions in affirmatively representing and advertising specific rebates and then
failing to pay offends public policy, deceived Plaintiffs and the Michigan Mail-In Rebate Class as
described herein, and have resulted, and will result, in damages to Plaintiffs and the members of the
Michigan Mail-In Rebate Class.
38
232.
Upon information and belief, and given the fact that Menards offered, implemented
and/or managed the Menards rebate program, Menards knew or should have known that it
deceptively and unfairly advertised the Menards rebate program to consumers, and misrepresented
the amount of the rebate checks mailed to customers.
233.
Specifically, Menards promised consumers, through its “11% Off Everything” rebate
promotion, that if they purchased any product at Menards during the promotion and timely sent in a
completed rebate form, they would receive a rebate check amounting to 11% of the value of their
purchase within six to eight weeks.
234.
Despite those promises, Menards did not provide a full rebate check to the Michigan
Mail-In Rebate Class and minimized its rebate obligations.
235.
Menards also sent Plaintiffs’ rebate checks far outside the six to eight week processing
period, if it sent the checks at all.
236.
Defendant represented to consumers that the “after mail-in rebate” prices listed in
store could feasibly be obtained by the average consumer following the prescribed rebate process.
237.
As a direct and proximate cause of Menards’ deceptive and unfair trade practices,
Plaintiffs and the Michigan Mail-In Rebate Class suffered actual damages, including monetary losses
for the amount of the rebate check they should have (but did not) received, as well as monetary losses
for the purchase price of the product altogether (as they would have chosen not to purchase the
product or to purchase it elsewhere).
238.
Menards’ failure to fully and timely fulfill its rebate obligations to Plaintiffs and the
Michigan Mail-In Rebate Class members was unfair and deceptive.
239.
Menards’ conduct is in violation of the MCPA, and Plaintiffs and the members of the
Michigan Mail-In Rebate Class are thus entitled to damages totaling twice the amount of pecuniary
loss, costs, reasonable attorney’s fees, injunctive relief prohibiting Defendant’s unfair and deceptive
39
advertising going forward, and any other penalties or awards that may be appropriate under applicable
SEVENTH CAUSE OF ACTION
Violation of the Missouri Merchandising Practices Act
Missouri Rev. Stat. § 407.010, et. seq.
(On Behalf of Plaintiffs and the Missouri Mail-In Rebate Class)
240.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
241.
The Missouri Merchandising Practices Act § 407.010, et seq. (“MMPA”), prohibits
unfair or deceptive acts or practices in connection with consumer transactions.
242.
The MMPA applies to Menards’ actions and conduct described herein because the
unfair and deceptive acts or practices occurred in connection with trade or commerce within the
meaning of MMPA § 407.010(7).
243.
As a corporation, Menards is a “person” as defined by MMPA § 407.010(5).
244.
Further, under §407.020, the MCPA prohibits false advertising in connection with
consumer transactions.
245.
Menards’ actions in affirmatively representing and advertising specific rebates and then
failing to pay offends public policy, deceived Plaintiffs and the Missouri Mail-In Rebate Class as
described herein, and have resulted, and will result in, damages to Plaintiffs and the members of the
Missouri Mail-In Rebate Class.
246.
Upon information and belief, and given the fact that Menards offered, implemented
and/or managed the Menards rebate program, Menards knew or should have known that it
deceptively and unfairly advertised the Menards rebate program to consumers, and misrepresented
the amount of the rebate checks mailed to customers.
247.
Specifically, Menards promised consumers, through its “11% Off Everything” rebate
promotion, that if they purchased any product at Menards during the promotion and timely sent in a
40
completed rebate form, they would receive a rebate check amounting to 11% of the value of their
purchase within six to eight weeks.
248.
Despite those promises, Menards did not provide a full rebate check to the Missouri
Mail-In Rebate Class and minimized its rebate obligations.
249.
Menards also sent Plaintiffs’ rebate checks far outside the six to eight week processing
period, if it sent the checks at all.
250.
Defendant represented to consumers that the “after mail-in rebate” prices listed in
store could feasibly be obtained by the average consumer following the prescribed rebate process.
251.
As a direct and proximate cause of Menards’ deceptive and unfair trade practices,
Plaintiffs and the Missouri Mail-In Rebate Class suffered actual damages, including monetary losses
for the amount of the rebate check they should have (but did not) received, as well as monetary losses
for the purchase price of the product altogether (as they would have chosen not to purchase the
product or to purchase it elsewhere).
252.
Menards’ failure to fully and timely fulfill its rebate obligations to Plaintiffs and the
Missouri Mail-In Rebate Class members was unfair, deceptive, and misleading.
253.
Menards’ conduct is in violation of the MMPA, and Plaintiffs and the members of the
Missouri Mail-In Rebate Class are thus entitled to damages totaling twice the amount of pecuniary
loss, costs, reasonable attorney’s fees, injunctive relief prohibiting Menards’ unfair and deceptive
advertising going forward, and any other penalties or awards that may be appropriate under applicable
EIGHTH CAUSE OF ACTION
Violation of the North Dakota Unfair Trade Practices Law
N.D. Cent. Code §§ 51-15-01 – 51-15-11
(On Behalf of Plaintiffs and the North Dakota Mail-In Rebate Class)
254.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
41
255.
The North Dakota Unfair Trade Practices Law § 51-15-01, et seq. (“UTPL”), prohibits
unfair or deceptive acts or practices in connection with consumer transactions.
256.
The UTPL applies to Menards’ actions and conduct described herein because the
unfair and deceptive acts or practices occurred in connection with the sale or advertisement of
merchandise within the meaning of UTPL § 51-15-01.
257.
Further, under § 51-15-02, the UTPL prohibits false advertising in connection with
the sale or advertisement of any merchandise.
258.
As a corporation, Menards is a “person” as defined by UTPL § 51-15-01.
259.
Menards’ actions in affirmatively representing and advertising specific rebates and then
failing to pay offends public policy, deceived Plaintiffs and the North Dakota Mail-In Rebate Class as
described herein, and have resulted, and will result in, damages to Plaintiffs and the members of the
North Dakota Mail-In Rebate Class.
260.
Upon information and belief, and given the fact that Menards offered, implemented
and/or managed the Menards rebate program, Menards knew or should have known that it
deceptively and unfairly advertised the Menards rebate program to consumers, and misrepresented
the amount of the rebate checks mailed to customers.
261.
Specifically, Menards promised consumers, through its “11% Off Everything” rebate
promotion, that if they purchased any product at Menards during the promotion and timely sent in a
completed rebate form, they would receive a rebate check amounting to 11% of the value of their
purchase within six to eight weeks.
262.
Despite those promises, Menards did not provide a full rebate check to the North
Dakota Mail-In Rebate Class and minimized its rebate obligations.
263.
Menards also sent Plaintiffs’ rebate checks far outside the six to eight week processing
period, if it sent the checks at all.
42
264.
Defendant represented to consumers that the “after mail-in rebate” prices listed in
store could feasibly be obtained by the average consumer following the prescribed rebate process.
265.
As a direct and proximate cause of Menards’ deceptive and unfair trade practices,
Plaintiffs and the North Dakota Mail-In Rebate Class suffered actual damages, including monetary
losses for the amount of the rebate check they should have (but did not) received, as well as monetary
losses for the purchase price of the product altogether (as they would have chosen not to purchase
the product or to purchase it elsewhere).
266.
Menards’ failure to fully and timely fulfill its rebate obligations to Plaintiffs and the
North Dakota Mail-In Rebate Class members was unfair, deceptive, and misleading.
267.
Menards’ conduct is in violation of the UTPL and Plaintiffs and the members of the
North Dakota Mail-In Rebate Class are thus entitled to damages totaling twice the amount of
pecuniary loss, costs, reasonable attorney’s fees, injunctive relief prohibiting Defendant’s unfair and
deceptive advertising going forward, and any other penalties or awards that may be appropriate under
applicable law.
NINTH CAUSE OF ACTION
Violation of the Ohio Consumer Sales Practices Act
Ohio Rev. Stat. Ann. § 1345.01, et seq.
(On Behalf of Plaintiffs and the Ohio Mail-In Rebate Class)
268.
Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
269.
The Ohio Consumer Sales Practices Act § 1345.01, et seq. (“CSPA”), prohibits unfair
or deceptive acts or practices in connection with consumer transactions.
270.
The CSPA applies to Menards’ actions and conduct described herein because the
unfair and deceptive acts or practices occurred in connection with trade or commerce within the
meaning of § 1345.01 (A).
271.
As a corporation, Menards is a “person” as defined by § 1345.01 (B).
43
272.
Menards’ actions in affirmatively representing and advertising specific rebates and then
failing to pay offends public policy, deceived Plaintiffs and the Ohio Mail-In Rebate Class as described
herein, and have resulted, and will result in, damages to Plaintiffs and the members of the Ohio Mail-
In Rebate Class.
273.
Upon information and belief, and given the fact that Menards offered, implemented
and/or managed the Menards rebate program, Menards knew or should have known that it
deceptively and unfairly advertised the Menards rebate program to consumers, and misrepresented
the amount of the rebate checks mailed to customers.
274.
Specifically, Menards promised consumers, through its “11% Off Everything” rebate
promotion, that if they purchased any product at Menards during the promotion and timely sent in a
completed rebate form, they would receive a rebate check amounting to 11% of the value of their
purchase within six to eight weeks.
275.
Despite those promises, Menards did not provide a full rebate check to the Ohio Mail-
In Rebate Class and minimized its rebate obligations.
276.
Menards also sent Plaintiffs’ rebate checks far outside the six to eight week processing
period, if it sent the checks at all.
277.
Defendant represented to consumers that the “after mail-in rebate” prices listed in
store could feasibly be obtained by the average consumer following the prescribed rebate process.
278.
In conjunction with the violations of CSPA, set forth above, Defendant violated §
4165.02 (11) of the Uniform Deceptive Trade Practices Act (“DTPA”) which proscribes “advertis[ing]
goods or services with intent not to sell them as advertised.”
279.
As a direct and proximate cause of Menards’ deceptive and unfair trade practices,
Plaintiffs and the Ohio Mail-In Rebate Class suffered actual damages, including monetary losses for
the amount of the rebate check they should have (but did not) received, as well as monetary losses for
44
the purchase price of the product altogether (as they would have chosen not to purchase the product
or to purchase it elsewhere).
280.
Menards’ failure to fully and timely fulfill its rebate obligations to Plaintiffs and the
Ohio Mail-In Rebate Class members was unfair, deceptive, and misleading.
281.
Menards’ conduct is in violation of the CSPA and Plaintiffs and the members of the
Ohio Mail-In Rebate Class are thus entitled to damages totaling twice the amount of pecuniary loss,
costs, reasonable attorney’s fees, injunctive relief prohibiting Defendant’s unfair and deceptive
advertising going forward, and any other penalties or awards that may be appropriate under applicable
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and the Classes, respectfully requests that
this Court enter an order:
Certifying this case as a class action on behalf of the Classes defined above, appointing
Plaintiffs as class representatives and appointing their counsel as class counsel;
Declaring that Defendant’s actions, as set out above, constitute (i) violations of the
consumer protection laws stated above, (ii) breach of contract, (iii) breach of the implied
covenant of good faith and fair dealing, and (iv) unjust enrichment (in the alternative to
breach of contract);
Awarding injunctive and other equitable relief as necessary to protect the interests of the
Classes, including, inter alia, an order prohibiting Menards from engaging in the wrongful
and unlawful acts described herein;
Awarding damages to Plaintiffs and the Classes in an amount to be determined at trial, or,
in the alternative, awarding restitution to Plaintiffs and the Classes in an amount to be
determined at trial, and requiring Menards to disgorge all amounts by it was unjustly
enriched;
Awarding Plaintiffs and the Classes their reasonable litigation expenses and attorneys’ fees;
Awarding Plaintiffs and the Classes pre- and post-judgment interest, to the extent
allowable; and
Awarding such other and further relief as equity and justice may require.
45
JURY DEMAND
Plaintiffs demand a trial by jury for all issues so triable.
Respectfully submitted,
__/s/Eric J. Haag_____________________
Eric J. Haag
Atterbury, Kammer & Haag, S.C.
8500 Greenway Blvd., Suite 103
Middleton, WI 53562
Telephone:(608) 821-4600
Fax:(608)821-4610
E-mail: ehaag@wiscinjurylawyers.com
Sabita J. Soneji
V Chai Oliver Prentice
Tycko & Zavareei LLP
1970 Broadway, Suite 1070
Oakland, CA 94612
Telephone: (510) 254-6808
Facsimile: (202) 973-0950
E-mail: ssoneji@tzlegal.com
Attorneys for Plaintiffs, individually
and on behalf of a class of similarly
situated individuals
46
| consumer fraud |
7solDocBD5gMZwczyo15 | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
(Southern Division)
COMFORT KAAKYIRE
*
17661 Kohlhoss Road
*
Poolesville, MD 20837-2190
*
*
On Her Own Behalf and on Behalf of All
*
Others Similarly Situated,
*
*
Plaintiff,
*
*
vs.
* Civil No. ______________
*
KING BUICK GMC, LLC
*
16200 South Frederick Avenue
*
Gaithersburg, MD 20877
*
SERVE ON:` *
Conrad V. Aschenbach *
C/O King Pontiac Buick GMC, LLC *
16200 South Frederick Avenue *
Gaithersburg, MD 20877 *
*
KING LINCOLN, INC.
*
953 North Frederick Avenue
*
Gaithersburg, MD 20879
*
SERVE ON:
*
Conrad V. Aschenbach
*
16200 South Frederick Ave.
*
Route 355
*
Gaithersburg, MD 20760
*
*
KING AUTO OF SILVER SPRING, LLC
*
3221 Automobile Boulevard
*
Silver Spring, MD 20904
*
SERVE ON:
*
Elizabeth Anne Mendelson
*
3221 Automobile Boulevard
*
Silver Spring, MD 20904-4909
*
*
KING VEHICLES, LLC
*
16160 Frederick Road
*
Gaithersburg, MD 20877
*
SERVE ON:
*
William Henry Aschenbach
*
16160 Frederick Road
*
Gaithersburg, MD 20877-4011
*
*
KING HAGERSTOWN MOTORS LLC
*
1714 Massey Boulevard
*
Hagerstown, MD 21740
*
SERVE ON:
*
Conrad V. Aschenbach
*
16200 Frederick Rd.
*
Gaithersburg, MD 20989
*
*
KING VOLKSWAGEN, LLC
*
979 North Frederick Avenue
*
Gaithersburg, MD 20879
*
SERVE ON:
*
Stephen C. Winter
*
Suite 300
*
600 Washington Avenue
*
Towson, MD 21204
*
*
Defendants.
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
CLASS ACTION COMPLAINT
Plaintiff Comfort Kaakyire (“Plaintiff” or “Named Plaintiff”), on her own behalf and on
behalf of all others similarly situated, by and through her attorneys Richard S. Gordon, Stacie F.
Dubnow, and Thomas M. McCray-Worrall of Gordon & Wolf, Chtd. and Mark H. Steinbach, Of
Counsel to O’Toole Rothwell, alleges and states as follows:
I.
INTRODUCTION
1.
This is a Class Action Complaint against King Buick GMC, LLC (“King Buick”),
King Lincoln, Inc., King Auto of Silver Spring, LLC, King Vehicles, LLC, King Hagerstown
Motors LLC, and King Volkswagen, LLC (hereinafter collectively “King Auto Group”), for
violating, conspiring to violate, and aiding and abetting the violation of, the statutory and
common law obligations governing motor vehicle sales that provide significant safeguards to
consumers purchasing used vehicles, as well as for violating the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”), the Maryland Consumer
Protection Act (“CPA”), MD. CODE ANN., COMM. LAW §§ 13-301 et seq., the Magnuson-Moss
Warranty Act, 15 U.S.C. § 2301 et seq., and the Maryland common law.
2.
Named Plaintiff and the Class are persons who purchased from one of
Defendants’ dealerships in Maryland a motor vehicle previously used for a non-consumer
purpose, who were not provided notice of such use as required under Maryland law; that is, the
used motor vehicle previously was used as a short-term rental without disclosure of such use.
3.
As the Maryland Motor Vehicle Administration (“MVA”) recognized when it
enacted COMAR regulations requiring disclosure of prior short-term rental use, many vehicle
buyers seek to avoid vehicles used for short-term rentals because of the perception and
expectation that these vehicles are driven hard by drivers who care little about them, may not
have been well or consistently maintained, and more often are involved in accidents than
vehicles used for personal, family, and household purposes.
4.
Defendants failed to disclose and intentionally concealed from Named Plaintiff
and the Class the material fact that vehicles sold to them previously were used as short-term
rentals. In so doing, Defendants violated a clear and explicit disclosure requirement governing
motor vehicle sales in Maryland and caused damages and losses to Named Plaintiff and members
of the Class. This suit seeks to end Defendants’ illegal sales practices and obtain compensation
for the losses sustained by Named Plaintiff and members of the Class.
5.
Defendants conspired among themselves, by agreement and understanding, to
engage in the unlawful acts and omissions described herein.
6.
Defendants associated together under the non-incorporated “King Auto Group”
umbrella to advertise, market and, upon information and belief, otherwise conduct business as
one entity. All of the Defendants share the moniker “King” in their corporate names and jointly
hold themselves out to the general public under the name King Auto Group. As described
further below, Defendants jointly market and sell used vehicles on their own behalf and on
behalf of each other without the mandatory disclosures required by Maryland law.
7.
Although “King Auto Group” is not registered with the Maryland Department of
Assessments and Taxation, Defendants conduct business using this name and have established a
central website, http://www.KingAuto.com. This joint website solicits business for and provides
links to the websites of each entity within the King Auto Group and specifically advertises the
entities’ availability for auto sales or service in locations, inter alia, such as Silver Spring,
Gaithersburg and Hagerstown. http://www.KingAuto.com (retrieved July 29, 2013).
8.
Defendants not only jointly use the King Auto Group moniker and the King Auto
Group website to market and sell used vehicles, but as part of and in furtherance of their scheme,
Defendants additionally use each of their individual websites to advertise their own used vehicles
as well as the used vehicles owned by their co-conspirators. Defendants’ individual websites
contain links to the websites of other Defendants, market the identical used vehicles (including
vehicles previously used for short-term rentals) being sold on other Defendants’ websites, and
refer customers from one Defendant to another for information and sales.
9.
King Auto Group agreed to develop and use form documents, and used such form
documents, in the course of its used vehicle sales. In addition, Defendants associated together to
present themselves to their customers and the world as one entity, even though the members of
the King Auto Group association are separately incorporated. As stated, Defendants market
themselves through a common website and deliberately use the moniker “King Auto Group” as a
way of branding the dealerships and making themselves appear as part of a large umbrella entity
that enjoys “family” ownership characteristics. This association is marketed as part of a large,
legitimate enterprise that certainly would abide by Maryland law.
10.
Through their association, Defendants developed and agreed upon the uniform
and systematic scheme described herein to acquire and sell prior short-term rental vehicles to
consumers without the disclosures required by Maryland law, with misleading and fraudulent
omissions and representations concerning the history of the used vehicles being sold, and with
the specific intent to deceive and defraud Named Plaintiff and members of the Class. As a result
of this scheme, Named Plaintiff and members of the Class were damaged.
11.
The King Auto Group entities purchase a large number of used vehicles
previously used as short-term rentals. On information and belief, Defendants collectively
negotiate favorable purchase agreements with multiple rental car companies. Defendants also
purchase a large number of rental vehicles through dealer auctions and from the general public
and systematically place these vehicles on the used car lots of King Auto Group entities
alongside other used vehicles that were not used as short-term rentals. At the time of the vehicle
purchases by Named Plaintiff and the Class, the King Auto Group took no steps to differentiate
for its customers one car (the prior short-term rental) from the next (the vehicle previously used
only for personal use).
12.
Because prior short-term rental vehicles are harder to sell and consistently result
in a lower selling price, the King Auto Group entities conceal the prior use of these vehicles as
short-term rentals at the point of purchase by uniformly and consistently failing to provide the
consumer with a clear and conspicuous written disclosure of the vehicle’s rental history as
required by Maryland law. Defendants’ affirmative acts and concealments violate federal law, as
well as Maryland’s motor vehicle laws, common law, and consumer protection law.
13.
Defendants’ violations of both federal and Maryland law, as well as their conduct
in conspiring to violate, and aiding and abetting the violation of, Maryland law have enriched
them unjustly at the expense of hundreds and potentially thousands of Maryland consumers.
14.
King Auto Group’s use of form vehicle sales agreements and other form
documents to conceal the prior rental history of the vehicles sold to Named Plaintiff and Class
members, as well as its uniform non-disclosures and affirmative misrepresentations on those
forms, make this case particularly suitable for resolution through a class action lawsuit.
15.
Upon information and belief, one or more of the owners of individual King Auto
Group entities also enjoy at least a partial ownership interest in some or all of the remaining
individual King Auto Group entities and share or obtain the benefit of key management
personnel from the other King Auto Group entities.
16.
The King Auto Group entities named as Defendants acted in concert to
accomplish, and jointly benefitted from, the scheme described herein.
II.
PARTIES
17.
Named Plaintiff Comfort Kaakyire is a resident of Montgomery County,
Maryland. On March 17, 2011, Ms. Kaakyire purchased a used 2008 Saturn Outlook from an
entity that then held itself out as “King Pontiac Buick GMC”; this entity currently is known and
doing business as King Buick GMC, LLC (“King Buick”). An Internet search of the trade name
“King Pontiac Buick GMC” directs the searcher to the website www.KingAuto.com.
Unbeknownst to Comfort Kaakyire at the time of sale, the vehicle she purchased previously was
used for purposes other than as a consumer good. Defendants failed to disclose to Ms. Kaakyire
clearly and conspicuously that this vehicle previously was used for a purpose other than as a
consumer good or, specifically, that it had been used as a short-term rental. A copy of Ms.
Kaakyire’s Buyer’s Order is attached as Exhibit A.
18.
Defendant King Buick GMC, LLC, formerly known as King Pontiac Buick GMC,
LLC, t/a King Buick GMC, is a Maryland entity whose principal place of business is located at
16200 South Frederick Avenue, Gaithersburg, Maryland 20877, which regularly engages in
motor vehicle sales in Montgomery County. King Buick GMC, LLC is an entity that owns and
operates car dealerships located in the state of Maryland and is primarily engaged in selling new
and used vehicles to consumers on its lot and on the Internet, both on its own behalf and on
behalf of its co-conspirators. Ms. Kaakyire purchased her used vehicle from King Buick GMC.
19.
Defendant King Lincoln, Inc., formerly known as King Lincoln-Mercury, Inc., t/a
King Kia, is a Maryland corporation whose principal place of business is located at 953 North
Frederick Avenue, Gaithersburg, Maryland 20879, which regularly engages in motor vehicle
sales in Montgomery County. King Lincoln, Inc. is an entity that owns and operates car
dealerships located in the state of Maryland and is primarily engaged in selling new vehicles to
consumers on its lot and new and used vehicles on the Internet, both on its own behalf and on
behalf of its co-conspirators.
20.
Defendant King Auto of Silver Spring, LLC, formerly t/a as “King Kia of Silver
Spring” and “Kia of Silver Spring,” is a Maryland corporation whose principal place of business
is located at 3221 Automobile Boulevard, Silver Spring, Maryland 20904, which regularly
engages in motor vehicle sales in Montgomery County. King Auto of Silver Spring, LLC is an
entity that owns and operates car dealerships located in the state of Maryland and is primarily
engaged in selling new and used vehicles to consumers on its lot and on the Internet, both on its
own behalf and on behalf of its co-conspirators.
21.
Defendant King Vehicles, LLC, t/a King Mitsubishi and/or King Mitsubishi Fuso,
is a Maryland entity whose principal place of business is located at 16160 Frederick Road,
Gaithersburg, Maryland 20877, which regularly engages in motor vehicle sales in Montgomery
County. King Vehicles, LLC owns and operates car dealerships located in the state of Maryland
and is primarily engaged in selling new vehicles to consumers on its lot and new and used
vehicles on the Internet, both on its own behalf and on behalf of its co-conspirators.
22.
Defendant King Hagerstown Motors LLC, t/a Hagerstown Ford and/or as King
Auto, is a Maryland entity whose principal place of business is located at 1714 Massey
Boulevard, Hagerstown, Maryland 21740, which regularly engages in motor vehicle sales to
Montgomery County residents. King Hagerstown Motors LLC is an entity that owns and
operates car dealerships located in the state of Maryland and is primarily engaged in selling new
and used vehicles to consumers on its lot and on the Internet, both on its own behalf and on
behalf of its co-conspirators.
23.
Defendant King Volkswagen, LLC, t/a King Volkswagen, is a Maryland entity
whose principal place of business is located at 979 North Frederick Avenue, Gaithersburg,
Maryland 20879, which regularly engages in motor vehicle sales in Montgomery County. King
Volkswagen, LLC owns and operates car dealerships located in the state of Maryland and is
primarily engaged in selling new and used vehicles to consumers on its lot and on the Internet,
on both its own behalf and on behalf of its co-conspirators.
III.
JURISDICTION AND VENUE
24.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
§ 1331 (Federal Question), and 28 U.S.C. § 1367 (Supplemental Jurisdiction).
25.
Venue is proper in this District because, under 28 U.S.C. § 1391(b), a substantial
part of the events or omissions giving rise to the claims herein occurred within this District,
Named Plaintiff resides in this District, and the Defendants all systematically and continually
transact business in this District.
IV.
FACTS APPLICABLE TO ALL COUNTS
26.
This is an action against the Defendants resulting from their uniform and
consistent failure to disclose that hundreds, if not thousands, of vehicles sold to consumers were
prior short-term rentals; this action also results from Defendants’ conspiracy to conceal and not
disclose the rental history of those vehicles, and from their conduct in aiding and abetting the
above-described unlawful conduct.
27.
King Auto Group acquires its inventory of used motor vehicles from a variety of
sources, including direct purchases from consumers, auto auctions, and car rental companies.
28.
At the time a vehicle is purchased for resale on one of its lots located in the State
of Maryland, Defendants know, and have information available to them, that identifies the prior
use of the vehicle for short-term rentals.
29.
In accordance with the disclosure provisions of COMAR 11.12.01.14(M)(1),
motor vehicle dealers in Maryland must disclose to a prospective purchaser a vehicle’s prior use
for any purpose other than as a consumer good “clearly and conspicuously” in writing. This
disclosure must specifically indicate, clearly and conspicuously, that the vehicle previously was
used as a “short-term rental vehicle.”
30.
For more than thirty years, COMAR (currently codified in 11.12.01.14(M)) has
provided that:
(1)
Vehicles formerly used for a purpose other than a consumer good
shall be clearly and conspicuously identified as to their former use.
This includes, but is not limited to, vehicles formerly used:
(a)
For public or governmental purposes and normally driven by
multiple drivers;
(b)
As executive driven vehicles;
(c)
As demonstrators;
(d)
For driver training;
(e)
As taxicabs; or
(f)
As short-term rental vehicles.
(2)
The word “commercial”, or similar ambiguous terms, may not be used to
describe these vehicles.
31.
Consequently, Maryland dealers must clearly and conspicuously disclose when
the vehicles they offer for sale have been used as short-term rental vehicles.
32.
However, King Auto Group does not make this mandated disclosure to buyers.
At all times relevant to this Complaint, it has been the standard practice of Defendants to conceal
or otherwise fail to disclose to customers a vehicle’s prior use as a short-term rental as required
by Maryland law.
33.
Defendants are well aware of their duty to clearly and conspicuously disclose to
retail buyers any prior short-term use of used vehicles. However, King Auto Group upon
information and belief has an unwritten but understood company-wide policy in effect at all of
Defendants’ dealerships that does not provide for clear and conspicuous disclosure of the former
use of a used vehicle for a purpose other than as a consumer good.
34.
Indeed, as part of the fraudulent scheme alleged herein, Defendants agreed to
employ, and did employ, standard sales agreements that contain a section expressly requiring
disclosure of prior non-consumer vehicle use, including prior short-term rental use, reflecting
their knowledge that Maryland law mandates such disclosure.
35.
But rather than provide a sales agreement form on which any disclosure of prior
short-term rental use would be readily noticeable – for example, by making the disclosure in
LARGE BOLD PRINT or in a different color as the MVA contemplates in COMAR
11.12.01.14A(2) – Defendants deliberately designed their standard sales agreement in a manner
calculated to not draw attention to any disclosure of prior rental or other commercial use, through
what must be called a “non-disclosure disclosure.” See, for example, the sales agreement form
Defendant King Buick provided to the Named Plaintiff, attached as Exhibit A. The print
Defendants used to facilitate disclosure of prior rental use is measurably smaller than the print
elsewhere on the sales agreement; no effort is made to draw the customer’s attention to what
purportedly is being disclosed about a vehicle’s prior use.
36.
Regardless, Defendants did not give any indication on the sales agreements of
Named Plaintiff or any other members of the Class of their vehicles’ rental history, thereby
concealing material facts related to their transactions. In all cases, the result was the same –
Defendants managed to systematically and routinely sell a prior short-term rental vehicle without
disclosing that history to the buyer.
37.
As part of its scheme to mislead customers into believing that vehicles used for
prior short-term rentals were never put to such use, King Auto Group dealerships further agreed
to employ, and from time to time did employ, a form entitled “Disclosure of Prior Vehicle Use
for Dealership or Commercial Purposes” (hereafter “Prior Use Acknowledgment Form”). This
form, which upon information and belief is provided to buyers only after they have signed the
sales agreement and thus become legally bound to purchase a vehicle, does not provide the “clear
and conspicuous” disclosure of prior non-consumer use required by law.
38.
Nonetheless, after obtaining the customer’s signature on the vehicle sales
contract, the King Auto Group provides its customer with a Prior Use Acknowledgment Form.
This form contains a series of pre-printed boxes that Defendants may check to disclose, for
example, if a vehicle previously has been used for leases or short-term rentals, as a taxicab, or for
another non-consumer purpose. However, Defendants failed to disclose and affirmatively
misrepresented the prior rental use of the vehicles they sold to consumers on this form. By
regularly and systematically failing to check any of the boxes on this form, King Auto Group
concealed, and conspired to conceal, from Named Plaintiff and Class members the material fact
that the vehicles sold to them had no former use other than as consumer goods, had none of the
prior commercial uses indicated on the form and, in particular, had not been used for prior short-
term rentals.
39.
King Auto Group’s representations to Named Plaintiff and Class members on
their contracts of sale and Prior Use Acknowledgement Forms that the vehicles they were buying
had not been used for prior short-term rentals constituted affirmative misrepresentations by King
Auto Group concerning these vehicles’ former use. Further, as part of the scheme alleged herein,
Defendants uniformly and consistently failed to place an “X” or checkmark in the box directly
next to the space provided for disclosure of a “Rental/Lease Vehicle” on the Prior Use
Acknowledgment Form to indicate to purchasers that the vehicle previously was rented or leased,
even when Defendants knew this representation was false. However, even had this box been
marked, such a “disclosure” would not have constituted the “clear and conspicuous” disclosure
of prior short-term rental use required by COMAR 11.12.01.14(M).
40.
As a result, Defendants committed overt acts in furtherance of the fraudulent
scheme and conspiracy alleged herein by: (1) failing to clearly and conspicuously disclose and
concealing prior rental use on the vehicle sales agreements of Named Plaintiff and the Class,
(2) failing to disclose and concealing the prior short-term rental use of vehicles on the Prior Use
Acknowledgement Forms provided to Named Plaintiff and the Class; and (3) failing to disclose
prior short-term rental use on Prior Use Acknowledgment Forms without obfuscating the
disclosure by adding the ambiguous words “Rental/Lease Vehicle” to any disclosure of prior
rental use.
41.
Just as Defendant King Buick failed to provide clear and conspicuous disclosure
to Ms. Kaakyire of the prior short-term rental use of the used vehicle sold to her, each of the
following King Auto Group Defendants upon information and belief similarly failed to provide
clear and conspicuous disclosure to putative Class members in the offers for sale and sales of
their used vehicles. Upon information and belief, Defendants King Volkswagen, LLC, King
Hagerstown Motors, LLC and King Auto of Silver Spring, LLC failed to disclose clearly and
conspicuously the prior short-term rental use of used vehicles sold to putative Class members in
the following transactions in which the titles to such vehicles were transferred to putative Class
members on the following dates:
Vehicle Description
VIN
Defendant
Approx.
Vehicle Sale
Date
1/27/10
2008 Volkswagen Jetta S
3VWJZ71K78M059961
King
Volkswagen,
LLC
3/4/10
2008 Mazda Mazda6I
1YVHP80C285M00223
King
Volkswagen,
LLC
4/10/10
2008 Kia Spectra EX/LX
KNAFE121785544840
King
Volkswagen,
LLC
4/23/10
2009 Kia Sedona EX/LX
KNDMB233896272500
King
Volkswagen,
LLC
1/7/11
2009 Kia Rondo LX/EX
KNAFG528397251439
King
Volkswagen,
LLC
7/20/10
2009 Chevrolet HHR LT
3GNCA53V89S586314
King
Hagerstown
Motors, LLC
12/7/10
2009 Ford Fusion SEL
3FAHP08179R116245
King
Hagerstown
Motors, LLC
1/13/11
2010
Ford
Econoline
E350 Super Duty
1FBNE3BL2ADA21818
King
Hagerstown
Motors, LLC
2/8/11
2010 Ford Fusion SE
3FAHP0HA3AR132396
King
Hagerstown
Motors, LLC
2/22/11
2010 Ford Focus SE
1FAHP3FN3AW111133
King
Hagerstown
Motors, LLC
5/19/10
2009 Mazda Mazda5
JM1CR293290340422
King Auto of
Silver Spring,
LLC
6/1/10
2009
Chrysler
Sebring
Touring/Limited
1C3LC56B39N517551
King Auto of
Silver
Spring,
LLC
6/5/10
2008 Ford Fusion SE
3FAHP07128R260141
King Auto of
Silver
Spring,
LLC
6/25/10
2009
Chrysler
300
Touring
2C3KA53V59H621838
King Auto of
Silver
Spring,
LLC
7/8/10
2009 Kia Spectra EX/LX
KNAFE221895596856
King Auto of
Silver
Spring,
LLC
42.
Defendants King Lincoln, Inc. and King Vehicles, Inc. are not included in the
above table because, upon information and belief, these two Defendants did not sell prior short-
term rental vehicles in their own names but, rather, routinely sold these vehicles through their
King Auto Group co-conspirators – King Buick, King Volkswagen, LLC, King Hagerstown
Motors, LLC or King Auto of Silver Spring, LLC. As a result, although King Lincoln, Inc. and
King Vehicles, Inc. marketed prior rentals to consumers, other King Auto Group Defendants
consummated these sales on behalf of these two Defendants as part of and in furtherance of
Defendants’ conspiracy, agreements, and aiding and abetting of one another’s illegal acts as set
forth in this Complaint.
43.
Defendants further participated in the above-described conspiracy by, among
other things, agreeing to market, and by marketing, other Defendants’ used vehicles on their
websites, by jointly advertising the identical vehicle with the identical Vehicle Identification
Number (“VIN”) simultaneously on more than one Defendant’s website, by agreeing to refer and
by referring customers from one Defendant’s website to another Defendant’s website, by
providing contact information from which a customer could obtain additional information
concerning a used vehicle owned by that co-conspirator, and by offering Carfax reports on used
vehicles owned by co-conspirators which contain embedded links that, when clicked, take the
customer either directly to the website of their co-conspirator or to the common KingAuto.com
website.
44.
By way of example, Hagerstown Motors LLC furnishes Carfax reports for certain
used vehicles offered for sale by: (1) King Buick; (2) King Volkswagen, LLC; (3) King Vehicles
LLC, and (4) King Lincoln, Inc. Further, King Buick furnishes Carfax reports for certain used
vehicles offered for sale by King Lincoln, Inc. and King Volkswagen, LLC; and King
Volkswagen, LLC furnishes certain Carfax reports for vehicles offered for sale by King Lincoln,
45.
Another example of Defendants’ cross-marketing and cross-selling of vehicles
previously used for short term-rentals is the marketing and sale of a used 2009 Kia Rondo, VIN
KNAFG528397251439. This prior rental vehicle was first offered for sale by King Kia in
Gaithersburg, Maryland between August 20, 2010 and December 20, 2010. Then, on December
21, 2010, the same prior rental vehicle was offered for sale by Hagerstown Ford. Finally, on
January 7, 2011, this same prior rental vehicle was sold to a putative Class member by King
Volkswagen. Upon information and belief, Defendants sold this vehicle without clearly and
conspicuously disclosing its prior short-term rental use as required by Maryland law.
46.
By way of additional example, on September 8, 2009, King Buick offered for sale
a 2008 Mazda6I, VIN 1YVHP80C285M00223 – a prior short-term rental. On February 4, 2010,
King Volkswagen offered this identical vehicle for sale and then, on March 4, 2010, sold this
vehicle to a putative Class member
47.
Based on the foregoing, Defendants have an agreement to work together to
market and sell used vehicles and actively are doing so. Defendants’ cross-marketing and
commingling and/or sharing of inventory and Carfax reports is evidence of their cooperation,
joint agreements, and use of common procedures and documents to unlawfully sell such used
vehicles without the disclosures required by Maryland law.
48.
Defendants’ cross-marketing and commingling and/or sharing of inventory and
Carfax reports also is evidence of their assistance, aid and substantial encouragement to one
another in their sale of used vehicles without the disclosures required by Maryland law.
49.
Upon information and belief, Defendants share certain operating expenses and/or
profits associated with, among other things, their joint marketing, shared inventories, cross-
selling of used vehicles, shared management, and the costs of acquiring and furnishing Carfax
reports for one another.
50.
At all times relevant to this Complaint, Defendants were aware that the law
required clear and conspicuous disclosure of the rental history of a used vehicle and knew that
the failure to disclose to retail purchasers such prior use in a clear and conspicuous manner was
51.
Each Defendant possessed knowledge that King Buick and the other Defendants
routinely failed to disclose clearly and conspicuously and misrepresented to consumers the prior
short-term rental use of used vehicles offered for sale and sold to the retail public.
52.
As stated, Defendants all used the identical form vehicle sales agreements. These
agreements included a space specifically designated for the disclosure of the prior non-consumer
use of the vehicles being sold, which Defendants knew did not provide the clear and conspicuous
disclosure of prior short-term rental or other commercial use required by Maryland law.
53.
Even so, upon information and belief, each Defendant routinely failed to use this
space to identify the prior short-term rental use of the vehicles it sold to retail buyers and knew
the other King Auto Group Defendants failed to do so as well. Upon information and belief,
Defendants instead regularly used this space in their form vehicle sales agreements to
misrepresent the vehicles sold to Named Plaintiff and the Class as having no prior short-term
rental use.
54.
Upon information and belief, Defendants employed the same or similar
methodologies for identifying, or failing to identify, vehicles formerly used for a purpose other
than as a consumer good in their marketing and sales, and were aware that none of the
Defendants were clearly and conspicuously disclosing prior short-term rental use of vehicles to
consumers before purchase as required by Maryland law.
55.
Upon information and belief, Defendants knew this practice of concealing and
misrepresenting the rental history of the used vehicles sold to Named Plaintiff and Class
members was uniform throughout all of the King Auto Group dealers.
56.
By jointly marketing and cross-selling one another’s used vehicles, using the
same form documents in their sales with inadequate disclosure of prior short-term rental, sharing
management personnel and operating expenses and profits, developing and implementing the
King Auto Group policy governing disclosure of former short-term rental use of vehicles, and
referring customers between one another’s dealerships, Defendants provided substantial
assistance, aid and encouragement to each other in misrepresenting, concealing and failing to
disclose the material rental history of the used vehicles sold by one another, including by King
Buick.
57.
Defendants knowingly aided, assisted and encouraged each other in their
violations of Maryland law by undertaking the acts alleged herein. In particular, Defendants
knowingly aided, assisted and encouraged King Buick and one another to violate their respective
obligations under Maryland law to disclose the prior short-term rental use of the vehicles sold to
Named Plaintiff and other Class members by joining together to engage in the above-described
conduct, with the knowledge that their aid, assistance and encouragement to one other would
contribute to the commission of tortious acts by the others, including but not limited to a
violation of COMAR 11.12.01.14(M).
58.
These facts further indicate that all of the Defendants were involved in the
transaction of Named Plaintiff as co-conspirators and joint-tortfeasors. As a result, when King
Buick failed to disclose and concealed from Ms. Kaakyire the prior rental use of the vehicle she
was purchasing, it did so as part of a conspiracy, scheme and concerted action in which all of
Defendants participated with their knowledge and consent, as well as with the aid and
encouragement of one another.
59.
Upon information and belief, pursuant to Defendants’ above-referenced
agreement to market and sell used vehicles, Defendants benefited from the profits derived from
the sale of used vehicles sold without the clear and conspicuous disclosure of prior short-term
rental use required by Maryland law.
60.
Upon information and belief, Defendants not only associated as King Auto Group
and engaged in the above-described conspiracy to benefit jointly and profit, but did so to advance
each Defendant’s own individual interest in the above-described conspiracy and to increase
illegally the individual profits, advantage and personal gain of each Defendant. Upon
information and belief, each Defendant and/or its respective owners and/or employees had an
independent personal stake in its own particular corporation and its profitability, including but
not limited to the illegal profits and/or commissions that could be obtained from consumers by
selling used vehicles without clearly and conspicuously disclosing a vehicle’s previous short-
term rental use.
61.
Upon information and belief, payments by Named Plaintiff and the Class to one
Defendant actually resulted in separate monetary or other benefits to other Defendants resulting
from their conspiracy and association as King Auto Group. Defendants and/or their employees,
agents or representatives had both an individual and a collective profit motive in selling prior
short-term rental vehicles without disclosing such prior use to consumers.
62.
Upon information and belief, the greater the number of used vehicles sold by an
individual Defendant without disclosing the prior rental history of such vehicles, the greater the
benefit, gain and/or profits to other Defendants and/or to their employees, agents or
representatives as a result of the above-described cross-marketing, cross-selling and shared used
vehicle inventories and Carfax reports, among other things.
63.
As a result of King Auto Group’s scheme to sell prior short-term rentals without
the disclosures required by Maryland law, and the other acts, material omissions, affirmative
misrepresentations and unfair and deceptive practices described herein, Named Plaintiff and
Class members were induced to enter into their transactions and paid significantly more for their
vehicles than they were worth.
V.
FACTS APPLICABLE TO NAMED PLAINTIFF
64.
On or about March 17, 2011, Named Plaintiff Comfort Kaakyire purchased a used
2008 Saturn Outlook, VIN 5GZEV23738J148126, from King Pontiac Buick GMC primarily for
personal, family and household use.
65.
Upon information and belief, this vehicle was advertised on one or more, if not
all, of Defendants’ websites.
66.
Upon information and belief, each Defendant offered to sell the used 2008 Saturn
Outlook, VIN 5GZEV23738J148126 on its website; as a result, each Defendant was legally
capable of selling this vehicle to Ms. Kaakyire and of providing, or failing to provide, the
disclosures of prior short-term rental use required by Maryland law.
67.
Unbeknownst to Comfort Kaakyire on the date of sale, the vehicle previously was
titled in the name of a rental car company and previously was used for short-term rentals.
Defendants had actual knowledge of this information but did not disclose and intentionally and
with actual malice concealed, and conspired to conceal, this information from Named Plaintiff.
68.
Defendants were required by Maryland law and, in particular, COMAR
11.12.01.14(M)(1)(f), to disclose clearly and conspicuously in writing to Ms. Kaakyire before
purchase that her vehicle previously was used for short-term rentals. Nevertheless, Defendants
failed to provide the required clear and conspicuous written disclosure concerning the prior use
of the vehicles of Named Plaintiff and other members of the Class on (i) the vehicle sales
agreement, (ii) the Prior Use Acknowledgment Form, or (iii) any other document; and
Defendants conspired together and aided, abetted and encouraged one another to conceal and
misrepresent the prior history of these vehicles.
69.
Unbeknownst to Named Plaintiff and the other members of the Class on the date
of sale, the vehicles sold to them would not pass without objection in the trade under the contract
description, in part because Maryland law requires that the contract describe and disclose clearly
and conspicuously the vehicle’s prior use as a short-term rental, and the sales agreement
contained no indication of the vehicle’s prior rental history. Accordingly, the vehicles were
unmerchantable under Maryland law.
70.
As a result of Defendants’ acts and omissions as set forth in this Complaint,
Named Plaintiff and other members of the Class were misled as to the prior use of the vehicles
and their market values, paid more for the vehicles than they were worth, were denied the
opportunity to decline to purchase vehicles previously used for short-term rentals, lost the benefit
of their bargains, and have sustained other losses and damages.
71.
As part of their regular business practices in Maryland, Defendants systematically
and regularly sell, and have conspired to sell, and systematically have aided and abetted their co-
conspirators to sell, used vehicles that previously were used as short-term rental vehicles by
failing to clearly and conspicuously disclose such prior use to their customers, and by
affirmatively concealing such prior use from their customers.
72.
In connection with the activities giving rise to this action, Defendants acted with
actual malice, intent and knowledge, and with a wanton disregard for the rights of Named
Plaintiff and other purchasers.
73.
At all times relevant to this Complaint, Defendants conspired with each other to
engage in the various activities set forth herein, agreed to participate in the operation of the
conspiracy and scheme to defraud Named Plaintiff and Class members, and aided and abetted
one another in these activities, all as proscribed by Maryland law.
74.
The King Auto Group conspiracy described herein has operated continuously for
at least the past five years and has affected numerous consumer transactions through the use of
common misleading procedures and form documents that intentionally contained false
information and omitted material facts, required by law to be disclosed. Defendants participated
and engaged in the conspiracy and were involved in the transactions involving Named Plaintiff
and other members of the Class over a period spanning at least five years and involving hundreds
if not thousands of transactions.
75.
If Named Plaintiff and Class members then had suspected that Defendants were
engaged in the fraudulent scheme described herein, at the expense of Named Plaintiff and Class
members, they would have refused to conduct business with Defendants, would not have entered
into transactions with King Auto Group or Defendants, and would have sought to secure their
rights under the law at that time.
76.
Named Plaintiff’s and Class members’ injuries to their property further were
caused by Defendants’ fraudulent scheme and conspiracy in that Named Plaintiff and Class
members were overcharged for their vehicles; upon information and belief, the profits obtained
through the fraudulent scheme and conspiracy were split amongst the conspirators according to a
prior written contract or other agreement or understanding and used to market the King Auto
Group entities as an excellent source of reliable used vehicles sold by reputable family dealers.
VI.
CLASS ACTION ALLEGATIONS
77.
Named Plaintiff brings this action individually and as a class action pursuant to
Fed. R. Civ. P. 23 on behalf of a class (the “Class”) defined as follows:
All persons who purchased from a King Auto Group dealership in
Maryland a used motor vehicle previously used as a short-term
rental, who were not provided clear and conspicuous disclosure of
such use.
78.
Excluded from the Class are those individuals who now are or ever have been
King Auto Group executives and the spouses, parents, siblings and children of all such
individuals.
79.
This Complaint covers the time period up to the resolution of this case. The
statutes of limitations under each cause of action asserted herein are inapplicable to the Class
members’ claims based on the acts of omission and wrongful conduct by Defendants, as set forth
herein, which equitably tolled the limitations period(s) under the circumstances described herein.
80.
Named Plaintiff and other members of the Class, despite the exercise of due
diligence, and due to their reliance on the accuracy and truthfulness of documents provided by
Defendants, did not and could not have discerned their causes of action against Defendants due
to Defendants’ fraudulent concealment of the prior rental history of the vehicles sold to Named
Plaintiff and the Class.
81.
Named Plaintiff and Class members failed to discover the facts that are the basis
for their claims because the documentation Defendants provided to them purported to give them
all necessary legal disclosures regarding the prior use of their vehicles, creating a false sense of
security and preventing Named Plaintiff and Class members from becoming aware of a need or
reason for inquiry into the adequacy, truthfulness or completeness of the disclosures received
from Defendants prior to the purchase of their vehicles.
82.
Named Plaintiff and Class members were not aware of any facts that should have
provoked their inquiry.
83.
The Class, as defined above, is identifiable. Named Plaintiff is a member of the
84.
On information and belief, the Class consists of hundreds and perhaps thousands
of individuals and thus is so numerous that joinder of all members is impracticable.
85.
There are questions of law and fact that not only are common to the Class, but
predominate over any questions affecting only individual Class members. The common and
predominating questions include, but are not limited to:
a.
Whether Defendants failed to provide clear and conspicuous notice in
writing to customers of the vehicles’ prior use as short-term rentals;
b.
Whether Defendants affirmatively concealed from their customers the
vehicles’ prior use as short-term rentals;
c.
Whether Defendants conspired together to conceal and misrepresent in a
systematic and uniform way the prior short-term rental history of vehicles sold by their
dealerships;
d.
Whether Defendants conspired together to develop and use form
documents geared to conceal the prior rental history of vehicles sold by their dealerships;
e.
Whether Defendants are liable to Named Plaintiff and members of the
Class for damages resulting from their pattern of selling vehicles that previously were
used as short-term rentals without disclosing this information to their customers;
f.
Whether Defendants had knowledge that the vehicles sold previously were
used as short-term rentals or for purposes other than as consumer goods;
g.
Whether declaratory and injunctive relief is proper to prevent Defendants
from continuing to sell vehicles that previously were used as short-term rentals without
disclosure to prospective customers;
h.
Whether Defendants’ failure to disclose the prior short-term rental use of
the vehicles they sold was an unfair and deceptive trade practice;
i.
Whether Defendants’ affirmative concealment of the prior short-term
rental use of the vehicles they sold was an unfair and deceptive trade practice;
j.
Whether Defendants negligently misrepresented the value of vehicles
previously used for short-term rentals to their customers;
k.
Whether Defendants negligently failed to disclose the vehicles’ prior use
for short-term rentals to their customers;
l.
Whether under an implied warranty, a vehicle would pass without
objection in the trade under the contract description when Defendants failed to disclose
and/or misrepresented the vehicle’s prior use as a short-term rental on the sales
agreement;
m.
Whether Defendants conspired to engage in the violations of Maryland
law described herein;
n.
Whether Defendants tortiously aided and abetted the violations of
Maryland law described herein;
o.
Whether Defendants engaged in a pattern of “racketeering activity” as
defined by § 1961(5) of 18 U.S.C. § 1961 et seq., and
p.
Whether the statutes of limitations applicable to each of the causes of
action asserted herein have been equitably tolled by Defendants’ wrongful or fraudulent
concealment, despite due diligence of Named Plaintiff and members of the Class.
86.
The claims of the Named Plaintiff are typical of the claims of each member of the
Class within the meaning of FED. R. CIV. P. 23(a)(3), and are based on and arise out of similar
facts constituting Defendants’ wrongful conduct.
87.
Named Plaintiff will fairly and adequately protect the interests of the Class.
Named Plaintiff has no conflicts of interest with the Class.
88.
The prosecution of separate actions by individual members of the Class would
create a risk of establishing incompatible standards of conduct for Defendants, within the
meaning of FED. R. CIV. P. 23 (b)(1)(A).
89.
Defendants’ actions are generally applicable to the Class as a whole, and Plaintiff
seeks equitable remedies with respect to the Class as a whole, within the meaning of FED. R. CIV.
P. 23 (b)(2).
90.
The common questions of law and fact enumerated above predominate over
questions affecting only individual members of the Class, and a class action is the superior
method for fair and efficient adjudication of the controversy, within the meaning of FED. R. CIV.
P. 23 (b)(3). The likelihood that individual members of the Class will prosecute separate actions
is remote due to the time and expense necessary to conduct such litigation.
91.
Named Plaintiff’s counsel are experienced and competent in class actions and
complex consumer litigation and foresee little difficulty in the management of this case as a class
VII. CIVIL RICO SUMMARY
92.
At all times relevant to this Complaint, the “enterprise” King Auto Group, a non-
incorporated, informal association-in-fact formed by the Defendants, operated separately and
distinct from each of the individual Defendants.
93.
All of the Defendants were entities capable of holding a legal or beneficial
interest in property and were associated with King Auto Group.
94.
Defendants knowingly participated in the scheme to defraud Named Plaintiff and
the Class by concealing and failing to disclose the prior rental use of the vehicles they sold, and
they used the U.S. mails and electronic or telephonic communications for the purpose of
executing this scheme.
95.
In addition, Defendants and King Auto Group were engaged in, and affected,
interstate commerce in that, inter alia, the vehicle sales that are the subject of the scheme to
defraud were consummated in Maryland using vehicles that in many circumstances were
purchased out-of-state for sale in Maryland. In many instances, Defendants wired funds or
mailed checks from Maryland to persons outside of Maryland to pay for prior short-term rentals
later sold within Maryland. In other instances, transactions were funded by wire or check or
electronic credit or debit transactions that originated from, or were transmitted to, a party located
outside of Maryland. Additionally, the U.S. mails and/or wires were utilized in connection with
the acquisition, marketing and sale of the vehicles that are the subject of this Complaint.
96.
In furtherance of their fraudulent scheme, Defendants also on numerous occasions
used and caused to be used mail depositories of the U.S. Postal Service by both placing and
causing to be placed mailable matters in said depositories and by removing and causing to be
removed mailable matters from said depositories. These mailings included, but were not limited
to, the mailing by Defendants of documents related to the registration of motor vehicles
purchased and sold by Defendants with the MVA; the distribution of illicit proceeds of the
racketeering conspiracy; the mailing and distribution among Defendants of contracts, form sale
and credit agreements, and other documents used in the transactions of Named Plaintiff and the
Class; and the mailing of additional documents that facilitated the operation of Defendants’
fraudulent scheme.
97.
During all relevant times, and in furtherance of and for the purpose of executing
the fraudulent scheme described herein, Defendants also used the wires to execute the above-
described fraudulent scheme. Defendants and their co-conspirators on hundreds if not thousands
of occasions used, and caused to be used, telephone, Internet and other wire transmissions
including, but not limited to, use of the wires in the sale of vehicles previously used as prior
short-term rental vehicles to Named Plaintiff and members of the Class; in the emailing, faxing
and transmission by wire of documents such as loan applications, vehicles sales and financing
contracts and other documents related to the sale and financing of vehicles by Defendants to
potential assignees in the transactions of Named Plaintiff and Class members who financed their
vehicles with Defendants; in the electronic registration and titling system established with the
MVA; and in the marketing of their enterprise “King Auto Group” and its vehicles on the
Internet – with the intent to defraud and in furtherance of their scheme to defraud.
98.
For example, Defendants used the wires to market their goods and services under
the King Auto Group brand and to market the vehicles they sold via the Internet and via the
www.KingAuto.com and associated websites. Defendants used the Internet and the wires in
connection with the sale of hundreds, if not thousands, of vehicles sold to members of the Class
by providing a forum in which customers could search for and receive information regarding
vehicles offered for sale by Defendants, including the prior rental vehicles sold by Defendants.
99.
Upon information and belief, on or before March 17, 2011, Defendants used the
wires to advertise the vehicle sold to Ms. Kaakyire on the Internet, without the required clear and
conspicuous disclosure of this vehicle’s prior use as a short-term rental required by Maryland
100.
Upon information and belief, Defendants used the wires to advertise the vehicles
of hundreds if not thousands of other consumers in the same way. For example, on or before
February 18, 2012, Defendants also used the wires to advertise a vehicle sold to Latechia Sahrell
T. Chambers on the Internet, without the required clear and conspicuous disclosure of this
vehicle’s prior use as a short-term rental required by Maryland law. On February 18, 2012,
Defendants sold to Ms. Chambers a 2010 Daimler Dodge Caliber SXT, VIN
1B3CB4HA7AD655943, without providing the clear and conspicuous disclosure required by
Maryland law. Ms. Chamber’s vehicle sales agreement failed to disclose that the vehicle sold to
her previously was used for short-term rentals, and it affirmatively misrepresented that the
vehicle previously was not used for any non-consumer purpose.
101.
Defendants also used the wires to advertise to putative Class members the
vehicles previously used as short-term rentals (without disclosure of prior rental use) as set forth
in the table found in ¶ 41 herein.
102.
Defendants further used the wires to send and receive purchase orders, retail
installment contracts, and other documents among their co-conspirators, funding lenders, and
other entities; to distribute money among those entities; to transmit to the MVA information
related to the registration and titling of motor vehicles purchased and sold by Defendants to
Named Plaintiff and members of the Class; to transmit among the Defendants forms and other
documents used in the sale of vehicles; to send and receive marketing information and payment
to local media for the placement and purchase of advertising in local print and electronic media
regarding vehicles sold by Defendants, including vehicles previously used as prior short-term
rentals but not disclosed as such as required by Maryland law; and to send and receive
information regarding prior short-term rental vehicles with sellers of such vehicles, including
auctions, other dealers, and rental car companies.
103.
Upon information and belief, in or about March 2011, Defendants used the wires
and/or U.S. mail to submit a loan application, contract of sale, and other documents related to the
sale to a potential assignee for the financing of Ms. Kaakyire’s vehicle – namely Ally Financial,
headquartered in Detroit, Michigan, which lists a current address of 200 Renaissance Center,
Detroit, MI 48265. Upon further information and belief, following the sale to Ms. Kaakyire,
Defendants used the U.S. mails to submit the original documents relating to the financing and
sale of Ms. Kaayire’s vehicle to its assignee, Ally Financial.
104.
In addition, in or about March 2011, Defendants used the wires to register and
title Ms. Kaakyire’s vehicle through an electronic registration and titling system. In particular,
on March 17, 2013, Defendants used the wires to electronically transfer $455.88 of funds to the
MVA in connection with this transaction for payment of sales tax, titling and registration fees.
105.
Similarly, upon information and belief, on or about February 2012, Defendants
used the wires and/or U.S. mail to submit a loan application, contract of sale, and other
documents related to the sale to a potential assignee for the financing of Ms. Chamber’s prior but
undisclosed short-term rental vehicle – namely Capital One Auto Finance (“Capital One”),
headquartered in McLean, Virginia which lists a current mailing address of 1680 Capital One
Drive, McLean, VA 22102. Upon further information and belief, following the sale to
Ms. Chambers, Defendants used the U.S. mails to submit the original documents relating to the
financing and sale of Ms. Chamber’s vehicle to its assignee, Capital One.
106.
In addition, on or about February 2012, Defendants used the wires to register and
title Ms. Chamber’s vehicle through an electronic registration and titling system. In particular,
Defendants used the wires to electronically transfer $587.95 of funds to the MVA in connection
with this transaction on February 18, 2012, for payment of sales tax, titling and registration fees.
107.
Defendants further used the U.S. mails and wires to carry out each of the
transactions identified in the table found in ¶ 41 of this Complaint.
108.
Each such use of the U.S. mails and wires by Defendants was in furtherance of
the fraudulent scheme described herein.
109.
Defendants further used the wires to facilitate the operation of and to operate the
fraudulent scheme described herein, and to communicate with each during the course of the
scheme through telephone calls, facsimiles, e-mail transmissions, and wire transfers of money
resulting from and in furtherance of the fraudulent scheme.
110.
Also as set forth herein, during all relevant times and in furtherance of and for the
purpose of executing the fraudulent scheme described herein, Defendants on hundreds if not
thousands of occasions transported, transmitted, and transferred in interstate or foreign
commerce money of the value of $5,000 or more, knowing the same to have been obtained
and/or taken by fraud, an artifice of fraud, or by means of false or fraudulent pretenses or
representations in violation of 18 U.S.C. § 2314.
111.
Defendants caused the money collected by Defendants from Named Plaintiff and
the other members of the Class as payment for the prior short-term rental vehicles sold to them in
violation of the disclosure requirements under Maryland law – having a value of far more than
$5,000 – to be transported in interstate commerce in the course of the execution of the
Defendants’ fraudulent scheme. Defendants knew this money was obtained or taken by fraud, an
artifice of fraud, or by means of false or fraudulent pretenses or representations. In addition,
upon information and belief, Defendants divvied up their profits secured from selling prior short-
term rental vehicles sold in violation of the disclosure requirements under Maryland law, and
those profits – constituting far more than $5,000 – were distributed through interstate commerce.
112.
At all relevant times in connection with the activities giving rise to this action,
Defendants conspired with each other and other persons and entities to engage in the activities
set forth herein, agreed to participate in the operation of the conspiracy and scheme to defraud
Named Plaintiff and other customers, and aided and abetted one another in these activities, all as
proscribed by both Maryland and federal law.
113.
Defendants repeated their pattern of using the U.S. mails and/or telephone or wire
transmissions in furtherance of their fraudulent scheme, and of transporting and causing others to
transport money and property with a value exceeding $5,000 in interstate commerce, in
furtherance of their fraudulent scheme and knowing the same to have been stolen, converted or
taken by fraud, in connection with hundreds if not thousands of similar transactions.
114.
Each such use of the U.S. mails and/or wires in connection with this fraudulent
scheme constituted the offenses of mail and/or wire fraud as proscribed and prohibited by
18 U.S.C. §§ 1341 and/or 1343. Each such transportation by Defendants of money or property
with a value exceeding $5,000 in interstate commerce in connection with and in furtherance of
the scheme and artifice to defraud, and with their knowledge of the same to have been stolen,
converted or taken by fraud, constituted the offense of interstate transport of money, converted or
fraudulently obtained in violation of 18 U.S.C. § 2314.
115.
These uses of the U.S. mails and wires and the interstate transport of money
converted or fraudulently obtained to further the fraudulent scheme were not limited to the
transaction of Named Plaintiff but, as stated, also occurred in the transactions of Ms. Chambers
and numerous other Class members, including but not limited to the transactions identified in the
table set forth in ¶ 41 herein.
116.
Each member of the Class completed a transaction in which the Defendants sold a
vehicle previously used as a prior short-term rental vehicle, in which the Defendants did not
disclose such fact as required under Maryland law, resulting in damages to the Named Plaintiff
and the Class. The Defendants repeated this pattern – that is, the use of the U.S. mails and/or
wires, and the interstate transport of money converted or fraudulently obtained, in furtherance of
their fraudulent scheme – in numerous similar vehicle transactions, including but not limited to
the transactions of Ms. Kaakyire, Ms. Chambers and the purchasers of vehicles identified in ¶ 41
of this Complaint.
117.
These acts were related, as they had the similar purpose of concealing and
affirmatively misrepresenting the prior rental history of vehicles sold to Defendants’ customers,
and they used the same methods of commission by concealment and affirmative
misrepresentation.
118.
Defendants’ enterprise the King Auto Group has operated continuously for more
than five years to the present and has affected hundreds or thousands of customers’ transactions
through the systematic scheme to sell previously used prior short-term rental vehicles without the
disclosure required by Maryland law. Defendants knowingly participated and engaged in the
enterprise and functioned as continuing units identifiable over a period of time and were
involved in the transactions of Named Plaintiff and other members of the Class over a period
spanning more than five years and involving hundreds or thousands of transactions.
Defendants’ use of the U.S. mails and wires interstate, and the interstate transport of money and
property with a value exceeding $5,000 as described herein, constitute multiple instances of wire
and mail fraud, multiple instances of interstate transport of money converted or fraudulently
obtained, and further constitute a pattern of racketeering activity.
119.
Nevertheless, the enterprise described above did not exist solely for the purpose
of engaging in predicate acts violating the Racketeer Influenced and Corrupt Organizations Act,
18 U.S.C. § 1961 et seq., but the enterprise also engaged in legitimate vehicle sales transactions
over the same period of time. Among other things, the enterprise developed forms and
marketing campaigns for legitimate vehicle sales transactions and enabled the distribution of
income from these legitimate vehicle sales transactions to the various Defendants, as well as to
their owners and employees.
120.
Named Plaintiff and members of the Class relied to their detriment on the
legitimacy and legality of the RICO enterprise.
121.
If Named Plaintiff and Class members then had suspected that the King Auto
Group was a racketeering enterprise and was being used to facilitate the fraudulent scheme
described herein, at the expense of Named Plaintiff and Class members, they would have refused
to conduct business with Defendants and their enterprise, would not have entered into
transactions with the King Auto Group or Defendants, and would have sought to secure their
rights under the law at that time.
122.
Named Plaintiff and Class members’ injuries to their property also were caused
by the pattern of racketeering activity conducted through the enterprise described herein in that
Named Plaintiff and Class members were overcharged for their vehicles as a result of
Defendants’ fraudulent scheme, which constituted a pattern of racketeering activity, were denied
the opportunity to decline to purchase vehicles known to have been used previously for short-
term rentals, and the profits obtained through the fraudulent scheme upon information and belief
were split among the enterprise’s members according to a prior written contract or other
agreement.
IX.
CAUSES OF ACTION
COUNT ONE
(Implied Warranty of Merchantability)
123.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
124.
Auto dealers and other professional vehicle buyers in the trade need to know prior
to purchasing a vehicle at an auto auction or from any other seller whether the vehicle has been
used as a short-term rental vehicle both because use for short-term rentals depresses the market
value of such vehicles and because dealers and buyers in the trade know that a seller of the
vehicle to a retail buyer will be legally obligated to disclose the vehicle’s prior use for short-term
rentals, a disclosure that depresses the vehicle’s market value.
125.
To accommodate these concerns of professional vehicle buyers in the trade, auto
auctions that process thousands of vehicle transactions routinely require that short-term rental
vehicles be offered for sale through “lanes” dedicated solely for short-term rentals so that buyers
clearly understand the prior use to which these vehicles have been placed; in addition, when a
short-term rental vehicle is sold outside a lane dedicated to such vehicles, auto auctions routinely
require that sellers “announce” (i.e., disclose) their knowledge that the vehicle previously has
been used for short-term rentals. For a short-term rental vehicle to be acceptable within the
trade, its prior use for short-term rentals must be disclosed before sale.
126.
Similarly, when a licensed auto dealer in Maryland sells a vehicle previously used
for short-term rentals to a prospective retail buyer, Maryland law mandates that the dealer clearly
and conspicuously disclose to the prospective retail buyer before sale the vehicle’s prior use for
short-term rentals. A vehicle’s prior use for short-term rentals is so significant both within the
industry and to the public that the major companies that offer vehicle history reports for sale to
both dealers and the public (Carfax at www.carfax.com and Experian at www.autocheck.com)
attempt to include in their vehicle history reports information indicating whether a vehicle has
been used for short-term rental.
127.
Under both a consumer’s reasonable expectations as well as trade quality
standards, a vehicle with a prior rental history that is not clearly and conspicuously disclosed
cannot pass without objection in the trade under the contract description and simply is not
merchantable under Maryland law. A significant segment of the buying public would object to
purchasing a used vehicle previously used as a short-term rental vehicle.
128.
Defendants are merchants engaged in the business of selling goods such as the
used vehicles sold to Named Plaintiff and Class members.
129.
At the time of the sales to Named Plaintiff and Class members, Defendants
impliedly warranted to Named Plaintiff and Class members that the used vehicles they purchased
conformed to the contract descriptions and affirmations of fact made to them in their contracts of
sale about their vehicle’s prior use.
130.
By including on their standard vehicle sales agreement a space expressly
designated for the disclosure of prior non-consumer use of a vehicle, including prior short-term
rental use, Defendants warranted to Named Plaintiff and Class members that the prior use of the
vehicles comported with the representations concerning prior non-consumer use of the vehicles
made by Defendants on the vehicle sales agreements.
131.
Defendants’ failure to disclose the prior short-term rental use of the vehicles to
Named Plaintiff and Class members in the space provided for such disclosure on their vehicle
sales agreements constituted an affirmative misrepresentation to Named Plaintiff and Class
members that the vehicles were not used previously for such a purpose.
132.
Absent such a disclosure on their contracts of sale, the vehicles sold to Named
Plaintiff and the Class could not “[p]ass without objection in the trade under the contract
description.”
133.
In breach of the implied warranty of merchantability that arises under MD. CODE
ANN., COMM. LAW § 2-314(2)(a), on the date Named Plaintiff and Class members purchased
their vehicles, each vehicle would not pass without objection in the trade under the contract
description.
134.
As a result, the used vehicles purchased by Named Plaintiff and Class members
failed to conform to the implied warranties made to them.
135.
The principal function of merchantability is to give legal effect to a buyer’s
reasonable expectations. Where, as here, Named Plaintiff and the Class members had a
reasonable and legally protected expectation of receiving goods that would pass without
objection in the trade under the contract description, their reasonable expectations were not met,
and Defendants breached the implied warranty of merchantability arising under MD. CODE ANN.,
COMM. LAW § 2-314(2)(a).
136.
Upon information and belief, all of the Defendants possessed actual knowledge of
the breaches of implied warranty by the other Defendants in their sales to Named Plaintiff and
the Class members of vehicles previously used for short-term rentals.
137.
As previously alleged and incorporated herein, all of the Defendants aided,
abetted and encouraged the wrongful and tortious conduct of one another in the transactions of
Named Plaintiff and Class members, including their respective breaches of the implied warranty
of merchantability under MD. CODE ANN., COMM. LAW § 2-314(2)(a), and knowingly provided
substantial assistance, aid and encouragement to one another in the commission of such unlawful
conduct.
138.
Defendants further reached an agreement or understanding to breach the implied
warranty of merchantability in their transactions with Named Plaintiff and the Class, and they
worked in combination with each other and performed the overt acts described herein to facilitate
and engage in a conspiracy to breach the implied warranty of merchantability in these
transactions.
139.
As a result of Defendants’ breach of the implied warranty of merchantability,
their aiding and abetting of Defendants’ above-described tortious conduct, and their conspiracy
to breach the implied warranty of merchantability, Named Plaintiff and the Class sustained the
losses and damages described herein, including but not limited to the loss of the benefit of their
bargains.
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for compensatory damages plus pre-judgment interest and costs for each Class
member; and request such other and further relief as may be just and as the Court deems proper
for each Class member.
COUNT TWO
(Magnuson-Moss Warranty Act)
140.
Plaintiff re-alleges and incorporates herein by reference the allegations set out in
the foregoing paragraphs as if fully set forth below.
141.
Congress enacted the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq.
(the “Act”) in 1975 in response to widespread complaints from consumers that many warranties
were misleading and deceptive, and were not being honored. To remedy this problem of
deception and failure to honor warranties, the Act imposes civil liability on any “warrantor” for,
inter alia, failing to comply with any obligation under a written warranty and/or implied
warranty. See 15 U.S.C. § 2310(d)(1). The Act authorizes a “suit for damages and other legal
and equitable relief.” Id. The Act authorizes the award of attorneys’ fees and expressly
authorizes class actions. 15 U.S.C. § 2310(e).
142.
Defendants are “warrantor[s]” within the meaning of Section 2301(5) of the Act.
143.
Named Plaintiff and other members of the Class are “consumers” within the
meaning of Section 2301(3) of the Act.
144.
Defendants’ breach of the implied warranty of merchantability, and Defendants’
conspiracy to breach the implied warranty of merchantability, set forth in Count One of this
Complaint and expressly incorporated herein, violate the Magnuson-Moss Warranty Act,
15 U.S.C. § 2301 et seq., including 15 U.S.C. § 2310(d).
145.
Defendants reached an agreement or understanding to violate the Magnuson-Moss
Warranty Act in Defendants’ transactions with Named Plaintiff and the Class, and they worked
in combination with each other and performed the overt acts described in this Complaint to
facilitate and engage in a conspiracy to violate the Magnuson-Moss Warranty Act in these
transactions. As a result of Defendants’ violation of, and conspiracy to violate, the Magnuson-
Moss Warranty Act, Named Plaintiff and the Class sustained the losses and damages described
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for compensatory damages, as well as reasonable counsel fees and costs as permitted
by MD. CODE ANN., COMM. LAW § 13-408 and pre-judgment interest for each Class member; and
request such further relief as may be just and as the Court deems proper for each Class member.
COUNT THREE
(Maryland Consumer Protection Act)
146.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
147.
Defendants are each merchants within the meaning of the Maryland Consumer
Protection Act (“CPA”), MD. CODE ANN., COMM. LAW § 13-101(g), and are subject to all CPA
provisions prohibiting unfair or deceptive trade practices, including those in MD. CODE ANN.,
COMM. LAW §§ 13-303 and 13-301.
148.
Defendants made false and misleading representations to Named Plaintiff and
Class members in the offer to sell and sale of vehicles to the Named Plaintiff and Class that had
the capacity, tendency, or effect of deceiving or misleading consumers.
149.
Defendants falsely and misleadingly represented to Named Plaintiff and Class
members that the vehicles they purchased had a characteristic they did not have and possessed a
particular standard and quality they did not possess by representing to Named Plaintiff and the
Class that the vehicles they purchased had not been used for prior short-term rentals.
150.
Defendants’ affirmative misrepresentations that the vehicles of Named Plaintiff
and the Class were not used previously for short-term rentals, as well as their failure to disclose
to, and concealment from, Named Plaintiff and Class members the material fact that their
vehicles previously were used for short-term rentals, constituted unfair and deceptive trade
practices in violation of the CPA, MD. CODE ANN., COMM. LAW §§ 13-301(1), (2)(i) and (iv) and
(3), and 13-303(1) and (2).
151.
On information and belief, Defendants regularly and systematically acquire
vehicles for the purpose of resale that have been used as short-term rentals, and they retail these
vehicles to the public without disclosing the prior rental use to their customers.
152.
Defendants conspire together to do so in violation of the CPA to illegally increase
their profits for both their joint and individual benefit.
153.
Defendants were involved in the transaction of Named Plaintiff as co-conspirators
and joint tortfeasors. At the time of the offer to sell and sale of a used vehicle to the Named
Plaintiff, Defendants associated together under the King Auto Group moniker to advertise and
jointly market themselves, purchased used vehicles that previously had been used as rental
vehicles, used and agreed to use misleading form documents in the course of their sales of used
vehicles, and agreed to conceal from, and not to disclose to, purchasers the prior rental use of
vehicles to advance each Defendant’s independent personal gain and individual financial stake in
its respective corporation and in the conspiracy.
154.
As a result, when King Buick failed to disclose to, and concealed from, Named
Plaintiff the prior rental use of the vehicle she was purchasing from King Buick, it did so as part
of a conspiracy, scheme and concerted action in which all of the other Defendants participated,
for the joint benefit and with the knowledge and consent of the other Defendants as co-
conspirators.
155.
Defendants, all associating under the King Auto Group umbrella, reached an
agreement or understanding to violate the CPA in their transactions with Named Plaintiff and the
Class and worked in combination with each other and performed the overt acts described herein
to facilitate and engage in a conspiracy to violate the CPA.
156.
Defendants’ failure to comply with the law governing the transactions of Named
Plaintiff and the Class members, and their conspiracy to do so, was deceptive and unfair within
the meaning of the CPA.
157.
Defendants’ suppression and omission of material facts and affirmative
misrepresentations had the capacity, tendency or effect of deceiving and misleading the Named
Plaintiff and Class and in fact deceived and misled them, causing them to sustain the losses and
damages described herein.
158.
Upon information and belief, all of the Defendants possessed actual knowledge of
the violations of the CPA by the other Defendants in their sales to Named Plaintiff and the Class
members of vehicles previously used for short-term rentals.
159.
As previously alleged and incorporated herein, all of the Defendants aided,
abetted and encouraged the wrongful and deceptive conduct of one another in the transactions of
Named Plaintiff and Class members, including their respective violations of the CPA, and
knowingly provided substantial assistance, aid and encouragement to one another in the
commission of such unlawful conduct.
160.
As a result of Defendants’ unfair and deceptive trade practices described above,
their aiding and abetting of the above-described conduct, and conspiracy to engage in such unfair
and deceptive trade practices, Named Plaintiff and the Class agreed to and did purchase their
vehicles, paid Defendants significantly more for their vehicles than they were worth, and
sustained the other damages and losses described herein.
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for compensatory damages, as well as reasonable counsel fees and costs as permitted
by MD. CODE ANN., COMM. LAW § 13-408 and pre-judgment interest for each Class member; and
request such further relief as may be just and as the Court deems proper for each Class member.
COUNT FOUR
(Deceit By Non-Disclosure or Concealment)
161.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
162.
On information and belief, Defendants regularly acquire vehicles for the purpose
of resale that have been used as short-term rentals and regularly and intentionally retail these
vehicles to the public without disclosing this prior use to their customers, and by concealing prior
short-term rental use, in violation of Maryland law to increase their respective profits.
163.
As described above, Named Plaintiff entered into a written sales agreement to
purchase a 2008 Saturn Outlook from King Buick. The Class members entered into similar
written sales agreements to purchase used vehicles from Defendants.
164.
The transaction entered into by Named Plaintiff with King Buick is a small but
representative sample of Defendants’ systematic fraud on the public and of Defendants’
conspiracy to commit fraud. The transaction of Latechia Sahrell T. Chambers is yet another
example of this fraud.
165.
Defendants have a duty to disclose the prior use of vehicles employed as short-
term rentals, but Defendants intentionally and systematically failed to disclose and concealed
from Named Plaintiff and other members of the Class this fact, which they had a duty to
disclose.
166.
Indeed, due to the requirements of Maryland law that any short-term rental history
be disclosed clearly and conspicuously, Defendants’ failure to make such a disclosure on a form
that contained a pre-printed space for such disclosure constituted an affirmative
misrepresentation of the vehicle’s history by the Defendants who sold these vehicles to Named
Plaintiff and Class Members at the time of the consummation of each transaction.
167.
Defendants acted with intent to mislead and deceive Named Plaintiff and the
Class members.
168.
Through their affirmative material misrepresentations and concealments,
Defendants intended to induce Named Plaintiff and the Class to act differently than they would
have acted had they known the true facts; Defendants intended to induce them to purchase a less
desirable and less valuable vehicle that previously was used for rentals instead of a used vehicle
without a history of short-term rental use, and to pay more for this vehicle than it was worth.
169.
Named Plaintiff and Class members acted in justifiable reliance on Defendants’
concealments, failures to disclose and affirmative misrepresentations concerning the prior rental
use of the used vehicles they purchased when they consummated their transactions based on the
false and misleading representations by Defendants concerning the prior use of the vehicles they
purchased.
170.
Defendants reached an agreement or understanding to conceal from, and fail to
disclose to, Named Plaintiff and the Class material facts concerning the prior short-term rental
use of the vehicles sold to Named Plaintiff and the Class and to engage in the scheme and artifice
described herein to defraud Named Plaintiff and the Class. Defendants participated in this
fraudulent scheme and worked in combination with each other, performing the overt acts
described herein, to facilitate and engage in a conspiracy to deceive and defraud Named Plaintiff
and the Class.
171.
Upon information and belief, all of the Defendants possessed actual knowledge of
the other Defendants’ non-disclosure, concealment and misrepresentation of the rental history of
the vehicles they sold to Named Plaintiff and Class members.
172.
As previously alleged and incorporated herein, all of the Defendants aided,
abetted and encouraged the wrongful and tortious conduct of one another in the transactions of
Named Plaintiff and Class members, including the non-disclosure, concealments and
misrepresentations of the prior use of the vehicles sold to Named Plaintiff and Class members,
and knowingly provided substantial assistance, aid and encouragement to one another in the
commission of such unlawful conduct.
173.
As a result of Defendants’ affirmative misrepresentations concerning and
concealment of the aforesaid material facts, their aiding and abetting of one another in the
commission of the above-described unlawful conduct, as well as Defendants’ conspiracy to
engage in this conduct, Named Plaintiff and the Class sustained the losses and damages
described herein, including but not limited to paying significantly more for their vehicles than
these vehicles were worth.
174.
Defendants’ above-described sales of used vehicles to Named Plaintiff and the
Class, aiding and abetting of one another in the commission of such unlawful conduct, and
conspiracy to sell vehicles without disclosing their prior use as short-term rentals, constituted
egregious misconduct and was motivated by Defendants’ actual malice toward Named Plaintiff
and the Class.
175.
Defendants intended to and did injure Named Plaintiff and the Class by deceiving
them into purchasing their vehicles and into paying significantly more for their vehicles than
they would have paid had Defendants complied with Maryland law by clearly and conspicuously
disclosing the vehicles’ prior use as short-term rentals.
176.
Until significant punitive damages are awarded against Defendants, Defendants
will continue to violate Maryland’s disclosure laws as part of their ongoing scheme to obtain
profits illegally at the retail public’s expense.
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for compensatory damages, as well as punitive damages in such amount necessary to
punish and deter Defendants, and pre-judgment interest and costs for each Class member; and
request such further relief as may be just and as the Court deems proper for each Class member.
COUNT FIVE
(Money Had and Received/Unjust Enrichment)
177.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
178.
As described above, Defendants deceptively assessed and collected payments for
vehicles that had been used as short-term rentals in amounts that exceeded the represented value
of these vehicles, which conferred a substantial benefit on each of Defendants.
179.
By doing so, Defendants have come into the possession of money that they had,
and have, no right to at law or in equity.
180.
Defendants reached an agreement or understanding to assess and collect payments
for vehicles that had been used as short-term rentals in amounts that exceeded the value, and
represented value, of those vehicles, and they worked in combination with each other and
performed the overt acts described herein to facilitate and engage in a conspiracy to do so.
181.
Defendants obtained possession of money belonging to Named Plaintiff and Class
members by concealing from, failing to disclose and/or misrepresenting to Named Plaintiff and
Class members the description, condition and prior use of the vehicles they were purchasing.
182.
Because Defendants misrepresented and concealed the prior rental use of the
vehicles that Named Plaintiff and the Class members purchased, Named Plaintiff and the Class
purchased such vehicles without material information concerning the prior use of such vehicles
and based on a mistake of fact concerning the history of these vehicles.
183.
In furtherance of the above-described conspiracy, Defendants both individually
and in concert with one another committed the overt acts or omissions alleged herein to the
economic loss and injury of Named Plaintiff and members of the Class.
184.
Defendants conspired with one another by common agreement or understanding
for the unlawful purposes of: (a) depriving Named Plaintiff and Class members of their rights
under the statutory provisions and common law; and (b) depriving Plaintiff and Class members
of their money and property.
185.
Defendants, acting with each other, did unlawfully deprive Named Plaintiff and
Class members of both their money and property and the rights alleged herein, for the purpose of
advancing their conspiracy.
186.
Defendants were aware, and had knowledge, of the substantial benefits conferred
by Named Plaintiff and other members of the Class on Defendants by their payment of amounts
that exceeded the value of the vehicles purchased as a result of Defendants’ failure to disclose
the rental history of such vehicles to Named Plaintiff and the Class.
187.
As previously alleged and incorporated herein, all of the Defendants aided,
abetted and encouraged the wrongful conduct of one another in the transactions of Named
Plaintiff and Class members.
188.
As a result of Defendants’ above-described misrepresentations, failures to
disclose and concealments, tortious aiding and abetting of one another in the commission of the
above-described unlawful conduct, as well as Defendants’ conspiracy to unjustly enrich
themselves at the expense of Named Plaintiff and the Class, Defendants have come into the
possession of money in the form of payments to which they had, and have, no right at law or in
equity, and they have been unjustly enriched at the expense of Named Plaintiff and the Class.
189.
Under these circumstances, it would be inequitable for Defendants to retain any
such monies that they had no legal right to charge or collect.
190.
As a consequence, Named Plaintiff and other members of the Class have
sustained the losses and damages described herein, and Defendants should be required to make
restitution to them.
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for damages sustained, including restitution, pre-judgment interest and costs for each
Class member; request equitable, declaratory, and/or injunctive relief prohibiting Defendants
from selling prior short-term rental vehicles without proper disclosure to consumers; and request
such other and further relief as may be just and as the Court deems proper for each Class
member.
COUNT SIX
(Negligent Misrepresentation)
191.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below, except to the extent they allege intentional and
malicious conduct by Defendants. In this Count, Plaintiff pleads in the alternative as permitted
by Maryland law.
192.
Defendants owed a duty to exercise care in the disclosures they provided to
Named Plaintiff and the Class in connection with the sale, and offer for sale, of vehicles to them.
Defendants owed a duty to ensure that their written disclosures to Named Plaintiff and the Class
were accurate and non-misleading and complied with Maryland law governing the sale of used
vehicles. In particular, Defendants owed a duty, prior to sale, to clearly and conspicuously
disclose to Named Plaintiff and the Class any previous short-term rental use of the vehicles sold
to Named Plaintiff and the Class.
193.
However, Defendants negligently omitted and failed to disclose the material fact
that the vehicles sold to Named Plaintiff and the Class previously had been used as short-term
rental vehicles, negligently misrepresented that the vehicles sold to them previously were used
for consumer purposes only, negligently misrepresented the condition, quality and standard of
the vehicles, negligently failed to disclose that the price of the vehicles did not accurately reflect
their value, and failed to disclose that the vehicles would not pass without objection in the trade
under the contract description.
194.
Defendants breached the duty of care they owed to Named Plaintiff and the Class
by making the above-described false, misleading and negligent representations and by
negligently omitting material facts, as described above.
195.
At the time Defendants made the above-described false statements and omissions
of material fact, they intended for Named Plaintiff and Class members to act or rely on these
statements and/or omissions of material fact.
196.
Defendants knew, or had reason to know, that Named Plaintiff and the Class
would reasonably rely on the above-described negligent representations and concealments of
material fact which, if erroneous, would cause loss, injury or damage to Named Plaintiff and the
197.
Named Plaintiff and the Class justifiably and reasonably acted to their detriment
in reliance on Defendants’ false and misleading representations and omissions. Named Plaintiff
and Class members were induced to enter into sales agreements for vehicles that were of a lesser
quality and value than represented by Defendants and paid significantly more for their vehicles
than these vehicles were worth, in reliance on Defendants’ negligent representations and
concealments.
198.
Upon information and belief, all of the Defendants possessed actual knowledge of
the other Defendants’ non-disclosure, concealment and misrepresentation of the former use as
short-term rentals of the vehicles that they sold to Named Plaintiff and Class members.
199.
As previously alleged and incorporated herein, all of the Defendants aided,
abetted and encouraged the wrongful and tortious conduct of one another in the transactions of
Named Plaintiff and Class members, including the non-disclosure, concealments and
misrepresentations of the rental history of the vehicles sold to Named Plaintiff and Class
members, and knowingly provided substantial assistance, aid and encouragement to one another
in the commission of such unlawful conduct.
200.
Each of the Defendants knowingly perpetrated, participated in and individually
benefited from the conspiracy to sell vehicles previously used for short-term rentals without
disclosure of this material fact to Named Plaintiff and the Class.
201.
As described herein, Defendants reached an agreement and/or understanding
concerning the written disclosures to be made to Named Plaintiff and the Class in connection
with their vehicle purchases and failed to make the written disclosures required by Maryland law
in furtherance of their conspiracy for their own personal gain, advantage and profit, resulting in
legal damage to Named Plaintiff and Class.
202.
As a direct and proximate result of Defendants’ negligent statements,
representations, and omissions of material fact, tortious aiding and abetting of one another in the
commission of the above-described conduct, as well as Defendants’ conspiracy concerning these
representations, Named Plaintiff and Class members were induced, ab initio, to enter into sales
agreements for vehicles with Defendants, paid significantly more for their vehicles than these
vehicles were worth, and otherwise were harmed.
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for compensatory damages, as well as pre-judgment interest and costs for each Class
member; and request such further relief as may be just and as the Court deems proper for each
Class member.
COUNT SEVEN
(Breach of Contract)
203.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
204.
On or about March 17, 2011, Named Plaintiff entered into a written sales
agreement to purchase a used 2008 Saturn Outlook from Defendant King Buick. The Class
members entered into similar written sales agreements to purchase used vehicles from
Defendants.
205.
The written sales agreements of Named Plaintiff and the Class members set forth
all of the terms of the contracts with the Defendants from whom they purchased their used
vehicles.
206.
Prior use of a vehicle is material to a person considering purchase of a vehicle.
Prior use of a vehicle is material is a matter of law, but it also is material because Defendants
purported to expressly represent to Named Plaintiff and Class members the prior use of the
vehicles Defendants sold to them in the space specifically designated for such disclosure on the
face of their vehicle sales agreements.
207.
Pursuant to the terms of their written contracts with Named Plaintiff and Class
members, Defendants promised to sell to Named Plaintiff and the Class vehicles that comported
with the descriptions of the vehicles set forth in the written sales agreements. Defendants further
promised to sell to Named Plaintiff and Class members vehicles that were in the condition
represented in the sales agreements, that were not used previously in any manner inconsistent
with the written disclosures made to Named Plaintiff and the Class in the written sales
agreements, and that were not used previously as prior short-term rentals unless such former use
was clearly and conspicuously disclosed as required by Maryland law.
208.
The written sales agreements between Defendants and the Named Plaintiff and
Class Members contained an implied covenant of good faith and fair dealing, obligating
Defendants to exercise good faith in performing their contractual obligations and to deal honestly
and fairly with the Named Plaintiff and the Class.
209.
Defendants materially breached their contracts with Named Plaintiff and the Class
by: (a) failing to sell them the vehicles promised; (b) selling Named Plaintiff and the Class used
vehicles that failed to comport with the descriptions of the vehicles set forth in the written sales
agreements; (c) selling Named Plaintiff and the Class used vehicles previously used in a manner
inconsistent with the written disclosures made to them in connection with their purchases; (d)
failing to sell to Named Plaintiff and the Class vehicles in the condition and of the quality and
standard represented in their sales agreements; (e) selling Named Plaintiff and the Class
members vehicles previously used as short-term rentals without clearly and conspicuously
disclosing such prior use before purchase; (f) denying Named Plaintiff and Class members the
opportunity to decline to purchase vehicles known previously to have been used as short-term
rentals; and by (g) acting dishonestly and in bad faith in their dealings with Named Plaintiff and
Class members.
210.
As described herein, Defendants reached an agreement and/or understanding
concerning the written disclosures to be made to Named Plaintiff and the Class in connection
with their vehicle purchases. Upon information and belief, Defendants failed to make the written
disclosures required by their written sales agreements and by Maryland law in furtherance of
their conspiracy, for their own individual and collective gain, advantage and profit, resulting in
legal damage to the Named Plaintiff and Class members.
211.
In furtherance of their conspiracy, Defendants also agreed to develop and use
form documents to offer for sale and sell to consumers prior short-term rental vehicles, which
contained misleading and fraudulent material omissions and misrepresentations concerning the
rental history of the vehicles sold to Named Plaintiff and the Class, in violation of Maryland law.
212.
As a result of Defendants’ above-described material breaches of contract and
conspiracy to breach the contracts of Named Plaintiff and Class members, Named Plaintiff and
Class members have incurred damages, including but not limited to the loss of the benefit of
their bargains with Defendants.
213.
Named Plaintiff and Class members bargained to purchase, and agreed to pay for,
vehicles previously used only as represented, and of the condition, quality and standard set forth
in their written vehicle sales agreements.
214.
However, as a result of Defendants’ above-described material breaches of
contract, and Defendants’ conspiracy to breach these contracts, Named Plaintiff and Class
members acquired vehicles previously used as short-term rentals and, in doing so, acquired
vehicles worth less than they bargained to acquire, paid more for these vehicles than they were
worth, and otherwise were harmed.
WHEREFORE, Named Plaintiff and the Class pray for an order certifying this action as a
class action pursuant to Fed. R. Civ. P. 23; demand judgment against Defendants, jointly and
severally, for compensatory damages, as well as pre-judgment interest and costs for each Class
member; and request such further relief as may be just and as the Court deems proper for each
Class member.
COUNT EIGHT
(Violation of RICO – 18 U.S.C. § 1962(a))
215.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
216.
Named Plaintiff and each Class member is a “person” within the meaning of 18
U.S.C. §§ 1961(3) and 1964(c).
217.
Each Defendant is a “person” within the meaning of 18 U.S.C. §§ 1961(3) and 18
U.S.C. 1962(a).
218.
Defendants formed an association-in-fact with each other – King Auto Group –
an “enterprise” within the meaning of 18 U.S.C. §§ 1961(4) and 1962(a), which was engaged in,
and the activities of which affect, interstate commerce.
219.
Each of the Defendants used proceeds derived from a pattern of racketeering
activity under 18 U.S.C. §§ 1961(1) and (5) to acquire an interest in, establish, and operate the
enterprise.
220.
These unlawful activities included multiple instances of mail and wire fraud,
including but not limited to the mail and wire fraud described in Part VII above, and included use
of the mails and wires to transmit documents and transfer funds in violation of 18 U.S.C. §§
1341 and 1343, which occurred uniformly and consistently during the existence of the
“enterprise” and permitted Defendants to maintain and operate it.
221.
These unlawful activities also included multiple instances of interstate transport of
money converted or fraudulently obtained, including but not limited to the interstate transport of
money converted or fraudulently obtained described in Part VII above, which occurred
uniformly and consistently during the existence of the enterprise and permitted Defendants to
maintain and operate this enterprise.
222.
One of the purposes of the enterprise created by Defendants was to pool resources
and expertise to acquire, advertise and sell motor vehicles used for short-term rentals, allowing
Defendants to establish a methodology and scheme for selling prior short-term rental vehicles
without the disclosures required by Maryland law in a uniform way, using form documents
developed for use by King Auto Group’s association-in-fact enterprise, and to illegally profit
from this scheme at the expense of Named Plaintiff and the Class.
223.
This association-in-fact had a common or shared purpose – that is, to give effect
to the prior short-term rental sale scheme described herein and to allow Defendants to use form
documents and process to conduct their vehicle sales transactions, and it had a distinct division
of labor.
224.
This association-in-fact has continued as a unit, with a core membership, over a
substantial period of time, exceeding five years, and is an ongoing organization established for
an economic motive. Although the membership in the enterprise has changed, and some of the
Defendants were added into the enterprise over time, the structure of the organization and the
functions undertaken by its members have remained constant. The association-in-fact remained
viable and active at the time this action was filed.
225.
Defendants each played a substantial and distinct role in the scheme.
226.
In this association-in-fact, each Defendant car dealership agreed to promote and
advertise itself as one of an affiliated group of companies operating under the banner “King Auto
Group.” Upon information and belief, Defendants agreed that they would subject themselves to
oversight by a group of persons responsible for the management of King Auto Group.
227.
Upon information and belief, Defendants agreed that their sales practices and
marketing campaigns would be governed by general guidelines developed through their King
Auto Group association.
228.
However, King Auto Group is not an entity with a legal existence.
229.
Defendants created and disseminated for use, and agreed to use and used in their
operations, form documents and procedures to sell used vehicles, including but not limited to
purchase order forms and Prior Use Acknowledgement Forms, which did not comport with
Maryland law and which were used to mislead consumers about the prior history of their
vehicles.
230.
Defendants further agreed to use and used deceptive procedures for selling prior
rental vehicles without the disclosure required by Maryland law, even when using form
documents that contained areas specifically designated for the disclosure of the prior non-
consumer use of the vehicle being sold.
231.
Each member of the Class received form documents that contained fraudulent and
false statements and/or omissions and that concealed material facts, which caused Named
Plaintiff and members of the Class to act in reasonable reliance on these deceptive documents
and to believe that: (i) King Auto Group was a legitimate enterprise and was proceeding
legitimately, and (ii) the vehicles sold to them had no prior short-term rental use.
232.
All of these activities of the association-in-fact form a pattern, continuous in
nature, which consists of numerous unlawful individual acts directed to the Named Plaintiff and
each Class member. Defendants’ illegal activities persisted over an extended period of time.
233.
Each document provided to Named Plaintiff and the other members of the Class
in the course of their vehicle sales transactions was provided in furtherance of the conspiracy
described herein, for which Defendants are liable.
234.
The reliance of Named Plaintiff and members of the Class on the material
omissions and falsehoods contained in such documents and other communications was
reasonable and justified because such documents and communications would and did cause
persons of ordinary experience to be convinced of the legality and legitimacy of the operations of
King Auto Group.
235.
The activities of the Defendants as described herein and in Part VII entailed
multiple instances of mail fraud, consisting of intentional mail fraud intended to induce, and
inducing, Named Plaintiff and the Class to part with property and/or to surrender legal rights in
violation of 18 U.S.C. § 1341.
236.
These activities of the Defendants also entailed multiple instances of wire fraud,
consisting of intentional wire fraud intended to induce, and inducing, Named Plaintiff and the
Class to part with property and/or to surrender legal rights in violation of 18 U.S.C. § 1343.
237.
These activities of the Defendants also entailed multiple instances of interstate
transport of money converted or fraudulently obtained, in violation of 18 U.S.C. § 2314.
238.
Through the use of this illegal and fraudulent scheme, and through their efforts to
operate and maintain the enterprise described herein and to facilitate the sale of prior short-term
rental vehicles without the disclosures required by Maryland law, Defendants have been able to
retain money that is rightfully payable to Named Plaintiff and Class members, and to collect
money not properly due from Named Plaintiff and Class members.
239.
Defendants have retained these illegally gained funds and reinvested and used
those funds in their operations in violation of 18 U.S.C. § 1962(a).
240.
Furthermore, Defendants each previously acquired illicit funds through similar
fraudulent operations involving mail and wire fraud and interstate transport of money converted
or fraudulently obtained, and they used these proceeds to continue their scheme by investing in
and operating King Auto Group.
241.
Through Defendants’ use of the illegal and fraudulent scheme of selling prior
short-term rental vehicles without the disclosures required by Maryland law, and through their
efforts to operate and maintain the enterprise described herein to facilitate the sale of prior short-
term rental vehicles without the disclosures required by law, Defendants have been able both to
maintain the enterprise and to profit from it at the expense of Named Plaintiff and the Class.
242.
Named Plaintiff and Class members have been injured in their property by reason
of the violations of § 1962(a), inter alia, because Named Plaintiff and Class members were
overcharged for their purchases from Defendants as a result of the reinvestment and use of funds
by Defendants derived from Defendants’ pattern of racketeering activity to fund and operate
King Auto Group and facilitate and incentivize the Defendants’ actions in deceptively selling
prior rental vehicles without the disclosures required by Maryland law.
WHEREFORE, Named Plaintiff and the Class pray that the Court (a) find Defendants
jointly and severally liable for violation of 18 U.S.C. § 1962(a) and award Named Plaintiff and
Class members three times the amount of any and all damages suffered as a result of the illegal
acts set forth herein, as well as any other amounts or damages allowed to be recovered by RICO;
(b) declare that King Auto Group is a racketeering enterprise and that the fraudulent scheme set
forth in this Complaint constitutes a pattern of racketeering activity; (c) permanently enjoin and
restrain the Defendants and their agents, employees, representatives and all persons acting on
their behalf from selling prior short-term rental vehicles without the clear and conspicuous
disclosures required by Maryland law; (d) award pre-judgment interest and costs for each Class
member; (e) award reasonable costs and attorneys’ fees; and (f) award such other and further
relief as the Court deems just and proper.
COUNT NINE
(Violation of RICO – 18 U.S.C. § 1962(c))
243.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
244.
Named Plaintiff and each Class member is a “person” within the meaning of 18
U.S.C. §§ 1961(3) and 1964(c).
245.
Each Defendant is a “person” within the meaning of 18 U.S.C. §§ 1961(3) and 18
U.S.C. 1962(c).
246.
At all times relevant to this Complaint, the “enterprise” described herein, which is
a non-incorporated association, operated separately and distinct from the Defendants that
committed the violations alleged. As previously stated, each of the Defendants is a separately
incorporated entity, has its own business location and employees (other than an overlap in
management), and has an individual profit motive and personal financial stake in the conspiracy.
Defendants, through contractual arrangement and joint management activity, formed an
association-in-fact with each other, which constitutes an “enterprise” engaged in illegal activities
affecting interstate commerce pursuant to 18 U.S.C. §§ 1961(4) and 1962(a).
247.
Defendants were each associated with the enterprise and participated in its
management and/or operation by directing its affairs and/or by conducting business with each
other and by participating and assisting in the fraudulent scheme described herein to acquire and
sell prior short-term rental vehicles without the disclosures required by Maryland law.
248.
Defendants participated, directly or indirectly, in the conduct of the enterprise’s
affairs through a pattern of unlawful racketeering activity under 18 U.S.C. § 1961(1)(B), 1961(5)
and 1962(c), including:
(a) Multiple acts of mail fraud in violation of 18 U.S.C. § 1341;
(b) Multiple instances of wire fraud in violation of 18 U.S.C. § 1343; and
(c) Multiple instances of interstate transport of money converted or fraudulently obtained
in violation of 18 U.S.C. § 2314.
249.
Each Class member suffered injury to his or her property within the meaning of
18 U.S.C. § 1964(c) by reason of the Defendants’ violations of 18 U.S.C. § 1962(c).
WHEREFORE, Named Plaintiff and the Class pray that the Court (a) find Defendants
jointly and severally liable for violation of 18 U.S.C. § 1962(c) and award Named Plaintiff and
Class members three times the amount of any and all damages suffered as a result of the illegal
acts set forth herein, as well as any other amounts or damages allowed to be recovered by RICO;
(b) declare that King Auto Group is a racketeering enterprise and that the fraudulent scheme set
forth in this Complaint constitutes a pattern of racketeering activity; (c) permanently enjoin and
restrain Defendants and their agents, employees, representatives and all persons acting on their
behalf from selling prior short-term rental vehicles without the clear and conspicuous disclosures
required by Maryland law; (d) award pre-judgment interest and costs for each Class member;
(e) award reasonable costs and attorneys’ fees; and (f) award such other and further relief as the
Court deems just and proper.
COUNT TEN
(Violation of RICO – 18 U.S.C. § 1962(d))
250.
Plaintiff re-alleges and incorporates herein by reference the allegations in the
foregoing paragraphs as if fully set forth below.
251.
Named Plaintiff and each Class member is a “person” within the meaning of 18
U.S.C. §§ 1961(3) and 1964(c).
252.
Each Defendant and co-conspirator is a “person” within the meaning of 18 U.S.C.
§§ 1961(3) and 18 U.S.C. 1962(d).
253.
Defendants, through contractual arrangement and joint management activity,
formed an association-in-fact with each other, which constitutes an “enterprise” engaged in
illegal activities affecting interstate commerce pursuant to 18 U.S.C. §§ 1961(4) and 1962(a).
254.
Defendants as co-conspirators were associated with the enterprise described
herein and conspired within the meaning of 18 U.S.C. § 1962(d) to violate § 1962(a) and (c).
255.
Defendants each knew of the RICO violations of the enterprise described in this
Complaint and agreed to facilitate and participate in those activities.
256.
Defendants as co-conspirators conspired to use or invest income derived from a
pattern of unlawful activity under 18 U.S.C. § 1961(1) to acquire an interest in, establish, and
operate the enterprise and have done so through a pattern of unlawful activity including under 18
U.S.C. § 1961(1), inter alia, multiple instances of mail fraud in violation of 18 U.S.C. § 1341
and wire fraud in violation of 18 U.S.C. § 1343, as well as multiple instances of interstate
transport of money converted or fraudulently obtained in violation of 18 U.S.C. § 2314.
257.
Defendants as co-conspirators conspired to operate, maintain control of,
participate and maintain an interest in the enterprise and have done so through a pattern of
unlawful activity, including under 18 U.S.C. § 1961(1), inter alia, multiple instances of mail
fraud in violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343, and
multiple instances of interstate transport of money converted or fraudulently obtained in
violation of 18 U.S.C. § 2314.
258.
Named Plaintiff and each Class member have suffered injury to their property
within the meaning of 18 U.S.C. §§ 1964(c) by reason of the commission of the overt acts
described herein, constituting illegal activity in violation of 18 U.S.C. §§ 1961(1) and 1962(d).
WHEREFORE, Named Plaintiff and the Class pray that the Court (a) find Defendants
jointly and severally liable for violation of 18 U.S.C. § 1962(d) and award Named Plaintiff and
Class members three times the amount of any and all damages suffered as a result of the illegal
acts set forth herein, as well as any other amounts or damages allowed to be recovered by RICO;
(b) declare that King Auto Group is a racketeering enterprise and that the fraudulent scheme set
forth in this Complaint constitutes a pattern of racketeering activity; (c) permanently enjoin and
restrain the Defendants and their agents, employees, representatives and all persons acting on
their behalf from selling prior short-term rental vehicles without the clear and conspicuous
disclosures required by Maryland law; (d) award pre-judgment interest and costs for each Class
member; (e) award reasonable costs and attorneys’ fees; and (f) award such other and further
relief as the Court deems just and proper.
Respectfully submitted,
Richard S. Gordon (Bar No. 06882)
Stacie F. Dubnow (Bar No. 10246)
Thomas McCray-Worrall (Bar No. 29447)
GORDON & WOLF, CHTD.
102 West Pennsylvania Avenue, Suite 402
Baltimore, Maryland 21204
Telephone: (410) 825-2300
Fax: (410) 825-0066
Mark H. Steinbach (Bar No. 26538)
Of Counsel
O’TOOLE ROTHWELL
1350 Connecticut Avenue, N.W., Suite 200
Washington, D.C. 20036
(202) 775-1550
Attorneys for Plaintiff and the Class
By:
/s/
Richard S. Gordon
| criminal & enforcement |
_hDMFocBD5gMZwczczC3 | UNITED STATES DISTRICT COURT
Docket Number: 1:19-cv-9827
SOUTHERN DISTRICT OF NEW YORK
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VALENTIN REID, on behalf of himself and all
others similarly situated,
CLASS ACTION COMPLAINT
AND
Plaintiffs,
v.
DEMAND FOR JURY TRIAL
THESY, LLC,
Defendant.
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INTRODUCTION
1.
Plaintiff VALENTIN REID, on behalf of himself and others similarly situated,
asserts the following claims against Defendant THESY, LLC as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using his computer. Plaintiff uses the terms
“blind” or “visually-impaired” to refer to all people with visual impairments who
meet the legal definition of blindness in that they have a visual acuity with
correction of less than or equal to 20 x 200. Some blind people who meet this
definition have limited vision. Others have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2015 report, approximately
400,000 visually impaired persons live in the State of New York.
4.
Plaintiff brings this civil rights action against Defendant for its failure to design,
construct, maintain, and operate its website to be fully accessible to and
independently usable by Plaintiff and other blind or visually-impaired people.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
Americans with Disabilities Act (“ADA”).
5.
Because Defendant’s website, www.elementvape.com (the “Website”), is not
equally accessible to blind and visually impaired consumers, it violates the ADA.
Plaintiff seeks a permanent injunction to cause a change in Defendant’s corporate
policies, practices, and procedures so that Defendant’s website will become and
remain accessible to blind and visually-impaired consumers.
JURISDICTION AND VENUE
6.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
7.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
and New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, and a substantial portion of the conduct complained of
herein occurred in this District because Plaintiff attempted to utilize, on a number
of occasions, the subject Website within this Judicial District.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers. A substantial part of the
acts and omissions giving rise to Plaintiff’s claims occurred in this District: on
several separate occasions, Plaintiff has been denied the full use and enjoyment of
the facilities, goods and services offered to the general public, on Defendant’s
Website in New York County. These access barriers that Plaintiff encountered have
caused a denial of Plaintiff’s full and equal access multiple times in the past, and
now deter Plaintiff on a regular basis from accessing the Defendant’s Website in
the future.
10.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
THE PARTIES
11.
Plaintiff VALENTIN REID, at all relevant times, is and was a resident of Brooklyn,
New York.
12.
Plaintiff is a blind, visually-impaired handicapped person and a member of a
protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and
the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq.,
NYCHRL.
13.
Defendant is and was at all relevant times a California Limited Liability Company
doing business in New York.
14.
Defendant’s Website, and its goods, and services offered thereupon, is a public
accommodation within the definition of Title III of the ADA, 42 U.S.C. § 12181(7).
NATURE OF ACTION
15.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-
impaired persons alike.
16.
In today’s tech-savvy world, blind and visually impaired people have the ability to
access websites using keyboards in conjunction with screen access software that
vocalizes the visual information found on a computer screen or displays the content
on a refreshable Braille display. This technology is known as screen-reading
software. Screen-reading software is currently the only method a blind or visually-
impaired person may use to independently access the internet. Unless websites are
designed to be read by screen-reading software, blind and visually-impaired
persons are unable to fully access websites, and the information, products, goods
and contained thereon.
17.
Blind and visually-impaired users of Windows operating system-enabled
computers and devices have several screen reading software programs available to
them. Some of these programs are available for purchase and other programs are
available without the user having to purchase the program separately. Job Access
With Speech, otherwise known as “JAWS” is currently the most popular, separately
purchased and downloaded screen-reading software program available for a
Windows computer. Another popular screen-reading software program available
for a Windows computer is NonVisual Desktop Access “NVDA”.
18.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same
content available to sighted users.
19.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the
Web Content Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-
established guidelines for making websites accessible to blind and visually-
impaired people. These guidelines are universally followed by most large business
entities and government agencies to ensure their websites are accessible.
20.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired
persons include, but are not limited to, the following:
a.
A text equivalent for every non-text element is not provided;
b.
Title frames with text are not provided for identification and
navigation;
c.
Equivalent text is not provided when using scripts;
d.
Forms with the same information and functionality as for sighted
persons are not provided;
e.
Information about the meaning and structure of content is not
conveyed by more than the visual presentation of content;
f.
Text cannot be resized without assistive technology up to 200%
without losing content or functionality;
g.
If the content enforces a time limit, the user is not able to extend,
adjust or disable it;
h.
Web pages do not have titles that describe the topic or purpose;
i.
The purpose of each link cannot be determined from the link text
alone or from the link text and its programmatically determined link
context;
j.
One or more keyboard operable user interface lacks a mode of
operation where the keyboard focus indicator is discernible;
k.
The default human language of each web page cannot be
programmatically determined;
l.
When a component receives focus, it may initiate a change in
context;
m.
Changing the setting of a user interface component may
automatically cause a change of context where the user has not been advised
before using the component;
n.
Labels or instructions are not provided when content requires user
input, which include captcha prompts that require the user to verify that he
or she is not a robot;
o.
In content which is implemented by using markup languages,
elements do not have complete start and end tags, elements are not nested
according to their specifications, elements may contain duplicate attributes,
and/or any IDs are not unique;
p.
Inaccessible Portable Document Format (PDFs); and,
q.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be
programmatically set; and/or notification of changes to these items is not
available to user agents, including assistive technology.
STATEMENT OF FACTS
21.
Defendant
is
a
nicotine
product
retailer
that
owns
and
operates
www.elementvape.com (its “Website”), offering features which should allow all
consumers to access the goods and services and which Defendant ensures the
delivery of such goods throughout the United States, including New York State.
22.
Defendant’s Website offers products and services for online sale and general
delivery to the public. The Website offers features which ought to allow users to
browse for items, access navigation bar descriptions and prices, and avail
consumers of the ability to peruse the numerous items offered for sale.
23.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff is, however, a proficient
NVDA screen-reader user and uses it to access the Internet. Plaintiff has visited the
Website on separate occasions using a screen-reader.
24.
On multiple occasions, the last occurring in October of 2019, Plaintiff visited
Defendant’s website, www.elementvape.com. Despite his efforts, however,
Plaintiff was denied a shopping experience similar to that of a sighted individual
due to the website’s lack of a variety of features and accommodations.
25.
Many features on the Website lacks alt. text, which is the invisible code
embedded beneath a graphical image. As a result, Plaintiff was unable to
differentiate what products were on the screen due to the failure of the Website to
adequately describe its content.
26.
Many features on the Website also fail to Add a label element or title attribute for
each field. This is a problem for the visually impaired because the screen reader
fails to communicate the purpose of the page element. It also leads to the user not
being able to understand what he or she is expected to insert into the subject field.
As a result, Plaintiff and similarly situated visually impaired users of Defendant’s
Website are unable to enjoy the privileges and benefits of the Website equally to
sighted users.
27.
Many pages on the Website also contain the same title elements. This is a problem
for the visually impaired because the screen reader fails to distinguish one page
from another. In order to fix this problem, Defendant must change the title elements
for each page.
28.
The Website also contained a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, the user is redirected to an error page. However, the screen-reader fails to
communicate that the link is broken. As a result, a visually impaired user is not able
to return to or continue his original search.
29.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
30.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff,
along with other blind or visually-impaired users, access to Defendant’s website,
and to therefore specifically deny the goods and services that are offered to the
general public. Due to Defendant’s failure and refusal to remove access barriers to
its website, Plaintiff and visually-impaired persons have been and are still being
denied equal access to Defendant’s Website, and the numerous goods and services
and benefits offered to the public through the Website.
31.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from equal access to the Website.
32.
If the Website were equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
33.
Through his attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
34.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
35.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
36.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
37.
Because Defendant’s Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website
to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring Defendant to retain a qualified consultant
acceptable to Plaintiff (“Agreed Upon Consultant”) to assist Defendant to comply
with WCAG 2.1 guidelines for Defendant’s Website. Plaintiff seeks that this
permanent injunction requires Defendant to cooperate with the Agreed Upon
Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
on accessibility compliance under the WCAG 2.1 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.1 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.1
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
Websites, with contact information for users to report accessibility-related
problems.
38.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
39.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining their Website and has generated significant revenue
from the Website. These amounts are far greater than the associated cost of making
their Website equally accessible to visually impaired customers.
40.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
CLASS ACTION ALLEGATIONS
41.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
42.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
43.
Common questions of law and fact exist amongst the Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
44.
Plaintiff’s claims are typical of the Class. The Class, similarly, to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
45.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
46.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
47.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
48.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
49.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
50.
Defendant’s Website is a public accommodations within the definition of Title III
of the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
51.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
52.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
53.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
54.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
55.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
56.
Plaintiff, on behalf of himself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
57.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
58.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
59.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
60.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
61.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
62.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
63.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
64.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
65.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
66.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
67.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
68.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
69.
Plaintiff, on behalf of himself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
70.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operates and
controls, fails to comply with applicable laws including, but not limited to, Title III
of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., and N.Y.C.
Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
71.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and his attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law and City Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Hackensack, New Jersey
October 24, 2019
STEIN SAKS, PLLC
By: /s/ Russel Weinrib
Russel Weinrib, Esq.
rweinrib@steinsakslegal.com
285 Passaic Street
Hackensack, NJ 07601
Tel: (201) 282-6500
Fax: (201) 282-6501
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
b9odEIcBD5gMZwcz92-u | Jeffrey L. Silvestrini (Bar No. 2959)
Cohne Kinghorn, PC
111 E. Broadway, 11th Floor
Salt Lake City, UT 84111
801.363-4300
jeff@cohnekinghorn.com
Joseph E. White, III (pro hac vice to be filed)
Lester R. Hooker (pro hac vice to be filed)
Saxena White P.A.
Boca Center
5200 Town Center Circle, Suite 601
Boca Raton, FL 33486
561.394.3399
lhooker@saxenawhite.com
Richard A. Maniskas (pro hac vice to be filed)
Katharine Ryan (pro hac vice to be filed)
Ryan & Maniskas, LLP
995 Old Eagle School Rd., St. 311
Wayne, Pennsylvania 19087
Telephone: (484) 588-5516
Facsimile: (484) 450-2582
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
MELANIE DAVIS, Individually and on Behalf
of All Others Similarly Situated,
Plaintiff,
v.
SKULLCANDY, INC., SETH DARLING,
JASON HODELL, and RICHARD P. ALDEN,
Defendants.
CLASS ACTION
COMPLAINT FOR VIOLATIONS OF
THE FEDERAL SECURITIES LAWS
Case No.:
DEMAND FOR JURY TRIAL
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TABLE OF CONTENTS
I.
NATURE OF THE ACTION ..............................................................................................1
II.
JURISDICTION AND VENUE ..........................................................................................4
III.
PARTIES .............................................................................................................................4
IV.
SUBSTANTIVE ALLEGATIONS .....................................................................................6
A.
Background of the Company ...................................................................................6
B.
Defendants’ Materially False and Misleading Statements .......................................6
C.
The Truth Slowly Emerges ....................................................................................11
D.
Improper Insider Selling During The Class Period................................................16
V.
CLASS ACTION ALLEGATIONS ..................................................................................17
VI.
UNDISCLOSED ADVERSE FACTS ...............................................................................20
VII.
LOSS CAUSATION ..........................................................................................................21
VIII. SCIENTER ALLEGATIONS ............................................................................................22
IX.
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-
MARKET DOCTRINE .....................................................................................................23
X.
NO SAFE HARBOR .........................................................................................................24
XI.
COUNTS AGAINST DEFENDANTS ..............................................................................25
COUNT I ...........................................................................................................................25
COUNT II ..........................................................................................................................29
XII.
PRAYER FOR RELIEF ....................................................................................................30
XIII. JURY TRIAL DEMANDED .............................................................................................31
Plaintiff Melanie Davis (“Plaintiff”), by and through her attorneys, alleges the following
upon information and belief, except as to those allegations concerning Plaintiff, which are
alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other
things, her counsel’s investigation, which includes without limitation: (a) review and analysis of
public filings made by Skullcandy, Inc. (“SKUL” or the “Company”) and other related parties
and non-parties with the Securities and Exchange Commission (“SEC”); (b) review and analysis
of press releases and other publications disseminated by certain of the Defendants and other
related non-parties; (c) review of news articles, shareholder communications, conference call
transcripts, and postings on SKUL’s website concerning the Company’s public statements; and
(d) review of other publicly available information concerning SKUL and the Individual
Defendants.
I.
NATURE OF THE ACTION
1.
This is a class action on behalf of all persons or entities that purchased or
otherwise acquired SKUL securities between August 7, 2015 and January 11, 2016, inclusive
(the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the
“Exchange Act”).
2.
SKUL is a designer, marketer and distributer of audio and gaming headphones,
earbuds, speakers and other accessories under the Skullcandy, Astro Gaming and 2XL brands.
The Company offers an array of styles and price points and includes audio products and
categories, such as gaming and sports performance, women’s and wireless offerings, as well as
partnerships with manufacturers to license its brand.
3.
During the Class Period, Defendants made false and misleading statements and
failed to disclose material facts concerning SKUL’s operations and financial results, including
issues with its largest Chinese distributor. In addition, Defendants misled the market by issuing
false and misleading earnings guidance. As the direct result of Defendants’ wrongful actions, the
common stock of SKUL traded at artificially inflated prices throughout the Class Period.
4.
Further, Defendants’ wrongful conduct and their dissemination of false and
misleading statements enabled Defendant Rick Alden (“Alden”), who is the Company’s
Founder, former CEO and a current director, to engage in improper insider trading.
Approximately one month after the Company unexpectedly raised guidance, Alden and Relevant
Non-Defendant Ptarmagin, LLC (“Ptarmagin”) began disposing their shares through prearranged
stock trading plans established on June 5, 2015. Between September 8, 2015, and January 7,
2016, Alden and Ptarmagin sold 775,000 beneficially owned SKUL shares into the open market
for proceeds of over $4 million. Ptarmagin is the family trust established for the benefit of
Alden’s family.
5.
When Defendants fully disclosed the truth regarding the Company’s true business
prospects on January 11, 2016, SKUL’s shares plummeted $1.29 per share, or more than 28%, to
close at $3.26 per share on January 12, 2016, on unusually heavy volume.
6.
As further detailed below, throughout the Class Period, Defendants made false
and/or misleading statements and/or failed to disclose to investors that (i) the third quarter and
full year 2015 revenue and net income guidance issued during the Company’s second quarter
2015 earnings announcement and subsequent conference call were materially false and
misleading in that the projections were unattainable; (ii) the fourth quarter and full year 2015
revenue and net income guidance issued during the Company’s third quarter 2015 earnings
announcement and subsequent conference call were materially false and misleading in that the
projections were unattainable; (iii) Defendants intentionally failed to timely disclose the
Company’s challenges with its largest China distributor; (iv) Defendant Rick Alden and
Ptarmagin, with full knowledge of the undisclosed materially adverse facts alleged herein,
embarked on a selling spree of personal holdings of SKUL common stock at artificially inflated
prices, which sales they made without first disclosing these adverse material facts known to
Defendants and withheld from the market, which permitted them to engage in unusual insider
selling and realize proceeds in excess of $4 million; and (v) as a result of the foregoing,
Defendants’ statements about SKUL’s business, operations, and prospects were false and
misleading and/or lacked a reasonable basis.
7.
As a direct result of Defendants’ wrongful actions, SKUL’s common stock traded
at artificially inflated prices throughout the Class Period. Defendants’ wrongful conduct and
their dissemination of false and misleading statements enabled Defendants Alden and Ptarmagin
to engage in improper insider trading.
8.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
II.
JURISDICTION AND VENUE
9.
The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
10.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
11.
Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and
Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). A substantial portion of the acts in
furtherance of the alleged fraud, including the effects of the fraud, have occurred in this Judicial
District. In addition, the Company’s principal executive offices are located within this Judicial
District.
12.
In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
III.
PARTIES
13.
Plaintiff Melanie Davis, as set forth in the accompanying certification,
incorporated by reference herein, purchased SKUL common stock during the Class Period, and
suffered damages as a result of the federal securities law violations and false and/or misleading
statements and/or material omissions alleged herein.
14.
Defendant Skullcandy, Inc. is a Delaware corporation with its principal executive
offices located at 1441 West Ute Blvd., Suite 250, Park City, UT 84098.
15.
Defendant Seth “Hoby” Darling (“Darling”) was, at all relevant times, President
and Chief Executive Officer (“CEO”) of SKUL.
16.
Defendant Jason Hodell (“Hodell”) was, at all relevant times, Chief Financial
Officer (“CFO”) of SKUL.
17.
Defendant Richard P. “Rick” Alden was, at all relevant times, a member of
SKUL’s Board of Directors. Alden founded the Company in January 2003 and served as its
CEO until March 2011.
18.
Defendants Darling, Hodell, and Alden are collectively referred to hereinafter as
the “Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of SKUL’s reports to the
SEC, press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the
Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading. The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
19.
Relevant Non-Defendant Ptarmagin, LLC’s only member is the Alden Irrevocable
Trust, whose sole beneficiaries are the spouse and children of Defendant Rick Alden. Defendant
Alden exercises control over the Alden Irrevocable Trust, including its investments.
IV.
SUBSTANTIVE ALLEGATIONS
A.
Background of the Company
20.
Skullcandy, Inc. is a designer, marketer and distributer of audio and gaming
headphones, earbuds, speakers and other accessories under the Skullcandy, Astro Gaming and
2XL brands. The Company offers an array of styles and price points and includes audio products
and categories, such as gaming and sports performance, women’s and wireless offerings, as well
as partnerships with manufacturers to license its brand.
B.
Defendants’ Materially False and Misleading Statements
21.
Throughout the Class Period, Defendants repeatedly made false and misleading
statements and omissions concerning the Company’s business, operations and prospects. These
false and misleading statements created a false impression concerning SKUL’s business and
operational status and future growth prospects.
22.
On August 6, 2015, SKUL issued a press release entitled “Skullcandy Second
Quarter Operating Income and Earnings Per Share Exceed Expectations; Raises Guidance for
Full Year Earnings Per Share.” Therein, the Company raised full year 2015 EPS guidance to
between $0.41 and $0.43, an increase from its previous guidance of $0.36 and $0.40. The
Company issued this increased guidance at a time when certain insiders were poised to capitalize
on the expected increase in the Company’s stock, as discussed in greater detail below. In the
press release, the Company, in relevant part, stated:
PARK CITY, Utah, Aug. 6, 2015 (GLOBE NEWSWIRE) -- Skullcandy, Inc.
(NASDAQ:SKUL) today announced financial results for the second quarter
ended June 30, 2015.
Second quarter 2015 results versus the same quarter in the prior year
• Net sales: $58.0 million vs. $53.9 million, up 8% (up 10% currency
neutral)
• Gross margin: 42.8% vs. 45.0%, down 220 basis points (down 130 basis
points currency neutral)
• Selling, general and administrative expense (SG&A): $23.8 million vs.
$22.9 million, up 4% (up 7% currency neutral)
• SG&A expense as a percent of net revenue: 41.1% vs. 42.6%
• Operating income: $1.0 million vs. $1.3 million, down $0.3 million (down
$0.02 million currency neutral)
• Net income per share: 4.2 cents vs. 5.5 cents, down 24% (up 17%
currency neutral)
“Everything we do at Skullcandy and Astro puts the consumer at the center. We
strive to inspire people to live life at full volume through our innovations,
products, and brand storytelling,” said Hoby Darling, President and Chief
Executive Officer. “Through this dedication to our consumer, Skullcandy once
again was the number one headphone choice in units for the second quarter and
year to date. Astro also outpaced its competition in the gaming market growing
nearly three times faster than the industry during Q2. Our product quality and
innovation engine continues to strengthen as evidenced by the accolades and
Editor’s Choice awards the Grind and Strum, two recent product introductions,
received from leading audio publications while Astro continues to design the best
high end gaming headphones in the world. We continue to make smart
investments in innovation and demand creation, with double digit year over year
increases in spend, while maintaining tight control over non-revenue driving
expenses. Looking ahead, we are well positioned to add more fuel to our
revenue engine as we see accelerating growth and new shelf space during the
upcoming holiday season to kickoff next year with great brand and product
momentum.”
* * *
2015 Full Year and Third Quarter Financial Outlook
For the full year 2015, the Company continues to forecast net sales to increase
13-15% over 2014 levels. The Company also raises guidance for net income on
a U.S. GAAP fully-diluted per share basis of a range of $0.41 to $0.43 per
share, an increase from its previous guidance of $0.36 to $0.40.
For the third quarter of 2015, the Company currently forecasts net sales to
increase at a growth rate of 17-19% over 2014 levels and net income on a U.S.
GAAP fully-diluted per share basis of a range of $0.07 to $0.08.
23.
During the Q2 2015 earnings call on August 6, 2015, Defendant Hodell provided
updated guidance for the full year, third quarter and fourth quarter of 2015. In regards to full-
year guidance, Defendant Hodell stated:
[O]n revenue, we still expect net revenue to grow at 13% to 15% rate for full year
2015 versus 2014. This growth is being driven by new product launches and
investments in listening stations and fixtures at our retail partners. We estimate
the foreign exchange drag on full year revenue growth at approximately 250 basis
points.
* * *
We are managing SG&A to aggressively leverage the business and drive
operating profitability. On SG&A, we are now targeting 36% of net revenues or
less and are currently expecting SG&A year-over-year dollar growth of
approximately 2%.
Due to these combined effects, we are pleased to raise our expectation of
operating income to a range of $17.5 million to $18.5 million.
For other expense, we are still modeling an annual total of $1.2 million of
expense. For taxes, we are raising our expectation of the marginal annual rate to
27.5% as discussed earlier and then adding our year-to-date discreet tax expense
items of $150,000.
Lastly, based on our updated view of the second half, we are proud to raise our
annual EPS guidance to a range of $0.41 to $0.43 from our previous guidance
of $0.36 to $0.40. This mid-point point implies year-over-year growth of EPS
56% or 92% on a constant currency basis.
24.
In regards to Q3 and Q4 guidance, Defendant Hodell stated:
[W]e are currently forecasting net sales increased 17% to 19% over 2014 levels,
with growth led by our new product introductions, continuing success of our
Wireless Hesh 2 and year-over-year increases with nearly all of our largest key
accounts.
We estimate the foreign-exchange drag on Q3 year-over-year revenue growth at
approximately 320 basis points. We are currently targeting a Q3 gross margin in
the range of 40% to 41% or 41.3% to 42.3% on a constant currency basis.
Another important note on our Q3 gross margin, we are expediting our new
product suite to market and are therefore incurring an approximate $1 million
charge for airfreight within our gross margin in Q3, which alone reduce our gross
margin by 140 basis points.
We expect SG&A to be within a range of $24.3 million to $24.8 million for the
quarter and growing year-over-year in absolute dollar terms by approximately 7%
to 8%. This SG&A increase the strategic and closely aligned to where we have
traditionally seen returns on our marketing investments in terms of sell-through
and brand.
* * *
[I]n Q4, we are currently forecasting net sales to increase 13% to 15% over
2014 levels, with growth led by our International segment and new product
introductions.
* * *
We are expecting Q4 GAAP diluted EPS of $0.42 to $0.44. This mid-point
implies year-over-year growth of EPS of 64% or 80% on a constant currency
basis. In putting forth this new outlook, we want to remind everyone of the
complexity of accurately assessing future earnings and revenue growth given the
competitive nature of the industry, the difficulty in predicting sales of our
products by key retailers, changes in technology, sourcing costs, trends in
consumer preferences, because of our consumer and innovation focus, brand
strength, quality products, strong cash position and dedicated team of employees,
athletes, sales reps and distributors, we are confident we can achieve our vision of
being a global audio leader, deliver profitable growth and increase shareholder
value.
25.
On this news, shares of SKUL increased $0.68 per share, approximately 9.32%, to
close at $7.98 per share on August 7, 2015, on unusually heavy volume.
26.
On August 7, 2015, the Company filed its Quarterly Report with the SEC on
Form 10-Q for the quarterly period ended June 30, 2015. The Form 10-Q was signed by
Defendants Darling and Hodell, and reaffirmed the Company’s financial results previously
announced on August 6, 2015.
27.
On September 8, 2015, SKUL filed a Current Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 with the SEC on Form 8-K. Therein, the Company
indicated, for the first time, that:
On June 5, 2015, Rick Alden, a member of the board of directors of Skullcandy,
Inc. (the “Company”) and Ptarmagin, LLC (“Ptarmagin”), each adopted a
prearranged stock trading plan in accordance with Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended. The Alden Irrevocable Trust, of
which Mr. Alden’s family members are the beneficiaries, is the sole member of
Ptarmagin. Rule 10b5-1 of the Securities Exchange Commission (the “SEC”)
permits individuals to adopt predetermined written plans for trading specified
amounts of company stock when they are not in possession of material non-public
information.
These
plans
enable
gradual
asset
diversification
while
simultaneously minimizing the market effect of stock trades by spreading them
out over an extended period of time. The 10b5-1 plans involve only a portion of
the shares owned by Mr. Alden and Ptarmagin, respectively. The plan adopted by
Mr. Alden involves a market order to sell up to 25,000 shares of the Company’s
common stock per month effective September 8, 2015 and expiring August 9,
2016, for a total of up to 300,000 shares. The plan adopted by Ptarmagin
involves a market order to sell up to 37,500 shares of the Company’s common
stock per week effective September 10, 2015 and expiring September 6, 2016,
for a total of up to 1,987,500 shares. Except as required by law, the Company
does not undertake to report Rule 10b5-1 trading plans by other officers or
directors of the Company or to report codifications, transactions or other activities
under Rule 10b5-1 trading plans or the similar plans of any of its officers or
directors.
28.
The statements contained above were materially false and/or misleading when
made because Defendants failed to disclose or indicate that: (i) the third quarter and full year
2015 revenue and net income guidance issued during the Company’s second quarter 2015
earnings announcement and subsequent conference call were materially false and misleading in
that the projections were unattainable; (ii) the fourth quarter and full year 2015 revenue and net
income guidance issued during the Company’s third quarter 2015 earnings announcement and
subsequent conference call were materially false and misleading in that the projections were
unattainable; (iii) Defendants intentionally failed to timely disclose the Company’s challenges
with its largest China distributor; (iv) Defendant Rick Alden and Ptarmagin, with full knowledge
of the undisclosed materially adverse facts alleged herein, embarked on a selling spree of
personal holdings of SKUL common stock at artificially inflated prices, which sales they made
without first disclosing these adverse material facts known to Defendants and withheld from the
market, which permitted them to engage in unusual insider selling and realize proceeds in excess
of $4 million; and (v) as a result of the foregoing, Defendants’ statements about SKUL’s
business, operations, and prospects were false and misleading and/or lacked a reasonable basis.
C.
The Truth Slowly Emerges
29.
On November 5, 2015, after the close of the financial markets, SKUL issued a
press release entitled “Skullcandy Reports Third Quarter 16% Net Sales Growth.” In the press
release, Defendants continued to mask the Company’s issues, failing to fully disclose the extent
to which the Company’s operations were suffering. Therein, the Company, in relevant part,
PARK CITY, Utah, Nov. 5, 2015 (GLOBE NEWSWIRE) -- Skullcandy, Inc.
(NASDAQ:SKUL) today announced financial results for the third quarter ended
September 30, 2015.
Third quarter 2015 reported results versus the same quarter a year ago
• Net sales: $67.2 million vs. $58.1 million, up 16% (up 19% currency
neutral)
• Gross margin: 41.0% vs. 45.3%, down 430 basis points (down 272 basis
points currency neutral)
• Selling, general and administrative expense (SG&A): $24.5 million vs.
$22.7 million, up 8%
• SG&A expense as a percent of net sales: 36.4% vs. 39.2%
• Operating income: $3.1 million vs. $3.6 million, down $0.5 million (up
29% currency neutral)
• Earnings per share $0.08, up 8% (up 29% currency neutral)
“Our third quarter performance was highlighted by twenty two percent net sales
growth in the U.S. and fourteen percent constant currency net sales growth in our
international markets. Our product innovation, demand creation and distribution
strategies are resonating with Skullcandy and Astro consumers around the world,”
said Hoby Darling, President and Chief Executive Officer. “Our deep relationship
with our consumer, coupled with our ability to be nimble and quick to market
allows us to serve our consumer innovative and creative products that align with
current trends. Our new Skullcandy wireless ear buds and headphones are a great
example and an awesome addition to our existing product lineup that already
includes several of the best-selling styles at retail. Strong sell-through of our new
wireless products and increased year over year sales of our traditional wired
products contributed to Skullcandy being the number one chosen headphones in
the US for the fourth consecutive quarter. At the same time, Astro continues to
dominate the high end of the gaming market with its leading portfolio of next-
generation compatible headsets that now include Halo 5 and Call of Duty licensed
editions. We remain very confident in the strategic course that we have set for the
Company.”
* * *
2015 Full Year and Fourth Quarter Financial Outlook
For the full year 2015, the Company forecasts net sales to increase 10-11% over
2014 levels, or approximately 13% on a constant currency basis, and net income
on a U.S. GAAP fully-diluted per share basis of a range of $0.37 to $0.39, an
increase of 42% over 2014 levels, or approximately 82% on a constant currency
basis.
For the fourth quarter of 2015, the Company forecasts net sales to increase 5-
7% over 2014 levels, or approximately 9% on a constant currency basis, and net
income on a U.S. GAAP fully-diluted per share basis of a range of $0.38 to
$0.40, an increase of 49% over 2014 levels, or approximately 65% on a constant
currency basis.
30.
During the Q3 2015 earnings call on the same day, Defendant Hodell provided
updated guidance for the full year and fourth quarter of 2015:
[O]ur full year outlook forecast Q4 to increase 5% to 7% over 2014 levels or 8%
to 10% on a constant currency basis with growth led by our domestic Skullcandy
brand business and new product introductions while international sales will be
tempered due to foreign exchange rate pressure and slower-than-expected growth
and distributor transitions in Europe and China.
We are targeting a Q4 gross margin in the range of 41.5% to 42.5% or 42.7% to
43.7% on a constant currency basis with an expected gross margin foreign
currency drag of 120 basis points. This is lower than our previous estimate as the
moderated sales internationally have materially reduced our ear bud sales in Q4.
31.
On this news, shares of SKUL decreased $1.53 per share, more than 24%, to close
at $4.81 per share on November 6, 2015, on unusually heavy volume.
32.
Despite this partial disclosure, the Company’s common stock remained inflated
due to Defendants’ failure to fully disclose the issues plaguing the Company’s business
operations.
33.
On November 9, 2015, the Company filed its Quarterly Report with the SEC on
Form 10-Q for the quarterly period ended September 30, 2015. The Form 10-Q was signed by
Defendants Darling and Hodell, and reaffirmed the Company’s financial results previously
announced on November 5, 2015.
34.
On November 18, 2015, the Company presented at the Furey Hidden Gems
Conference, where it reiterated its previously disclosed guidance:
2015 Financial Summary
• Maintained position of #1 headphones units sold, US NPD
• Net Sales projected to increase 10‐11% | 13‐14% in constant currency
• Gross margins of approximately 41.7% with 120 bps headwind from F/X
• SG&A dollars down 1 to 2% YoY |below 36% of net sales vs. 39.9% LY
• Operating Income up 40% to $16 ‐ $17 million | up 93% in constant currency
• EPS up 42% to $0.37 ‐ $0.39 | up 82% in constant currency
35.
The full extent of SKUL’s fraud was revealed on January 11, 2016, SKUL issued
a press release entitled “Skullcandy Updates Fourth Quarter Outlook.” The press release, which
updated the Company’s financial outlook for the fourth quarter ended December 31, 2015, and
announced that it had missed Q4 2015 net sales projections, stated:
Acquires Minority Interest in Mexico Joint Venture
Management to Present at 2016 ICR Conference
PARK CITY, Utah, Jan. 11, 2016 (GLOBE NEWSWIRE) -- Skullcandy,
Inc. (NASDAQ:SKUL) today updated its outlook for the fourth quarter
ended December 31, 2015.
Updated Fourth Quarter Outlook
For the fourth quarter, the Company now expects net sales to be approximately
flat with 2014 levels, or increase approximately 2% on a currency neutral basis.
The Company had previously forecasted net sales to increase by approximately
5-7%, or approximately 8-10% on a currency neutral basis, compared to the
same quarter a year ago. Based on the sales shortfall attributable to
disappointing holiday results, combined with the impact on gross margin from
product mix shift driven by a higher percentage of gaming headset sales during
the holiday season, the Company now expects fourth quarter diluted earnings
per share on a U.S. GAAP basis between $0.20 and $0.22, compared to its
previous outlook of $0.38 to $0.40.
This new outlook includes a $1.6 million pre-tax allowance for bad debt charge
related
to
further
challenges
with
a China
distributor.
Excluding
this China related charge and associated tax rate impacts, fourth quarter diluted
earnings per share is expected to be between $0.25 and $0.27.
The Company’s financial results are subject to finalization and audit of its
financial closing procedures and results.
“During the fourth quarter, including the holiday period, we experienced solid
consumer
demand
for
both
the Skullcandy and
Astro
brands. Skullcandy domestic sell-through increased mid-teens year-over-year
driven by a triple digit gain in our wireless headphone business according to NPD
data. At the same time, Astro exceeded expectations and strengthened its
connection with elite gamers through the recent launch of our A40 TR suite of
products. However, we are disappointed that our strong sell-through
performances could not overcome the softness in the U.S. audio headphone
market which was unexpectedly down in the fourth quarter. This headwind, as
well as aggressive promotional activity by our competitors, negatively affected
our replenishment business for Skullcandy branded products contributing to the
majority of our revenue miss, combined with a product mix shift that negatively
weighed on gross margins,” explained Skullcandy President and CEO Hoby
Darling.
“We also chose to minimize sales to discount channels to further protect the
Skullcandy brand and our retailers, as well as continue the clean-up work with our
largest China distributor during the fourth quarter, as we shift to a more direct
model in China,” added Darling.
Darling continued, “Our recent market share gains and strong pipeline of
innovative new products have us cautiously optimistic about our near-term growth
prospects, particularly for our gaming and wireless businesses. Our outlook is
being balanced by the challenging audio market conditions in the U.S. and our
ongoing work to improve certain international markets. As a result, in 2016 we
now expect net sales to grow in the mid to high-single digits and earnings per
share to grow at a mid-teens rate over 2015 results, excluding the 2015 Q4 bad-
debt allowance for our China distributor.”
The Company expects to report its actual results for the fourth quarter and full
year 2015 and provide a full year outlook for 2016 in March 2016. This press
release contains certain non-GAAP information, such as currency neutral basis,
which is intended to provide visibility into the Company’s operations by
excluding the effects of foreign currency exchange rate fluctuations.
36.
On this news, shares of SKUL plummeted $1.29 per share, more than 28%, to
close at $3.26 per share on January 12, 2016, on unusually heavy volume.
37.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
D.
Improper Insider Selling During The Class Period
38.
As a direct result of Defendants’ wrongful actions, SKUL’s common stock traded
at artificially inflated prices throughout the Class Period. Defendants’ wrongful conduct and
their dissemination of false and misleading statements enabled director Rick Alden, the
Company’s founder, and Ptarmagin, LLC, one of SKUL’s largest holders, to engage in improper
insider trading.
39.
Due to Alden and Ptarmagin’s desire to dump their shares of SKUL into the
public market, the Company was caused to make false and misleading statements, including false
and misleading projections for the third quarter, fourth quarter, and full year 2015, which
artificially inflated the price of the shares during the Class Period, and the price at which Alden
and Ptarmagin were able to sell their shares.
40.
Defendants Rick Alden and Ptarmagin, LLC’s stock transactions during the Class
Period are as follows:
Date
Entity
Relation
Shares
Price
Proceeds
09/08/15
Alden, Rick
Director
25,000
$6.79
$169,750
10/13/15
Alden, Rick
Director
25,000
$5.73
$143,250
11/10/15
Alden, Rick
Director
25,000
$4.62
$115,500
12/08/15
Alden, Rick
Director
25,000
$4.15
$103,750
Total Alden
100,000
$532,250
09/10/15
Ptarmagin, LLC
10% Owner
37,500
$6.59
$247,125
09/17/15
Ptarmagin, LLC
10% Owner
37,500
$6.46
$242,250
09/24/15
Ptarmagin, LLC
10% Owner
37,500
$6.19
$232,125
10/01/15
Ptarmagin, LLC
10% Owner
37,500
$5.55
$208,125
10/08/15
Ptarmagin, LLC
10% Owner
37,500
$5.84
$219,000
10/15/15
Ptarmagin, LLC
10% Owner
37,500
$5.63
$211,125
10/22/15
Ptarmagin, LLC
10% Owner
37,500
$5.67
$212,625
10/29/15
Ptarmagin, LLC
10% Owner
37,500
$5.63
$211,125
11/05/15
Ptarmagin, LLC
10% Owner
37,500
$6.14
$230,250
11/12/15
Ptarmagin, LLC
10% Owner
37,500
$4.34
$162,750
11/19/15
Ptarmagin, LLC
10% Owner
37,500
$4.26
$159,750
11/27/15
Ptarmagin, LLC
10% Owner
37,500
$4.14
$155,250
12/03/15
Ptarmagin, LLC
10% Owner
37,500
$4.25
$159,375
12/10/15
Ptarmagin, LLC
10% Owner
37,500
$4.14
$155,250
12/17/15
Ptarmagin, LLC
10% Owner
37,500
$4.43
$166,125
12/24/15
Ptarmagin, LLC
10% Owner
37,500
$4.58
$171,750
12/31/15
Ptarmagin, LLC
10% Owner
37,500
$4.73
$177,375
01/07/16
Ptarmagin, LLC
10% Owner
37,500
$4.56
$171,000
Total
675,000
Ptarmagin
$3,492,375
Total Combined
775,000
$4,024,625
V.
CLASS ACTION ALLEGATIONS
41.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased or
otherwise acquired SKUL securities during the Class Period and who were damaged thereby (the
“Class”). Excluded from the Class are Defendants, members of the immediate family of each of
the Individual Defendants, any subsidiary or affiliate of SKUL and the directors, officers and
employees of the Company or its subsidiaries or affiliates, or any entity in which any excluded
person has a controlling interest, and the legal representatives, heirs, successors and assigns of
any excluded person.
42.
The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to Plaintiff at this time
and can only be ascertained through appropriate discovery, Plaintiff believes that there are
hundreds or thousands of members in the proposed Class. Throughout the Class Period, SKUL’s
securities were actively traded on the NASDAQ Global Market (“NASDAQ”) (an open and
efficient market) under the symbol “SKUL.” Millions of SKUL shares were traded publicly
during the Class Period on the NASDAQ. As of October 31, 2015, SKUL had 28,530,493 shares
of common stock outstanding. Record owners and other members of the Class may be identified
from records maintained by SKUL and/or its transfer agents and may be notified of the pendency
of this action by mail, using a form of notice similar to that customarily used in securities class
actions.
43.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
44.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
45.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
a)
whether the federal securities laws were violated by Defendants’ acts and
omissions as alleged herein;
b)
whether Defendants participated in and pursued the common course of
conduct complained of herein;
c)
whether documents, press releases, and other statements disseminated to
the investing public and the Company’s shareholders during the Class
Period misrepresented material facts about the business, finances, and
prospects of SKUL;
d)
whether statements made by Defendants to the investing public during the
Class Period misrepresented and/or omitted to disclose material facts
about the business, finances, value, performance and prospects of SKUL;
e)
whether the market price of SKUL common stock during the Class Period
was artificially inflated due to the material misrepresentations and failures
to correct the material misrepresentations complained of herein; and
f)
the extent to which the members of the Class have sustained damages and
the proper measure of damages.
46.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
VI.
UNDISCLOSED ADVERSE FACTS
47.
The market for SKUL’s securities was an open, well-developed and efficient
market at all relevant times. As a result of these materially false and misleading statements and
failures to disclose described herein, SKUL’s securities traded at artificially inflated prices
during the Class Period. Plaintiff and other members of the Class purchased or otherwise
acquired SKUL’s securities relying upon the integrity of the market price of the Company’s
securities and market information relating to SKUL and have been damaged thereby.
48.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of SKUL’s securities, by publicly issuing false and misleading
statements and omitting to disclose material facts necessary to make Defendants’ statements, as
set forth herein, not false and misleading. Said statements and omissions were materially false
and misleading in that they failed to disclose material adverse non-public information and
misrepresented the truth about the Company, as well as its business, accounting, financial
operations and prospects, as alleged herein.
49.
At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and misleading
statements about SKUL’s financial well-being and prospects.
50.
These material misstatements and omissions had the cause and effect of creating
in the market an unrealistically positive assessment of the Company and its financial well-being
and prospects, thus causing the Company’s securities to be overvalued and artificially inflated at
all relevant times. Defendants’ materially false and misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at artificially inflated prices, thus causing the damages complained of herein.
VII.
LOSS CAUSATION
51.
During the Class Period, as detailed herein, Defendants engaged in a scheme to
deceive the market and a course of conduct that artificially inflated the prices of SKUL’s
securities and operated as a fraud or deceit on Class Period purchasers of SKUL’s securities by
failing to disclose to investors that the Company’s financial results were materially misleading
and misrepresented material information. When Defendants’ misrepresentations and fraudulent
conduct were disclosed and became apparent to the market, the prices of SKUL’s securities fell
precipitously as the prior inflation came out of the Company’s stock price. As a result of their
purchases of SKUL’s securities during the Class Period, Plaintiff and the other Class members
suffered economic loss.
52.
By failing to disclose the true state of the Company’s financial statements,
investors were not aware of the true state of the Company’s financial status. Therefore,
Defendants presented a misleading picture of SKUL’s business practices and procedures. Thus,
instead of truthfully disclosing during the Class Period the true state of the Company’s business,
Defendants caused SKUL to conceal the truth.
53.
Defendants’ false and misleading statements had the intended effect and caused
SKUL’s common stock to trade at artificially inflated levels throughout the Class Period. The
stock price drop discussed herein caused real economic loss to investors who purchased the
Company’s securities during the Class Period.
54.
The decline in the price of SKUL’s common stock after the truth came to light
was a direct result of the nature and extent of Defendants’ fraud finally being revealed to
investors and the market. The timing and magnitude of SKUL’s common stock price decline
negates any inference that the loss suffered by Plaintiff and the other Class members was caused
by changed market conditions, macroeconomic or industry factors or Company-specific facts
unrelated to the Defendants’ fraudulent conduct. The economic loss suffered by Plaintiff and the
other Class members was a direct result of Defendants’ fraudulent scheme to artificially inflate
the prices of SKUL’s securities and the subsequent decline in the value of SKUL’s securities
when Defendants’ prior misrepresentations and other fraudulent conduct were revealed.
VIII. SCIENTER ALLEGATIONS
55.
As alleged herein, the Individual Defendants acted with scienter in that Individual
Defendants knew that the public documents and statements issued or disseminated in the name of
the Company during the Class Period were materially false and misleading; knew that such
statements or documents would be issued or disseminated to the investing public; and knowingly
and substantially participated or acquiesced in the issuance or dissemination of such statements
or documents as primary violations of the federal securities laws.
56.
As set forth herein, the Individual Defendants, by virtue of their receipt of
information reflecting the true facts regarding SKUL, their control over, receipt and/or
modification of SKUL’s allegedly materially misleading statements and omissions, and/or their
positions with the Company which made them privy to confidential information concerning
SKUL, participated in the fraudulent scheme alleged herein.
IX.
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-
MARKET DOCTRINE
57.
At all relevant times, the market for SKUL’s securities was an efficient market for
the following reasons, among others:
a)
SKUL securities met the requirements for listing, and were listed and
actively traded on the NASDAQ, a highly efficient market;
b)
As a regulated issuer, SKUL filed periodic public reports with the SEC
and the NASDAQ;
c)
SKUL securities were followed by securities analysts employed by major
brokerage firms who wrote reports which were distributed to the sales
force and certain customers of their respective brokerage firms. Each of
these reports was publicly available and entered the public marketplace;
and
d)
SKUL regularly issued press releases which were carried by national
newswires. Each of these releases was publicly available and entered the
public marketplace.
58.
As a result of the foregoing, the market for SKUL’s securities promptly digested
current information regarding SKUL from all publicly available sources and reflected such
information in SKUL’s stock price. Under these circumstances, all purchasers of SKUL’s
securities during the Class Period suffered similar injury through their purchase of SKUL’s
securities at artificially inflated prices and a presumption of reliance applies.
59.
A Class-wide presumption of reliance is also appropriate in this action under the
Supreme Court’s holding in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128
(1972), because Plaintiff’s fraud claims are grounded in Defendants’ omissions of material fact
of which there is a duty to disclose. As this action involves Defendants’ failure to disclose
material adverse information regarding SKUL’s business practices, financial results and
condition and internal controls—information that Defendants were obligated to disclose during
the Class Period but did not—positive proof of reliance is not a prerequisite to recovery. All that
is necessary is that the facts withheld be material in the sense that a reasonable investor might
have considered such information important in the making of investment decisions.
X.
NO SAFE HARBOR
60.
The federal statutory safe harbor provided for forward-looking statements under
certain circumstances does not apply to any of the allegedly false statements pleaded in this
Complaint. The statements alleged to be false and misleading herein all relate to then-existing
facts and conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements.
61.
In the alternative, to the extent that the statutory safe harbor is determined to
apply to any forward-looking statements pleaded herein, Defendants are liable for those false
forward-looking statements because at the time each of those forward-looking statements was
made, the speaker had actual knowledge that the forward-looking statement was materially false
or misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of SKUL who knew that the statement was false when made.
XI.
COUNTS AGAINST DEFENDANTS
COUNT I
Violation of Section 10(b) of the Exchange Act and
Rule 10b-5 Promulgated Thereunder
Against All Defendants
62.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein. This claim is asserted against all Defendants.
63.
During the Class Period, SKUL and the Individual Defendants carried out a plan,
scheme and course of conduct which was intended to and, throughout the Class Period, did: (i)
deceive the investing public, including Plaintiff and the other Class members, as alleged herein;
(ii) artificially inflate and maintain the market price of SKUL securities; and (iii) cause Plaintiff
and the other members of the Class to purchase SKUL securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,
took the actions set forth herein.
64.
These Defendants: (a) employed devices, schemes, and artifices to defraud; (b)
made untrue statements of material fact and/or omitted to state material facts necessary to make
the statements not misleading; and (c) engaged in acts, practices and a course of business which
operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to
maintain artificially high market prices for SKUL securities in violation of §10(b) of the
Exchange Act and Rule 10b-5. Defendants are sued as primary participants in the wrongful and
illegal conduct charged herein. The Individual Defendants are also sued herein as controlling
persons of SKUL, as alleged herein.
65.
In addition to the duties of full disclosure imposed on Defendants as a result of
their making of affirmative statements and reports, or participation in the making of affirmative
statements and reports to the investing public, they each had a duty to promptly disseminate
truthful information that would be material to investors in compliance with the integrated
disclosure provisions of the SEC as embodied in SEC Regulation S X (17 C.F.R. § 210.01 et
seq.) and S-K (17 C.F.R. § 229.10 et seq.) and other SEC regulations, including accurate and
truthful information with respect to the Company’s operations, financial condition and
performance so that the market prices of the Company’s publicly traded securities would be
based on truthful, complete and accurate information.
66.
SKUL and the Individual Defendants, individually and in concert, directly and
indirectly, by the use of means or instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to conceal adverse material
information about the business, business practices, performance, operations and future prospects
of SKUL as specified herein. These Defendants employed devices, schemes and artifices to
defraud, while in possession of material adverse non-public information and engaged in acts,
practices, and a course of conduct as alleged herein in an effort to assure investors of SKUL’s
value and performance and substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and omitting to state material
facts necessary in order to make the statements made about SKUL and its business, operations
and future prospects, in light of the circumstances under which they were made, not misleading,
as set forth more particularly herein, and engaged in transactions, practices and a course of
business which operated as a fraud and deceit upon the purchasers of SKUL’s securities during
the Class Period.
67.
Each of the Individual Defendants’ primary liability, and controlling person
liability, arises from the following facts: (i) each of the Individual Defendants was a high-level
executive and/or director at the Company during the Class Period; (ii) each of the Individual
Defendants, by virtue of his responsibilities and activities as a senior executive officer and/or
director of the Company, was privy to and participated in the creation, development and
reporting of the Company’s operational and financial projections and/or reports; (iii) the
Individual Defendants enjoyed significant personal contact and familiarity with each other and
were advised of and had access to other members of the Company’s management team, internal
reports, and other data and information about the Company’s financial condition and
performance at all relevant times; and (iv) the Individual Defendants were aware of the
Company’s dissemination of information to the investing public which they knew or recklessly
disregarded was materially false and misleading.
68.
These Defendants had actual knowledge of the misrepresentations and omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they failed
to ascertain and to disclose such facts, even though such facts were readily available to them.
Such Defendants’ material misrepresentations and/or omissions were done knowingly or
recklessly and for the purpose and effect of concealing SKUL’s operating condition, business
practices and future business prospects from the investing public and supporting the artificially
inflated price of its common stock. As demonstrated by their overstatements and misstatements
of the Company’s financial condition and performance throughout the Class Period, the
Individual Defendants, if they did not have actual knowledge of the misrepresentations and
omissions alleged, were severely reckless in failing to obtain such knowledge by deliberately
refraining from taking those steps necessary to discover whether those statements were false or
misleading.
69.
As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market price of SKUL securities was
artificially inflated during the Class Period. In ignorance of the fact that the market price of
SKUL shares was artificially inflated, and relying directly or indirectly on the false and
misleading statements made by Defendants, upon the integrity of the market in which the
securities trade, and/or on the absence of material adverse information that was known to or
recklessly disregarded by Defendants but not disclosed in public statements by these Defendants
during the Class Period, Plaintiff and the other members of the Class acquired SKUL securities
during the Class Period at artificially inflated high prices and were damaged thereby.
70.
At the time of said misrepresentations and omissions, Plaintiff and other members
of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the
other members of the Class and the marketplace known of the true performance, business
practices, future prospects and intrinsic value of SKUL, which were not disclosed by Defendants,
Plaintiff and other members of the Class would not have purchased or otherwise acquired SKUL
securities during the Class Period, or, if they had acquired such securities during the Class
Period, they would not have done so at the artificially inflated prices which they paid.
71.
By virtue of the foregoing, SKUL and the Individual Defendants each violated
§10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
72.
As a direct and proximate result of the Individual Defendants’ wrongful conduct,
Plaintiff and the other members of the Class suffered damages in connection with their purchases
of the Company’s securities during the Class Period.
COUNT II
Violation of Section 20(a) of the Exchange Act
Against The Individual Defendants
73.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
74.
The Individual Defendants were and acted as controlling persons of SKUL within
the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions with the Company, participation in and/or awareness of the Company’s operations
and/or intimate knowledge of the Company’s actual performance, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiff contends are false and misleading. Each of the Individual Defendants
was provided with or had unlimited access to copies of the Company’s reports, press releases,
public filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly
after these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
75.
In addition, each of the Individual Defendants had direct involvement in the day-
to-day operations of the Company and, therefore, is presumed to have had the power to control
or influence the particular transactions giving rise to the securities violations as alleged herein,
and exercised the same.
76.
As set forth above, SKUL and the Individual Defendants each violated §10(b) and
Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their
controlling positions, the Individual Defendants are liable pursuant to §20(a) of the Exchange
Act. As a direct and proximate result of these Defendants’ wrongful conduct, Plaintiff and other
members of the Class suffered damages in connection with their purchases of the Company’s
securities during the Class Period.
XII.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Class, prays for judgment as
follows:
a)
Declaring this action to be a class action pursuant to Rule 23(a) and (b)(3) of the
Federal Rules of Civil Procedure on behalf of the Class defined herein;
b)
Awarding Plaintiff and the other members of the Class damages in an amount
which may be proven at trial, together with interest thereon;
c)
Awarding Plaintiff and the members of the Class pre-judgment and post-judgment
interest, as well as their reasonable attorneys’ and experts’ witness fees and other
costs; and
d)
Awarding such other relief as this Court deems appropriate.
XIII. JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Respectfully Submitted,
Dated: May 23, 2014
By:/s/ Jeffrey L. Silvestrini
Jeffrey L. Silvestrini
Attorneys for Plaintiff Melanie Davis
COHNE KINGHORN, P.C.
Jeffrey L. Silvestrini, Esq.
257 East 200 South Suite 700
Salt Lake City, UT 84111
Telephone: (801) 363-4300
SAXENA WHITE P.A.
Joseph E. White, III (pro hac vice to be filed)
Lester R. Hooker (pro hac vice to be filed)
5200 Town Center Circle
Suite 601
Boca Raton, FL 33486
Telephone: (561) 394-3399
Facsimile: (561) 394-3082
RYAN & MANISKAS, LLP
Richard A. Maniskas (pro hac vice to be filed)
Katharine Ryan (pro hac vice to be filed)
995 Old Eagle School Rd., St. 311
Wayne, Pennsylvania 19087
Telephone: (484) 588-5516
Facsimile: (484) 450-2582
| securities |
lMIjDYcBD5gMZwczJWgv |
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
Roman Ilyayev, individually and on behalf of all others
similarly situated,
Civil Action No: 1:20-cv-4944
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Portfolio Recovery Associates, LLC.
Defendants.
Plaintiff Roman Ilyayev (hereinafter, “Plaintiff”), a New York resident, brings this Class
Action Complaint by and through his attorneys, Horowitz Law, PLLC, against Defendant Portfolio
Recovery Associates, LLC (hereinafter “PRA”), individually and on behalf of a class of all others
similarly situated, pursuant to Rule 23 of the Federal Rules of Civil Procedure, based upon
information and belief of Plaintiff’s counsel, except for allegations specifically pertaining to
Plaintiff, which are based upon Plaintiff's personal knowledge.
INTRODUCTION/PRELIMINARY STATEMENT
1.
Congress enacted the Fair Debt Collection Practices Act (“the FDCPA’) in 1977 in
response to the "abundant evidence of the use of abusive, deceptive, and unfair debt collection
practices by many debt collectors." 15 U.S.C. §1692(a). At that time, Congress was concerned
that "abusive debt collection practices contribute to the number of personal bankruptcies, to
material instability, to the loss of jobs, and to invasions of individual privacy." Id. Congress
concluded that "existing laws…[we]re inadequate to protect consumers," and that "'the effective
collection of debts" does not require "misrepresentation or other abusive debt collection
practices." 15 U.S.C. §§ 1692(b) & (c).
1
2.
Congress explained that the purpose of the Act was not only to eliminate abusive
debt collection practices, but also to "insure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged." Id. § 1692(e). After
determining that the existing consumer protection laws ·were inadequate. Id. § l692(b),
Congress gave consumers a private cause of action against debt collectors who fail to comply
with the Act. § 1692k.
JURISDICTION AND VENUE
3.
The Court has jurisdiction over this class action pursuant to 28 U.S.C. § 1331 and
15 U.S.C. § 1692 et. seq.
4.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) as this is
where the Plaintiff resides as well as a substantial part of the events or omissions giving rise to
the claim occurred.
NATURE OF THE ACTION
5.
Plaintiff brings this class action on behalf of a class of New York consumers under
§ 1692 et seq. of Title 15 of the United States Code, commonly referred to as the Fair Debt
Collections Practices Act ("FDCPA"), and
6.
Plaintiff is seeking damages and declaratory relief.
PARTIES
7.
Plaintiff is a resident of the State of New York, County of Queens.
8.
Defendant PRA is a "debt collector" as the phrase is defined in 15 U.S.C.
§ 1692(a)(6) and used in the FDCPA with an address at 120 Corporate Blvd., Suite 100, Norfolk,
Virginia 23502.
9.
Upon information and belief, Defendant PRA is a company that uses the mail,
telephone, and facsimile and regularly engages in business the principal purpose of which is to
attempt to collect debts alleged to be due another.
CLASS ALLEGATIONS
10.
Plaintiff brings this claim on behalf of the following case, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
11.
The Class consists of:
a. all individuals with addresses in the State of New York;
b. to whom Defendant PRA sent a collection letter attempting to collect a consumer
debt;
c. that states that an account has been transferred to the litigation department;
d. implying that legal action would take place when in reality only local counsel
would be able to file a lawsuit;
e. which letter was sent on or after a date one (1) year prior to the filing of this
action and on or before a date twenty-one (2l) days after the filing of this action.
12.
The identities of all class members are readily ascertainable from the records of
Defendants and those companies and entities on whose behalf they attempt to collect and/or
have purchased debts.
13.
Excluded from the Plaintiff Class are the Defendants and all officer, members,
partners, managers, directors and employees of the Defendants and their respective immediate
families, and legal counsel for all parties to this action, and all members of their immediate
families.
14.
There are questions of law and fact common to the Plaintiff Class, which common
issues predominate over any issues involving only individual class members. The principal issue
is whether the Defendants' written communication to consumers, in the forms attached as Exhibit
A, violate 15 U.S.C. §§ l692e and 1692f.
15.
The Plaintiff’s claims are typical of the class members, as all are based upon the same
facts and legal theories. The Plaintiff will fairly and adequately protect the interests of the
Plaintiff Class defined in this complaint. The Plaintiff has retained counsel with experience in
handling consumer lawsuits, complex legal issues, and class actions, and neither the Plaintiff
nor his attorneys have any interests, which might cause them not to vigorously pursue this action.
16.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a
well-defined community interest in the litigation:
a. Numerosity: The Plaintiff is informed and believes, and on that basis alleges,
that the Plaintiff Class defined above is so numerous that joinder of all members
would be impractical.
b. Common Questions Predominate: Common questions of law and fact exist as
to all members of the Plaintiff Class and those questions predominance over any
questions or issues involving only individual class members. The principal issue
is whether the Defendants' written communication to consumers, in the forms
attached as Exhibit A, violate 15 § l692e and §1692f.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class members.
The Plaintiff and all members of the Plaintiff Class have claims arising out of the
Defendants' common uniform course of conduct complained of herein.
d. Adequacy: The Plaintiff will fairly and adequately protect the interests of the
class members insofar as Plaintiff has no interests that are adverse to the absent
class members. Plaintiff is committed to vigorously litigating this matter.
Plaintiff has also retained counsel experienced in handling consumer lawsuits,
complex legal issues, and class actions. Neither the Plaintiff nor his counsel have
any interests which might cause them not to vigorously pursue the instant class
action lawsuit.
e. Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all
members would be impracticable. Class action treatment will permit a large
number of similarly situated persons to prosecute their common claims in a single
forum efficiently and without unnecessary duplication of effort and expense that
individual actions would engender.
17.
Certification of a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure
is also appropriate in that the questions of law and fact common to members of the Plaintiff
Class predominate over any questions affecting an individual member, and a class action is
superior to other available methods for the fair and efficient adjudication of the controversy.
18.
Depending on the outcome of further investigation and discovery, Plaintiff may, at
the time of class certification motion, seek to certify a class(es) only as to particular issues
pursuant to Fed. R. Civ. P. 23(c)(4).
FACTUAL ALLEGATIONS
19.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
numbered above herein with the same force and effect as if the same were set forth at length
herein.
20.
Some time prior to October 15, 2019, an obligation was allegedly incurred to Capital
One Bank (USA) N.A.
21.
The obligation arose out of a transaction in which money, property, insurance or
services, of which the subject transactions, were incurred for personal purposes, specifically a
Capital One Bank (USA) N.A. credit card used for these types of transactions.
22.
The alleged Capital One Bank (USA) N.A. obligation is a "debt" as defined by 15
U.S.C.§ 1692a (5).
23.
Capital One Bank (USA) N.A. is a "creditor" as defined by 15 U.S.C.§ 1692a (4).
24.
Capital One Bank (USA) N.A. or the current creditor at the time eventually sold the
alleged debt to PRA who is the current creditor and debt collector.
25.
Defendant PRA collects and attempts to collect debts incurred or alleged to have
been incurred for personal, family or household purposes on behalf of creditors using the United
States Postal Services, telephone and internet.
October 15, 2019 Collection Letter
26.
On or about October 15, 2019, Defendant sent the Plaintiff a collection letter (the
“Letter”) regarding the alleged debt owed to PRA. See Letter attached as Exhibit A.
27.
The collection letter heading states:
Account transferred to Litigation Department
28.
The Letter further states:
At this time, no attorney within the Litigation Department has
personally reviewed the particular circumstances of your
account.
29.
The Letter then offers Plaintiff options to resolve the account but cautions:
Your first payment must be received NO LATER than: 12/02/2019.
30.
Defendant’s Letter advises that the account has been transferred to the Litigation
Department.
31.
The implication here is that this particular account is ripe for litigation, i.e. the filing
of a lawsuit by the litigation department of Defendant PRA.
32.
Defendant PRA is not a law firm and lacks the ability to file a lawsuit in New York.
33.
Defendant PRA would need to retain local counsel in New York to initiate any
lawsuit on this account.
34.
Defendant’s Letter advising Plaintiff to make the first payment to PRA NO LATER
than 12/02/2019. This demand is meant to strike fear in the heart of Plaintiff in that if he does
not comply by the stated date he will be sued.
35.
Defendant misleads and deceives Plaintiff into the belief that a lawsuit is imminent
without Plaintiff’s compliance or immediate payment of the account.
36.
Plaintiff became fearful that if he did pay the amount demanded in the Letter he
would be sued.
37.
As a result of Defendant’s deceptive, misleading and false debt collection practices,
Plaintiff has been damaged.
COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692e et seq.
38.
Plaintiff incorporates by reference paragraphs 1-37 of this Complaint as though fully
stated herein with the same force and effect as if the same were set forth at length herein.
39.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692e.
40.
Pursuant to 15 U.S.C. §1692e, a debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.
41.
Defendant violated said section by:
a. Making a false and misleading representation in violation of but not limited to
§1692e (10).
b. by giving Plaintiff the impression that PRA is a law firm who has the ability to
initiate a lawsuit.
42.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692e, et seq. of the FDCPA and is entitled to actual damages, statutory
damages, costs and attorneys’ fees.
COUNT II
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692f et seq.
43.
Plaintiff incorporates by reference paragraphs 1-35 of this Complaint as though fully
stated herein with the same force and effect as if the same were set forth at length herein.
44.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692f.
45.
Pursuant to 15 U.S.C. §1692f, a debt collector may not use any unfair or
unconscionable means in connection with the collection of any debt.
46.
Defendant violated this section by
a. Using the language of “Account Transferred to Litigation Department” that legal
proceedings would occur.
b. by giving Plaintiff the impression that PRA is a law firm who has the ability to
initiate a lawsuit.
47.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692f, et seq. of the FDCPA and is entitled to actual damages, statutory
damages, costs and attorneys’ fees.
DEMAND FOR TRIAL BY JURY
48.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby requests
a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Roman Ilyayev, individually and on behalf of all others
similarly situated, demands judgment from Defendant Portfolio Recovery Associates, LLC as
follows:
1.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Uri Horowitz, Esq. as Class Counsel;
2.
Awarding Plaintiff and the Class statutory damages;
3.
Awarding Plaintiff and the Class actual damages;
4.
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees and
expenses;
5.
Awarding pre-judgment interest and post-judgment interest; and
6.
Awarding Plaintiff and the Class such other and further relief as this Court may deem
just and proper.
Dated: October 14, 2020
HOROWITZ LAW, PLLC
/s/ Uri Horowitz
Uri Horowitz, Esq.
14441 70th Road
Flushing, NY 11367
Telephone: 718-705-8706
Fax: 718-705-8705
uri@horowitzlawpllc.com
Attorneys for Plaintiff
| consumer fraud |
kss8DocBD5gMZwcze0UI | GREENBER
RG, LLC
uite 1201
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LITE DE
Bruce D.
570 Broa
Newark,
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Attorneys
[Addition
UNIT
T
TED STATE
DISTRICT
D
ES DISTRI
OF NEW J
ICT COURT
JERSEY
self
ivil Action N
No.:
ORM OPTIC
Others Simil
S, INC., on
larly Situated
Behalf of Its
d,
LASS ACTI
ION
Plaintiff,
LASS ACTI
ION COMP
PLAINT
v.
MACEUTICA
INC., a Brit
ALS
tish Columbi
ia
URY TRIA
AL DEMAND
DED
NT PHARM
NATIONAL
tion,
C
C
C
JU
Defendant
:
:
:
:
:
:
:
:
:
:
:
:
TRU-FO
and All O
VALEAN
INTERN
Corporat
t.
Pla
intiff, by and
d through its
s attorneys, b
based on its
individual e
experiences,
the investig
ation
of counse
el, and inform
mation and b
belief allege
es as follows
s:
I.
IN
NTRODUCT
TION
1
ndant Valean
nt Pharmaceu
uticals Intern
national Inc.
. (“Valeant”)
) is widely
Defen
.
known fo
or its controv
versial busin
ness practice
s. Among th
hese is Vale
eant’s practic
ce of acquirin
ng
rights to
existing hea
althcare treat
tments and th
hen impleme
enting outsiz
zed price inc
creases, unre
elated
to any in
ts.
crease in the
e costs of pro
oviding the t
treatment, in
n order to bo
oost the comp
pany’s profi
Coupled
with other “
“aggressive”
business pra
actices—inc
cluding mini
imizing resea
arch and
ies
developm
ment expense
es (the comp
pany spends
a fraction of
f what many
y other big d
drug compan
spend on
n developing
new treatme
ents)—Vale
ant’s profits
s-through-pri
ice-gouging
model has b
been
described
d as “gamesm
manship” de
esigned to in
ncrease its sto
ock value.
2
ant’s practice
es have been
n called “dee
eply immoral
l,” but in som
me cases, its
s
Valea
.
practices
cross the lin
ne from imm
moral to illeg
gal. This cas
se involves s
such a practi
ice: an
anticomp
petitive schem
me by Valea
ant to monop
polize the ma
arket for cer
rtain gas perm
meable cont
tact
lens mate
erials and the
en abuse tha
at monopoly
power by ra
aising prices
s far beyond
prior
competit
ive levels.
3
gust 2013, V
Valeant enter
red the mark
ket for orthok
keratology (
(“OrthoK”) l
lens
In Au
.
materials
s—a submar
ket of the m
market for “ga
as permeable
e,” or rigid,
contact lens
s materials—
—by
acquiring
g B&L Hold
dings (“Bausc
ch & Lomb”
”) for $8.7 bi
illion. Baus
sch & Lomb
was the sec
ond
largest m
manufacturer
of OrthoK “
“buttons”—t
the materials
s used to ma
ake OrthoK l
lenses.
4
than two yea
ars after it ac
cquired Baus
sch & Lomb
, in May 201
15, Valeant
Less t
.
successfu
ully acquired
d its only com
mpetitor in t
the OrthoK b
button marke
et—Paragon
n Vision Scie
ences
(“Parago
n”).
5
ant’s acquisit
tion of Parag
gon gave it 1
100% contro
ol over the O
OrthoK button
n
Valea
.
market, w
which it prom
mptly used, i
in a textbook
k example o
of the abuse o
of monopoly
y power, to r
raise
the price
s on OrthoK
K buttons by
between 61%
% and 143%
%.
6
ant’s anticom
mpetitive con
nduct has alr
ready resulte
ed in the redu
uction—if no
ot
Valea
.
eliminati
ion—of com
mpetition in th
he market fo
or OrthoK bu
uttons, and i
f left unchec
cked, its con
nduct
will resul
lt in no comp
petition in th
he overall m
market for Or
rthoK lenses
, leaving pat
tients paying
g
higher pr
rices for few
wer options.
II.
P
PARTIES
7
tiff Tru-Form
m Optics, Inc
c. (“TruForm
m Optics”) is
s a Texas cor
rporation tha
at
Plaint
.
manufact
tures gas per
rmeable con
tact lenses, i
including ort
rthokeratolog
gy lenses. Ja
an Svochak,
the
President
t of Plaintiff
f TruForm O
Optics, also s
erves as the
President of
f the CLMA
A, the gas
permeabl
le lens indus
stry’s trade a
association, t
the Contact L
Lens Manuf
facturing As
sociation
(“CLMA
A”), in which
h approximat
tely 95% of
GP labs are
members.
8
ndant Valean
nt Pharmaceu
uticals is a m
multi-billion
dollar pharm
maceutical
Defen
.
company
y registered u
under the law
ws of the Pro
ovince of Br
ritish Columb
bia with inte
ernational
headquar
rters in Lava
al, Quebec. I
Its U.S. Hea
adquarters ar
re located in
Bridgewater
r, New Jerse
ey.
Valeant h
has received
d recent medi
ia attention f
for its aggres
ssive price in
ncreases afte
er the acquis
sition
of two ol
lder heart dru
ugs, and is w
well-known f
for its aggre
ssive busine
ess practices
that often sk
kirt,
and some
etimes overs
step, the bou
unds of legal
conduct. A
According to
public repor
rts, Valeant h
has
received
subpoenas r
related to a c
criminal inve
estigation int
to payments
s between Va
aleant
subsidiar
ries and med
dical professi
ionals in vio
olation of fed
deral law.
III.
J
URISDICT
TION AND V
VENUE
9
Court has sub
bject matter
jurisdiction
.S.C. § 1331
1 (federal
under 28 U
This C
.
question)
) and 28 U.S
S.C. § 1337 (
(commerce a
and antitrust
t regulation),
, as this actio
on arises und
der
Section 2
2 of the Sher
rman Act, 15
5 U.S.C. § 2,
, and Section
n 4 and 16 o
of the Clayto
n Act, 15 U.
.S.C.
§§ 15(a)
and 26. The
e Court has s
supplementa
al subject ma
atter jurisdic
ction of the p
pendant state
e law
nder 28 U.S.
.C. § 1367.
The Court a
also has juris
sdiction over
r this action p
pursuant to 2
28
claims un
U.S.C. §
1332(d) bec
cause the am
mount in cont
troversy for
the Class ex
xceeds $5,00
00,000, and t
there
are memb
bers of the C
Class who ar
re citizens of
f a different
state than th
he Defendant
t. The Court
t also
has jurisd
diction over
this action p
pursuant to 2
28 U.S.C. § 1
1332(a) beca
ause the amo
ount in
controver
rsy exceeds
$75,000 and
d Plaintiff is
a citizen of
a different s
state than De
efendant.
1
e is proper in
n this Distric
ct under 28 U
U.S.C. § 139
91(b) and (c)
) and Section
ns 4
Venue
0.
and 12 of
f the Clayton
n Act, 15 U.
S.C. §§ 15 a
and 22, becau
use Defenda
ant resides, t
transacts bus
siness
or is foun
nd within thi
is District, an
nd a substan
ntial part of t
the events gi
iving rise to
the claims a
arose
in this Di
istrict.
IV.
R
RELEVANT
T MARKET
T
A.
ORTH
A
HOKERAT
TOLOGY L
LENSES
are a type o
1
ermeable (“G
GP”) lenses
of contact len
ns made from
m a firm, dur
rable
Gas p
.
called “rigi
plastic. T
These types
of lenses are
e sometimes
d” gas perm
meable lenses
s, although th
hey
differ fro
om the origin
nal “hard len
ns” contacts i
in that they a
allow oxyge
en to pass thr
rough the len
ns
and reach
h the cornea
. GP lenses
are custom m
made for eac
ch individua
al, requiring
an eye care
practition
ner (“ECP”)
1 to measure
e the exact sh
hape of the c
cornea—ofte
en using sop
phisticated
technique
es to map ey
ye topograph
hy—and pres
scribe lenses
s with the sp
pecific curva
ature, size, an
nd
correctiv
ve power to s
suit a particu
ular patient’s
s eyes.
2
keratology (
(or “OrthoK”
”) refers to t
the use of GP
P lenses wor
rn while the
Ortho
.
patient is
s sleeping, in
n order to slo
owly reshape
e the cornea
and correct
vision. The
e reshaping
effects of
f OrthoK len
nses, while n
not permanen
nt, last long
t a patient’s v
vision remai
ins
enough that
es.
corrected
d throughout
t the followin
ng day—wit
thout the nee
ed to wear da
aytime conta
acts or glass
3
K lenses are
e the only no
on-surgical tr
reatment for
r myopia tha
at permit a pa
atient
Ortho
.
to be free
e from conta
acts or glasse
es during day
ytime hours.
. OrthoK len
nses may als
so be used to
o
slow the
progression
of myopia i
in children a
and teenagers
s, which can
nnot be accom
mplished wi
ith
or other types
s of contact
lenses.
glasses o
1 ECPs c
can include o
ophthalmolo
ogists, optom
metrists, and
opticians.
B.
MAN
B
NUFACTUR
RING OF O
RTHOKER
RATOLOGY
Y LENSES
S
4
manufacturin
ng process fo
or OrthoK be
egins with th
he manufactu
ure of the FD
DA-
The m
.
approved
d material,2 u
usually made
e of oxygen-
-permeable p
plastic polym
mers contain
ning silicone
and
fluorine (
(“OrthoK m
aterial”). Th
he OrthoK m
material is th
hen made into
o small disk
ks (called
“buttons”
”), which are
e individuall
ly mounted o
on spinning
shafts and sh
haped with c
computer-
controlle
d precision c
cutting tools
s.
5
pproximately
y half the Or
rthoK lenses
s sold in the
United State
es, the proce
ess of
For ap
.
shaping t
the buttons i
nto lenses is
s performed
by finishing
g labs, such a
as Plaintiff T
TruForm Opt
tics,
which sp
pecialize in th
he custom m
manufacture o
of gas perme
eable contac
ct lenses.
6
inishing labs
s purchase O
OrthoK butto
ons from a m
materials man
nufacturer, th
hen
The fi
.
custom s
hape each le
ens using a p
particular len
ns design in c
conjunction
with the pat
tient’s specif
fic
prescript
ion informat
tion as comm
municated by
y the ECP. M
Many labs h
have their ow
wn unique le
ns
—some paten
nted—for Or
rthoK lenses
s, as well as f
for GP lense
es in general
l. The labs
designs—
compete
with each ot
ther for cust
tomers throu
ugh the creati
ion of these
designs,3 as
s well as by
cultivatin
ng contacts w
with ECPs, a
and by gener
rally marketi
ing their spe
ecialized serv
vices to ECP
Ps
and their
r patients.
7
e May 2015
, there were
only two co
ompetitors in
n the market
for the
Befor
.
manufact
ture of FDA
A-approved O
OrthoK butto
ons: Paragon
n and Bausch
h & Lomb (o
owned by
00% of the
Valeant a
as of 2013).
After purch
hasing Parag
gon in May 2
2015, Valean
nt controls 1
market fo
or those butt
tons.
2 See Sec
ction IV.C b
below for mo
ore detail abo
out the FDA
A approval pr
rocess for O
OrthoK lenses
s.
own unique
designs, ma
any labs also
o use designs
s licensed fr
om
s have their
3 Althoug
other des
gh many lab
sign owners.
8
dition to mon
nopolizing th
he market fo
or OrthoK bu
uttons, Valea
ant also cont
trols
In add
.
the other
r half of the m
market for O
OrthoK lense
es, which is c
composed of
f a single Or
rthoK produc
ct
called the
e Paragon C
RT.4 The Pa
aragon CRT
T is a “finishe
ed” lens pro
duct manufa
actured by
Paragon,
meaning tha
at both the m
manufacture
of the button
ns and the sh
haping of th
he buttons int
to
lenses are
e performed
d by Paragon
n, which then
n sells the len
nses directly
y to ECPs an
nd their patie
ents.5
9
ant’s Paragon
n CRT produ
uct thus com
mpetes direct
tly with the O
OrthoK lense
es
Valea
.
manufact
tured by the
finishing lab
bs.
C.
FDA
C
APPROVA
AL FOR OR
RTHOKERA
ATOLOGY
Y MATERIA
ALS
1
and Paragon
n’s—and now
w Valeant’s—
—complete
dominance o
of the marke
et for
B&L
0.
OrthoK b
buttons can b
be explained
d largely by t
the burdenso
ome process
s of gaining F
FDA approv
val
for Ortho
oK lenses, w
which involve
es two steps.
. Both of the
ese steps req
quire enormo
ous outlays o
of
both time
e and money
y and create
a significant
t barrier to e
ntry into the
e OrthoK but
tton market,
which is
not currently
y large enou
ugh to incent
tivize new en
ntry given th
he costs.
1
y GP lens ma
ade in the U.
S. must hav
ve FDA prem
market appro
oval (“PMA”
”) for
Every
1.
both the m
materials fro
om which it
is made, and
d the specific
c design of t
the lens. Ac
ccording to th
he
MA is the m
The applicant
A.
the
P
T
d
su
in
nt type of dev
ve FDA appr
s based on a
evidence to
roved PMA i
vice marketi
roval of its P
determinatio
assure that t
is, in effect,
ing applicati
PMA applica
on by FDA t
the device is
a private lic
ion required
ation prior to
that the PMA
s safe and ef
cense grantin
by the FDA
o marketing
A contains
ffective for it
ng the applic
ts
cant
use differen
to describe a
nt
all
he
4 CRT sta
technolog
types of c
http://ww
term “Or
evice. PMA
ufficient vali
ntended use(
ands for “co
gy, the term
corneal resh
ww.allaboutv
rthoK” to me
most stringen
t must receiv
A approval is
id scientific
(s). An appr
rneal refract
“orthokerat
aping lenses
vision.com/c
ean all lense
tive therapy.
ology” (or O
s, including t
contacts/orth
s used for or
” Although
OrthoK) is us
the Paragon
hok.htm. For
rthokeratolog
CRT lenses
sually used t
CRT. See,
r that reason
gy, includin
technically
to describe t
e.g.,
n, this Comp
g CRT lense
laint uses th
es.
As
bs have also
ant notified a
served as di
all such distr
istributors fo
ributors that
or Paragon C
t it was cance
CRT lenses.
eling their
5 Historic
of Octob
distributi
cally, many
er 2015, how
ion contracts
finishing lab
wever, Valea
s.
or owner) pe
ermission to
market the d
device.6
(o
1
over, becaus
se OrthoK le
enses will be
worn overn
night, and thu
us have a gre
eater
Moreo
2.
need for
oxygen perm
meability, th
he materials u
used in Orth
hoK lenses—
—i.e., the Orth
hoK buttons
s—
must mee
et the FDA’s
s standard fo
or “overnigh
ht approval”—
—a more rig
gorous standa
ard than for
normal G
GP lenses.
1
rocess to get
t overnight a
approval from
m the FDA t
takes approx
ximately two
o
The p
3.
years,7 an
nd can cost o
over $1,000,
,000, with ju
ust the initial
l application
n fee usually
approaching
g
$300,000
0.
14
dition to app
roving the m
material for o
overnight us
must also
e, the FDA m
In add
4.
approve e
each specific
c lens design
n intended fo
or OrthoK us
se. That app
proval can b
e accomplis
hed
by obtain
ning a “510(k
k) clearance
,” which ref
fers to the se
ction of the
Food, Drug
and Cosmet
tic
Act requi
iring device
manufacture
ers to notify
y the FDA of
f their intent
to market a
new medica
al
device th
hat is “substa
antially equiv
valent” to on
ne that has a
already been
ved.
FDA approv
1
ugh obtainin
ng a 510(k) c
clearance for
r an OrthoK
K lens design
is substantia
ally
Althou
5.
less burd
densome than
n obtaining a
an original P
PMA for ove
ernight Ortho
oK materials
s, approval o
of the
design ne
ecessitates ap
pproval of th
he underlyin
ng materials.
In practice
e, this means
that finishin
ng
labs cann
not get appro
oval for their
r OrthoK len
ns designs in
ndependently
y, but must o
operate as
“authoriz
zed manufac
cturing facilit
ties” under t
the umbrella
a of FDA app
proval held b
by Valeant f
for
both the m
material and
d the design
of the Ortho
oK lens.
p://www.fda
ice/Premarke
.gov/Medica
etsubmission
aldevices/De
ns/Premarket
eviceregulati
tapprovalpm
ionandguida
ma/Default.H
ance/Howtom
Htm (“FDA W
market
Website on
acknowledge
termination[
es, although
[, but] [i]n re
“FDA regul
eality, the rev
ations provi
view time is
to review th
onger.” FDA
he
A
de 180 days
normally lo
6 See http
yourdevi
PMA”).
7 As the F
PMA and
Website
FDA itself a
d make a det
on PMA.
1
use the desig
gn approvals
are relativel
ly broad, how
wever, the la
abs can still
Becau
6.
create an
nd market un
nique lens de
esigns—but t
they can do
so only if th
hey operate a
as “design
partners”
” with the ma
anufacturers
s that already
y hold the PM
MAs—i.e., V
Valeant.8 Ev
ven so, the
existence
e of many co
ompetitors in
n the market
for finished
d OrthoK len
nses has allow
wed the labs
s to
innovate
with respect
t to lens desi
igns, providi
ing patients
with a wide
er range of ch
hoices.
1
are only thr
ree types of G
GP lens mat
terials curren
ntly approve
ed by the FD
DA
There
7.
for overn
night wear: P
Paragon HDS
S, Paragon H
HDS 100, an
nd Boston Eq
qualens II. T
Two other
materials
s—Boston X
XO and Bosto
e also used b
by many U.S
S. finishing l
labs to create
e
on XO2—are
OrthoK l
lenses for int
ternational s
ale. After it
ts purchase o
of Paragon, V
Valeant cont
trols all of th
hose
materials
s, and the tim
me and expen
nse involved
d in getting F
FDA approv
val for Ortho
K use mean
s that
Valeant t
thus has a co
omplete mon
nopoly on the
e market for
r OrthoK but
ttons.
V.
A
ANTICOMP
PETITIVE C
CONDUCT
T
1
than five mo
onths after ac
cquiring Para
agon, on Sep
ptember 15,
2015, Valea
ant
Less t
8.
used its m
monopoly po
ower to impl
lement large
e across-the-b
board price h
hikes on Ort
thoK buttons
s,
announci
ing the follow
wing price in
ncreases, wh
hich represen
nted all FDA
A-approved O
OrthoK butt
tons
for use by
y patients in
n the United
States:
(a
II OrthoK b
buttons incre
eased from $
$8.20
a)
Bosto
to $20
n XO Ortho
0.00 per butt
oK and Bosto
ton, a 143%
on Equalens
increase.
(b
oK button in
ncreased in p
price from $9
9.00 to $20.0
00 per button
n, a
b)
Bosto
122%
n XO2 Ortho
increase.
(c
tons for Orth
hoK increase
ed from $12.
.40 to
c)
Parag
$20.00
d Paragon HD
n, an increase
DS-100 butt
e of 61%.
der
nly
ella”
s III device
01(f) of the
& Lomb and
PMAs; i.e., a
Shaping Tre
on HDS and
0 per button
that fails to m
FD&C Act
Paragon ho
all OrthoK d
atment (VST
meet PMA r
and cannot b
ld PMAs for
designs fall u
T)” design, o
requirements
be marketed
r OrthoK, al
under either
or Paragon’s
s is consider
.” FDA Web
ll designs mu
Bausch & L
s approval fo
red to be adu
bsite on PMA
ust fall unde
Lomb’s appro
or its “Parago
ulterated und
A. Since on
r the “umbre
oval for its
on Quadra”
8 “A clas
section 5
Bausch &
of those P
“Vision S
design.
1
e same time,
Valeant also
o eliminated
d volume dis
scounts for b
both the Bost
ton
At the
9.
buttons.
and Parag
gon OrthoK
2
dition, on or
around the s
same date, V
Valeant incre
eased prices
on all Ortho
oK
In add
0.
buttons s
sold to U.S. f
finishing lab
bs for use by
patients out
tside the Uni
ited States,9
from a per-
button co
ost ranging f
from $3.00–$
$6.25, to a p
per-button co
ost ranging fr
from $9.00, a
an increase o
of
between
44% and 20
00%.
2
domestic Orth
hoK lens ma
arket has bee
en growing r
recently, but
t the OrthoK
K
The d
1.
market h
as seen muc
ch faster grow
wth internati
ionally, whe
ere, for exam
mple, the mar
rket for Orth
hoK
lenses gr
rew over 20%
% in a single
e year from 2
2014–2015.
2
information
n and belief,
Valeant’s st
teep price hik
kes on Ortho
oK lenses ar
re not
Upon
2.
only an u
unlawful abu
use of its mo
nopoly pow
wer in order to
o extract pro
ofit from cus
stomers who
o
have no o
other option
s in the mark
ketplace. In
n this case, be
ecause Vale
ant manufac
ctures not on
nly
OrthoK b
buttons but a
also the Para
agon CRT fin
nished lens,
g labs are no
ot only Valea
ant’s
the finishing
customer
rs, but its com
mpetitors. T
Thus, by incr
reasing the c
costs of Orth
hoK buttons,
, Valeant wil
ll be
able not o
only to incre
ease its profi
it from butto
on sales in th
he short- and
d medium-ter
rm, but to
prevent t
he finishing
labs from co
ompeting wi
ith it in the m
market for fi
inished Orth
hoK lenses. I
In
other wo
rds, Valeant
t’s horizonta
al monopoly
over the ma
arket for Orth
hoK buttons
s will allow i
it to
a vertical mo
onopoly over
r the entire s
supply of Or
rthoK lenses
in the Unite
ed States and
d
achieve a
where OrthoK
t countries w
her have the
milar approva
aterials used
ale of the len
ies in which
d to manufact
nses in the U
h they are sol
ture the lens
U.S., or must
ld—approva
ses
t
als
9 In most
must eith
have sim
that take
even longer
same FDA a
als by the gov
r to acquire t
K lenses are
approvals req
vernments o
than FDA ap
sold, the ma
quired for sa
of the countri
pproval.
many oth
her countries
s.10
2
d, confirmin
ng Valeant’s
intent to exc
clude its com
mpetitors fro
om the Ortho
oK
Indeed
3.
market al
ltogether, in
early Decem
mber 2015, V
Valeant bega
an informing
g finishing la
abs that they
y
could no
longer purc
hase Parago
n HDS Orth
hoK buttons.
24
dition, Valea
ant recently p
purchased Pe
elican Produ
ucts, a comp
any that
In add
4.
manufact
tures, upon i
information
and belief, 8
80–100% of
f the specializ
zed cases us
sed by the
finishing
g labs to ship
p GP lenses (
(including O
OrthoK lenses
s) to ECPs—
—an acquisit
ion that furth
her
tightens V
Valeant’s gr
rip on the ver
rtical supply
y chain for O
OrthoK lense
es.11
2
months befo
fore impleme
enting the pr
rice increase
s on the Orth
hoK buttons
s, and
In the
5.
in the mo
onths since, V
Valeant also
o made sever
ral offers to p
purchase fin
nishing labs—
—many with
h
substanti
ial OrthoK b
usiness—wh
hich will allo
ow it to incr
rease its capa
acity to prod
duce finished
d
OrthoK l
lenses. Upon
n informatio
on and belief
f, once it has
s increased th
hat capacity
, Valeant int
tends
to use its
monopoly p
power to for
ce the remai
ining finishin
ng labs out o
of the OrthoK
K market
altogethe
er—leaving V
Valeant free
e to impleme
nt further pr
rice increase
es to patients
s and causing
g
substanti
ial harm to P
Plaintiff and
Class memb
bers, who cur
rrently deriv
ve millions in
n revenue fr
rom
the sale o
of OrthoK le
enses.
ess to
with
eant has acce
fit patients w
bmitted to
ers—access
s monopoly o
on
10 Moreo
contact in
OrthoK l
Valeant.
which, up
OrthoK b
over, as the o
nformation f
lenses, since
This effecti
pon informa
buttons to ac
only holder o
for every EC
the certifica
ively gives V
ation and bel
chieve a mon
of the overni
CP in the Uni
ation process
Valeant direc
ief, makes it
nopoly over
ght PMAs fo
ited States c
s requires th
ct access to i
t even easier
the entire Or
for OrthoK b
certified by th
hat informatio
its competito
r for Valeant
rthoK supply
buttons, Vale
he FDA to f
on to be sub
ors’ custome
t to abuse its
y chain.
losely with P
share for the
finishing lab
s extremely h
ducts so that
on the case th
ors’ cases w
bs worked cl
high market
t, unlike, the
hat can nega
without incurr
eir competito
atively affect
ring addition
Pelican to de
e cases deriv
ors, their man
t the shipped
nal expense
evelop their s
ves from hav
nufacturing
d lenses. The
to remove re
specialized c
ving specific
process doe
e labs thus c
esidue befor
cases, and
cally develop
s not leave a
cannot substi
re shipping le
ped
a
itute
enses
11 Many
Pelican’s
their prod
residue o
competit
in them.
2
ant recently d
disclosed tha
at it received
d a letter on O
October 16,
2015 from t
the
Valea
6.
Federal T
Trade Comm
mission (“FT
C”) informin
ng the comp
pany that the
e FTC is inve
estigating
Valeant’s
s purchase o
of Paragon, a
and requestin
ng that Valea
ant provide i
information
and
documen
ntation relatin
ng to that pu
urchase.
VI.
A
ANTITRUST
T INJURY
TO PLAIN
NTIFF & CL
LASS MEM
MBERS
2
leged in deta
ail above, aft
ter and due t
to Valeant’s
consolidatio
on of the ma
arket
As all
7.
for Ortho
oK buttons, t
there was a s
significant p
price increase
e for the fini
ishing labs th
hat are the d
direct
purchase
rs of those b
buttons.
2
over, if Vale
eant is succe
ssful in elim
minating the l
labs from th
e OrthoK m
market
Moreo
8.
altogethe
er, Valeant w
will lessen co
ompetition in
n the market
t for OrthoK
K lenses by re
educing both
h
capacity
and opportu
unities for inn
novation wit
th respect to
o lens design
ns and custom
mization. If
forced ou
ut of the Orth
hoK market,
, Plaintiff an
nd Class mem
mbers will lo
ose millions
of dollars of
f
OrthoK r
revenue, and
d patients wil
ll experience
e higher pric
ces and less i
innovation.
2
direct result
of Defendan
nt’s anticomp
petitive actio
ons, competi
ition in the
As a d
9.
market fo
or OrthoK bu
uttons has be
een, and wil
ll continue to
o be, restrain
ned, and com
mpetition in t
the
market fo
or OrthoK le
enses faces th
he threat of r
restrained—
—if not elimin
nated—com
mpetition.
VII.
C
CLASS ACT
TION ALLE
EGATIONS
S
3
tiff sues on it
ts own behal
lf and on beh
half of a cla
ss of person
s and entitie
es
Plaint
0.
pursuant
to Federal R
Rule of Civil
l Procedure 2
23. The Cla
ass consists o
of all direct p
purchasers in
n the
United S
tates of GP b
buttons that
are FDA-ap
pproved for O
OrthoK uses
s and manufa
actured by
or any wholl
ly owned sub
bsidiary of V
Valeant. The
ese currently
y consist of t
the followin
ng
Valeant o
buttons in
n Boston and
d Paragon m
materials:
Quadra--P
Paragon HDS
S Violet
(a)
Quadra--P
Paragon HDS
S 100 Yellow
w
(b)
Boston Eq
qualens II for
r OrthoK use
e
(c)
Boston XO
K use
(d)
O2 for Ortho
Boston XO
O for OrthoK
K use
(e)
3
ersons in the
e Class are s
so numerous
dual joinder o
of all membe
ers is
that individ
The p
1.
rsons
impractic
cable under t
the circumst
tances of this
s case. Alth
hough the pre
ecise numbe
er of such pe
is unknow
wn, the exac
ct size of the
Class is eas
sily ascertain
nable, as eac
ch class mem
mber can by
identified
d by the Def
fendant’s sal
es records.
3
e are commo
on questions
of law and f
fact specific
c to the Class
s that
There
2.
predomin
nate over any
y questions a
affecting ind
dividual mem
mbers, includ
ding:
Whether D
Defendant ha
as a monopo
oly on the ma
arket for Ort
thoK buttons
s;
(a)
Whether D
Defendant ga
ained this mo
onopoly unla
awfully;
(b)
actions in ac
cquiring Para
agon violate
ed both feder
ral
(c)
Whether D
and state l
Defendant’s
aw;
nd class mem
mbers have b
been damage
ed by
(d)
Whether c
Defendant
consumers an
t’s conduct;
Whether D
Defendant sh
hould disgorg
ge unlawful
profits; and
d
(e)
of injunctive
e relief nece
ssary to rest
ore a
(f)
The nature
competitiv
e and scope o
ve market.
3
tiff’s claims
of the Class’
claims, as th
they arise ou
ut of the sam
me
are typical o
Plaint
3.
course of
f conduct an
d the same l
legal theorie
s as the rest
of the Class
s, and Plainti
iff challenge
es the
practices
and course
of conduct e
engaged in b
by Defendant
nt with respec
ct to the Cla
ass as a whol
le.
has
34
tiff will fairly
y and adequ
ately protect
t the interest
ts of the clas
ss. Plaintiff
Plaint
4.
retained c
counsel who
o are able an
nd experience
ed class actio
on litigators
.
3
ution of this
s action on a
class-wide b
basis is supe
erior to other
r available
Resolu
5.
methods
and is a fair
r and efficien
nt adjudicatio
on of the con
ntroversy be
ecause in the
e context of t
this
litigation
n, no individu
ual class me
mber can ju
stify the com
mmitment of
f the large fin
nancial resou
urces
to vigoro
ously prosecu
ute a lawsuit
t against Def
fendant. Sep
parate action
ns by individ
dual class
members
s would also
create a risk
k of inconsis
stent or varyi
ing judgmen
nts, which co
ould establis
sh
incompat
tible standar
rds of conduc
ct for Defen
dant and sub
bstantially im
mpede or im
mpair the abil
lity
of class m
members to p
pursue their
claims. A c
class action a
also makes s
sense becaus
se Defendant
t has
acted and
d refused to t
take steps th
hat are, upon
n information
n and belief,
generally ap
pplicable all
l
companie
es in the mar
rketplace, th
hereby makin
ng injunctive
e relief appro
opriate with
h respect to th
he
Class as
a whole.
VIII. C
COMMON C
COURSE O
OF CONDU
CT EMANA
ATING FR
ROM NEW J
JERSEY
3
information
n and belief,
the unlawfu
ul course of c
conduct outl
lined above w
was
Upon
6.
created, a
adopted, rati
ified and/or i
implemented
d in the corp
porate headq
quarters of V
Valeant, locat
ted in
Bridgewa
ater, New Je
ersey. Upon
information
n and belief,
the Valeant
t executives r
responsible
for
the series
s of anticom
petitive agre
eements outl
lined above a
are based in
New Jersey
y and a
substanti
ial part, if no
ot all, the ant
ticompetitive
e conduct to
ok place in N
New Jersey.
Therefore,
applicatio
on of New J
ersey law to
o a nationwid
de class is ap
ppropriate.
IX.
C
CLAIMS
FIRST CA
VIOL
LATION OF
CT
(15
CTION
ERMAN AC
AUSE OF AC
F THE SHE
U.S.C. § 2)
3
of the forego
oing allegati
ions is incorp
porated in th
his claim for
r relief.
Each o
7.
3
elevant prod
duct market i
is the market
t for OrthoK
K buttons.
The re
8.
elevant geog
graphic mark
ket is the ent
tire United S
States.
3
The re
9.
4
ant possesses
s monopoly p
power in the
e market for
OrthoK butt
tons.
Valea
0.
4
use the manu
ufacture and
sale of Orth
hoK buttons
requires tim
me-intensive
and
Becau
1.
costly FD
DA approval
l, substantial
l barriers to e
entry and ex
xpansion exis
st in the rele
evant market
t.
4
ant has engag
ged in antico
ompetitive co
onduct to un
nlawfully obt
tain, maintai
in
Valea
2.
and enha
ance its mono
opoly in the
OrthoK butt
ton market a
and to raise p
prices above
e previously
competit
ive levels. V
Valeant’s act
tions will lim
mit competit
tion in the m
market for Or
rthoK button
ns
and disco
ourage future
e innovation
n in the overa
all market fo
or OrthoK le
enses.
4
is no legitim
mate busines
ss justificatio
on for Valea
ant’s conduct
t.
There
3.
44
tiff and the C
Class membe
ers have been
n injured an
d will contin
nue to be inj
ured
Plaint
4.
in their b
businesses an
nd property b
by higher pri
ices in the O
OrthoK butto
on market tha
an they wou
uld
have paid
d in the abse
ence of Valea
ant’s unlawf
ful acts. In a
addition, due
e to Defenda
ant’s actions
,
Plaintiff
and Class m
members face
e the threat o
of future inju
ury in that V
aleant’s mon
nopoly over
the
market fo
or OrthoK bu
uttons will a
allow Valean
nt to exclude
e Plaintiff an
nd Class mem
mbers from t
the
OrthoK m
market altog
gether.
4
pro-competit
tive effects o
of Valeant’s
conduct are
outweighed
d by the clear
r
Any p
5.
anticomp
petitive effec
cts.
4
tiff and the C
Class membe
ers are entitle
ges for their i
injuries, as w
well
ed to damag
Plaint
6.
s
as an inju
unction that
terminates th
he ongoing v
violations al
lleged in this
s Complaint
and require
Valeant t
to divest itse
elf of all Orth
hoK-related
holdings acq
quired in its
f Paragon.
purchase of
S
VIO
OLATION
SECOND CA
OF THE NE
RUST ACT
(N
AUSE OF A
EW JERSE
N.J.S.A. 56
ACTION
EY ANTITR
:9-4)
4
of the forego
oing allegati
ions is incorp
porated in th
his claim for
r relief.
Each o
7.
4
elevant prod
duct market i
is the market
t for OrthoK
K buttons.
The re
8.
4
ant transacts
business thr
roughout the
e United Stat
tes, including
g New Jerse
ey.
Valea
9.
5
ant’s unlawfu
ul acts were
carried out a
at least in pa
art at its U.S.
ers in
. Headquarte
Valea
0.
Bridgewa
ater, New Je
ersey.
5
ant has willf
fully obtaine
d a 100% m
monopoly of t
the market f
for OrthoK
Valea
1.
buttons th
hrough its ac
cquisition of
f B&L and P
Paragon. Th
his purchase h
has eliminat
ted competit
tion
in the ma
arket for Orth
hoK buttons
s.
5
result of Val
eant’s condu
uct, Plaintiff
f and Class m
members hav
ve been force
ed to
As a r
2.
purchase
OrthoK but
ttons at a pri
ce substantia
ally higher t
than they wo
ould have pa
aid in the abs
sence
of this un
nlawful cond
duct.
5
ant’s price in
ncreases follo
owing its pur
rchase of Pa
aragon demo
onstrate the
Valea
3.
success o
of its attempt
t to monopo
lize the mark
ket for Ortho
oK buttons,
and its purc
hase of finis
shing
labs, cou
upled with pr
rice increase
s sufficient t
to drive the r
remaining la
abs from the
e OrthoK ma
arket
altogethe
er, will have
the effect of
f eliminating
g competitio
n, discourag
ging innovati
ion, and givi
ing it
a monopo
oly over the
patient (end
d-user) mark
ket for finishe
ed OrthoK l
enses. As a
result, patie
ents
will have
e access to a
substantially
y smaller sel
lection of len
ns products
at prices tha
at are higher
than
they othe
erwise would
d be.
X.
J
URY TRIA
AL DEMAN
NDED
54
tiff hereby de
emands a tri
ial by jury on
n all issues t
triable of rig
ght by jury.
Plaint
4.
PRAYER
R FOR REL
LIEF
5
REFORE, P
Plaintiff pray
ys for judgme
ent against D
Defendant as
s follows:
WHER
5.
(a)
he Federal Ru
Representati
ules
ive
Certificati
of Civil Pr
and Plainti
on of the act
rocedure, an
iff’s counsel
tion as a Cla
d appointme
l of record a
ass Action pu
ent of Plainti
s Class Coun
ursuant to th
iff as Class R
nsel;
e damages, a
and
(b)
Actual dam
such other
mages, statut
r relief as pro
tory damage
ovided by th
es, punitive a
he statutes cit
and/or treble
ted herein;
(c)
Prejudgment and post-judgment interest on such monetary relief;
(d)
Equitable relief in the form of restitution and/or disgorgement of all
unlawful or illegal profits received by Defendant as a result of the
anticompetitive conduct alleged in herein;
(e)
An injunction restoring competitive market conditions by requiring
Valeant to divest itself of the OrthoK assets of Paragon and/or B&L;
(f)
Other appropriate injunctive relief;
(g)
The costs of bringing this suit, including reasonable attorneys’ fees; and
(h)
All other relief to which Plaintiff and members of the Class may be
entitled at law or in equity.
Dated: December 22, 2015
LITE DEPALMA GREENBERG, LLC
/s/ Bruce D. Greenberg
Bruce D. Greenberg
570 Broad Street, Suite 1201
Newark, NJ 07102
Telephone: (973) 623-3000
Facsimile: (973) 623-0858
bgreenberg@litedepalma.com
THE PAYNTER LAW FIRM PLLC
Stuart M. Paynter (pro hac vice pending)
1200 G Street N.W., Suite 800
Washington, DC 20005
Telephone: (202) 626-4486
Facsimile: (866) 734-0622
stuart@paynterlawfirm.com
Celeste H.G. Boyd (pro hac vice pending)
1340 Environ Way
Chapel Hill, NC 27517
Telephone: (919) 307-9991
Facsimile: (866) 734-0622
cboyd@paynterlawfirm.com
Attorneys for Plaintiff Tru-Form Optics, Inc.
LOCAL CIVIL RULE 11.2 CERTIFICATION
Pursuant to Local Civil Rule 11.2, I hereby certify that the matter in controversy is not
related to any other action, pending arbitration or administrative proceeding currently pending in
any court.
I hereby certify that the following statements made by me are true. I am aware that if any
of the foregoing statements made by me are willfully false, I am subject to punishment.
Dated: December 22, 2015
LITE DEPALMA GREENBERG, LLC
/s/ Bruce D. Greenberg
Bruce D. Greenberg
570 Broad Street, Suite 1201
Newark, NJ 07102
Telephone: (973) 623-3000
Facsimile: (973) 623-0858
bgreenberg@litedepalma.com
THE PAYNTER LAW FIRM PLLC
Stuart M. Paynter (pro hac vice pending)
1200 G Street N.W., Suite 800
Washington, DC 20005
Telephone: (202) 626-4486
Facsimile: (866) 734-0622
stuart@paynterlawfirm.com
Celeste H.G. Boyd (pro hac vice pending)
1340 Environ Way
Chapel Hill, NC 27517
Telephone: (919) 307-9991
Facsimile: (866) 734-0622
cboyd@paynterlawfirm.com
Attorneys for Plaintiff Tru-Form Optics, Inc.
| antitrust |
RrtADIcBD5gMZwczhkg7 | UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF PENNSYLVANIA
Case No.
JEFFREY LEZARK,
Plaintiff,
CLASS ACTION
v.
JURY TRIAL DEMANDED
I.C. SYSTEM, INC.,
Defendant.
COMPLAINT
Plaintiff, individually and on behalf of all others similarly situated, bring this action against
Defendant and alleges as follows:
NATURE OF THE ACTION
1.
This action seeks damages, attorneys’ fees, and costs against Defendant for its
violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq.
JURISDICTION AND VENUE
2.
The Court has subject matter jurisdiction over the claims at issue under 28 U.S.C.
§ 1331 and 15 U.S.C. § 1692.
3.
The Court has personal jurisdiction over Defendant because the claims at issue
arose in this district and Defendant does substantial business in this district.
4.
Venue is proper under 28 U.S.C. § 1391 because a substantial part of the events
and/or omissions at issue occurred in this district.
PARTIES
5.
Plaintiff is a natural person that resides in Allegheny County, Pennsylvania.
6.
Defendant is a corporation with its principal place of business in Saint Paul,
Minnesota.
7.
Defendant’s sole business is collecting debts.
8.
Defendant regularly collects or attempts to collect debts owed or due or asserted to
be owed or due to another.
9.
Defendant uses instrumentalities of interstate commerce, such as telephone, mail,
and the internet, to collect consumer debt.
FACTUAL ALLEGATIONS
10.
This case concerns a past-due medical obligation (the “Account”) that is allegedly
owed to Tri-State Ortho and Sports Medicine Inc. (“Tri-State”).
11.
The Account arose out of a transaction primarily for personal, family, or household
purposes.
12.
No part of the Account was related to business transactions.
13.
At some point, Tri-State contracted with Defendant to collect the Account.
14.
On April 1, 2019, Defendant mailed and/or caused to be mailed to Plaintiff a letter
in an attempt to collect the Account.
15.
Plaintiff reviewed the April 1, 2019 letter.
16.
The letter stated: “If you fail to contact us to discuss payment of this account, our
client has authorized us to pursue additional remedies to recover the balance due, including
referring the account to an attorney.”
17.
This statement is false, deceptive, and misleading because it implies that legal
action is possible with respect to the Account.
2
18.
The least sophisticated consumer would reasonably believe or be confused that an
attorney could be involved and/or legal action was a possibility based on the claim that Defendant
was “authorized … to pursue additional remedies to recover the balance due, including referring
the account to an attorney.”
19.
Unbeknownst to the least sophisticated consumer at the relevant time of review of
the subject letter, legal action was not a possibility and/or intended with respect to the Account.
20.
According to a public records search, Tri-State, over the past decade, has not filed
a lawsuit in any Allegheny County court.
21.
Additionally, most Pennsylvania medical providers do not pursue legal action
against consumers in the Commonwealth of Pennsylvania.
22.
By claiming it was authorized to refer the Account to an attorney and pursue
additional remedies, Defendant implied legal action was possible with respect to the Account.
23.
This implication was false, deceptive, and misleading because legal action was not
a possibility and/or intended with respect to the Account.
24.
It is not bizarre or idiosyncratic for the least sophisticated debtor to read the
language identified in Defendant’s letter and take the language to mean that legal action was
possible with respect to the Account.
25.
A debtor that believed legal action was possible could be induced to make payment
to Defendant.
26.
The letter’s false, deceptive, misleading, and/or confusing language was material.
27.
Defendant’s conduct harmed Plaintiff and violated Plaintiff’s legal rights.
28.
Defendant regularly collects debts in the Commonwealth of Pennsylvania.
3
29.
Defendant regularly sends letters to Pennsylvania consumers as part of these
collection activities.
30.
Defendant’s letters routinely state that Defendant may refer a medical account to
an attorney although Defendant’s medical provider client(s) never pursue legal action.
31.
These letters, similar to the letter Plaintiff received, harmed Pennsylvania
consumers and violated their legal rights.
CLASS ALLEGATIONS
32.
Plaintiff brings this action individually and on behalf of all others similarly situated
under Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure.
33.
Plaintiff seeks to certify the following class: “All individuals in the state of
Pennsylvania who, within the applicable statute of limitations, received a letter from Defendant in
which Defendant claimed it was authorized to refer a medical debt to an attorney.”
34.
Plaintiff reserves the right to expand, narrow, or otherwise modify the class as the
litigation continues and discovery proceeds.
35.
Numerosity: The class is so numerous that joinder is impracticable. On information
and belief, the members of the class number in the hundreds.
36.
Ascertainability: The class is ascertainable because Defendant and its clients keep
and collect identifying information on each class member.
37.
Typicality: Plaintiff’s claims are typical of the claims of the class because the
claims of Plaintiff and the class are based on the same legal theories and arise from the same
conduct.
38.
Commonality and Predominance: Plaintiff and the class members share numerous
common questions of law and fact that will drive the resolution of this litigation and that
4
predominate over any individual issues. For instance, there is a single common answer to the
question of whether it is false, misleading, or deceptive for Defendant to claim it is authorized to
refer a medical debt to an attorney even though the medical provider does not take legal action
against its customers. The answer to this question will drive the resolution of Plaintiff’s claims and
the claims of the members of the class simultaneously. This common question and others will
predominate over any individual issues.
39.
Adequacy: Plaintiff is an adequate representative of the class because Plaintiff’s
interests do not conflict with the interests of the class members. Plaintiff will fairly, adequately,
and vigorously represent and protect the interests of the class. Plaintiff has no interest antagonistic
to the class. Plaintiff has retained counsel who are competent and experienced in the prosecution
of class action litigation generally and FDCPA litigation specifically.
40.
Superiority: The injury sustained by each class member is not of such magnitude
that it is economically feasible to prosecute individual actions against Defendant. Requiring many
injured plaintiffs to file individual actions would impose a crushing burden on the court system
and almost certainly lead to inconsistent judgments. By contrast, class treatment presents far fewer
management difficulties and provides benefits of a single adjudication, economies of scale, and
comprehensive supervision by a single court.
COUNT I
Violation of the Fair Debt Collection Practices Act
15 U.S.C. §§ 1692, et seq.
41.
Plaintiff repeats and re-alleges all prior allegations as if set forth at length herein.
42.
This claim is brought individually and on behalf of the class.
43.
Plaintiff is a consumer, the Account is a debt, and Defendant is a debt collector
under the FDCPA. 15 U.S.C. §§ 1692a(3), (5), (6).
5
44.
Defendant’s actions and practices described herein constitute as: false, deceptive or
misleading representations or means in connection with the collection of a debt, in violation of 15
U.S.C. § 1692e; and/or unfair or unconscionable means to collect or attempt to collect any debt,
in violation of 15 U.S.C. § 1692f.
45.
As a result of Defendant’s failure to comply with the provisions of the FDCPA, and
the resulting injury and harm Defendant’s failure caused, Plaintiff and the members of the class
are entitled to actual damages, statutory damages, and attorneys’ fees and costs under 15 U.S.C. §
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for the following relief:
a.
An order certifying the proposed class, appointing Plaintiff as
representative of the proposed class, and appointing undersigned
counsel as counsel for the proposed class;
b.
An order awarding actual, statutory, and all other damages available
by law, along with pre-and post-judgment interest;
c.
An order awarding attorneys’ fees and costs;
d.
An order declaring Defendant’s conduct unlawful;
e.
An order awarding all other relief that is just, equitable and
appropriate.
JURY TRIAL DEMANDED
Plaintiff requests a jury trial on all claims so triable.
6
Respectfully Submitted,
Dated: March 20, 2020
By:
/s/ Kevin Abramowicz
Kevin Abramowicz
PA ID No. 320659
BCJ Law LLC
186 42nd Street, PO Box 40127
Pittsburgh, PA 15201
(412) 223-5740 – office
(412) 626-7101 – fax
kevina@bcjlawyer.com
Eugene D. Frank, Esquire
PA ID No. 89862
Law Offices of Eugene D. Frank, P.C.
3202 McKnight East Drive
Pittsburgh, PA 15237
(412) 366-4276 – office
(412) 366-4305 – fax
efrank@edf-law.com
Attorneys for Plaintiff
7
| consumer fraud |
G-xVEocBD5gMZwczW0eB | Todd M. Friedman (SBN 216752)
Meghan E. George (SBN 274525)
Adrian R. Bacon (SBN 280332)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 877-206-4741
Fax: 866-633-0228
tfriedman@toddflaw.com
mgeorge@toddflaw.com
abacon@toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ERIK TRIMBLE, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1. NEGLIGENT VIOLATIONS OF
THE TELEPHONE CONSUMER
PROTECTION ACT [47 U.S.C.
§227 ET SEQ.]
2. WILLFUL VIOLATIONS OF THE
LIBERTY ACTION GROUP PAC;
DOES 1 through 10, inclusive,
Defendant(s).
TELEPHONE CONSUMER
PROTECTION ACT [47 U.S.C.
§227 ET SEQ.]
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
DEMAND FOR JURY TRIAL
Plaintiff, ERIK TRIMBLE (“Plaintiff”), on behalf of himself and all others
similarly situated, alleges the following upon information and belief based upon
personal knowledge:
NATURE OF THE CASE
1.
Plaintiff brings this action for himself and others similarly situated
seeking damages and any other available legal or equitable remedies resulting from
the illegal actions of LIBERTY ACTION GROUP PAC (“Defendant”), in
negligently, knowingly, and/or willfully contacting Plaintiff on Plaintiff’s cellular
telephone in violation of the Telephone Consumer Protection Act, 47. U.S.C. § 227
et seq. (“TCPA”), thereby invading Plaintiff’s privacy.
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff,
a resident of California, seeks relief on behalf of a Class, which will result in at
least one class member belonging to a different state than that of Defendant, a
company with its principal place of business and State of Incorporation in Florida
state. Plaintiff also seeks up to $1,500.00 in damages for each call in violation of
the TCPA, which, when aggregated among a proposed class in the thousands,
exceeds the $5,000,000.00 threshold for federal court jurisdiction. Therefore, both
diversity jurisdiction and the damages threshold under the Class Action Fairness
Act of 2005 (“CAFA”) are present, and this Court has jurisdiction.
3. Venue is proper in the United States District Court for the Northern
District of California pursuant to 18 U.S.C. 1391(b) and 18 U.S.C. § 1441(a)
because Defendant does business within the state of California and Plaintiff resides
within this District.
PARTIES
4.
Plaintiff, ERIK TRIMBLE (“Plaintiff”), is a natural person residing in
San Francisco, California and is a “person” as defined by 47 U.S.C. § 153 (39).
5.
Defendant, LIBERTY ACTION GROUP PAC (“Defendant” or
“DEFENDANT”), is a revenue management company and is a “person” as defined
by 47 U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in or around August 2016, Defendant contacted Plaintiff on
his cellular telephone ending in -5080, in an effort to sell or solicit its services.
Defendant called, including but not limited to around August 8, 2016 at 9:32 a.m.,
August 12, 2016 at 3:19 p.m., August 15, 2016 at 9:41 a.m., August 16, 2016 at
4:35 p.m., and August 17, 2016 at 10:55 a.m. Defendant often called from
telephone numbers (646) 604-9033, (202) 813-9371, (646) 600-8266, and (202)
599-9203.
9.
Defendant used an “automatic telephone dialing system”, as defined
by 47 U.S.C. § 227(a)(1) to place its calls to Plaintiff seeking to sell or solicit its
business services.
10.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
11.
Defendant’s calls were placed to telephone number assigned to a
cellular telephone service for which Plaintiff incurs a charge for incoming calls
pursuant to 47 U.S.C. § 227(b)(1).
12.
Plaintiff is not a customer of Defendant’s services and has never
provided any personal information, including his cellular telephone number, to
Defendant for any purpose whatsoever. In addition, on at least one occasion,
Plaintiff answered the telephone and told Defendant to stop calling him.
Accordingly, Defendant never received Plaintiff’s “prior express consent” to
receive calls using an automatic telephone dialing system or an artificial or
prerecorded voice on her cellular telephone pursuant to 47 U.S.C. § 227(b)(1)(A).
CLASS ALLEGATIONS
13.
Plaintiff brings this action on behalf of himself and all others similarly
situated, as a member of the proposed class (hereafter “The Class”) defined as
follows:
All persons within the United States who received any
telephone calls from Defendant to said person’s cellular
telephone made through the use of any automatic
telephone dialing system or an artificial or prerecorded
voice and such person had not previously consented to
receiving such calls within the four years prior to the
filing of this Complaint
14.
Plaintiff represents, and is a member of, The Class, consisting of All
persons within the United States who received any telephone calls from Defendant
to said person’s cellular telephone made through the use of any automatic telephone
dialing system or an artificial or prerecorded voice and such person had not
previously not provided their cellular telephone number to Defendant within the
four years prior to the filing of this Complaint.
15.
Defendant, its employees and agents are excluded from The Class.
Plaintiff does not know the number of members in The Class, but believes the Class
members number in the thousands, if not more. Thus, this matter should be
certified as a Class Action to assist in the expeditious litigation of the matter.
16.
The Class is so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Class
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Class includes thousands of members. Plaintiff alleges that The Class
members may be ascertained by the records maintained by Defendant.
17.
Plaintiff and members of The Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiff
and Class members via their cellular telephones thereby causing Plaintiff and Class
members to incur certain charges or reduced telephone time for which Plaintiff and
Class members had previously paid by having to retrieve or administer messages
left by Defendant during those illegal calls, and invading the privacy of said
Plaintiff and Class members.
18.
Common questions of fact and law exist as to all members of The
Class which predominate over any questions affecting only individual members of
The Class. These common legal and factual questions, which do not vary between
Class members, and which may be determined without reference to the individual
circumstances of any Class members, include, but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this Complaint,
Defendant made any call (other than a call made for emergency
purposes or made with the prior express consent of the called party)
to a Class member using any automatic telephone dialing system or
any artificial or prerecorded voice to any telephone number assigned
to a cellular telephone service;
b.
Whether Plaintiff and the Class members were damages thereby, and
the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such conduct
in the future.
19.
As a person that received numerous calls from Defendant using an
automatic telephone dialing system or an artificial or prerecorded voice, without
Plaintiff’s prior express consent, Plaintiff is asserting claims that are typical of The
Class.
20.
Plaintiff will fairly and adequately protect the interests of the members
of The Class. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
21.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Class members is impracticable. Even if every Class member could afford
individual litigation, the court system could not. It would be unduly burdensome
to the courts in which individual litigation of numerous issues would proceed.
Individualized litigation would also present the potential for varying, inconsistent,
or contradictory judgments and would magnify the delay and expense to all parties
and to the court system resulting from multiple trials of the same complex factual
issues. By contrast, the conduct of this action as a class action presents fewer
management difficulties, conserves the resources of the parties and of the court
system, and protects the rights of each Class member.
22.
The prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Class members not parties to such
adjudications or that would substantially impair or impede the ability of such non-
party Class members to protect their interests.
23.
Defendant has acted or refused to act in respects generally applicable
to The Class, thereby making appropriate final and injunctive relief with regard to
the members of the California Class as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
24.
Plaintiff repeats and incorporates by reference into this cause of
action the allegations set forth above at Paragraphs 1-23.
25.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227 et seq.
26.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227 et
seq., Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
27.
Plaintiff and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
28.
Plaintiff repeats and incorporates by reference into this cause of
action the allegations set forth above at Paragraphs 1-23.
29.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227 et
30.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227 et seq., Plaintiff and the Class members are entitled an award of
$1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
31.
Plaintiff and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
As a result of Defendant’s negligent violations of 47 U.S.C.
§227(b)(1), Plaintiff and the Class members are entitled to and
request $500 in statutory damages, for each and every violation,
pursuant to 47 U.S.C. 227(b)(3)(B); and
Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(b)(1), Plaintiff and the Class members are entitled to
and request treble damages, as provided by statute, up to $1,500, for
each and every violation, pursuant to 47 U.S.C. §227(b)(3)(B) and 47
U.S.C. §227(b)(3)(C); and
Any and all other relief that the Court deems just and proper.
Respectfully Submitted this 31st day of August, 2016.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: /s Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
| privacy |
3cfRDYcBD5gMZwczGOEY | EUSTACE DE SAINT PHALLE, SBN 179100
JOSEPH R. LUCIA, SBN 278318
RAINS LUCIA STERN, PC
220 Montgomery Street, 15th Floor
San Francisco, CA 94104
Tel: (415) 341-9341
Fax: (925) 609-1690
E-mail: PersonalInjuryGroup@RLSlawyers.com
JOHN E. NORRIS
(Pro Hac Vice pending)
DAVIS & NORRIS LLP
The Bradshaw House
2154 Highland Avenue South
Birmingham, AL 35205
Tel: (205) 930-9900
Fax: (205) 930-9989
Email: JNorris@davisnorris.com
Attorneys for Plaintiff
ADRIENNE FRASER
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ADRIENNE FRASER on behalf of herself and all
others similarly situated,
Plaintiffs,
vs.
WYSONG CORPORATION and DOES 1-25,
inclusive,
Defendants.
CASE NO.
COMPLAINT
AMOUNT DEMANDED EXCEEDS $10,000
DEMAND FOR JURY TRIAL
CLASS ACTION
CLASS ACTION COMPLAINT
This is a California statewide class action seeking redress for the mislabeling of pet food and pet
treats. Defendant Wysong Corporation (“Wysong”), labeled its pet food as “Made in USA,” when in fact
it contained ingredients sourced from foreign countries. This is a violation of the California Unfair
Competition Law (“UCL”) as well as the California Consumer Legal Remedies Act (“CLRA”). Plaintiff
seeks, on her own behalf as well as on behalf of a statewide class of similarly situated consumers,
UCL. Plaintiff also seeks injunctive relief under the CLRA, and requests that Plaintiff be allowed to
amend this complaint to seek actual damages subject to the $1,000 statutory minimum for class action
damages, restitution, punitive damages and attorneys’ fees under the CLRA thirty days after the service
of this complaint in compliance with the notice requirements of the CLRA. In support of this complaint,
Plaintiff states as follows:
PARTIES, JURISDICTION, AND VENUE
1.
Plaintiff Adrienne Fraser is an adult citizen of California residing in San Francisco
County, which is within this district. Plaintiff purchased Defendant’s products, the marketing of which
violates California law, in this district and division.
2.
Defendant Wysong is a corporation formed under and existing pursuant to the laws of
the state of Michigan. Defendant’s principal place of business is Midland, Michigan.
3.
This Court has diversity jurisdiction over this case under 28 U.S.C. § 1332, as modified by
the Class Action Fairness Act of 2005, because Plaintiff and Defendant are citizens of different states,
and in this class action the aggregate amount in controversy is greater than $5,000,000.00 (five million
dollars), exclusive of interest and costs.
4.
Venue is proper in this court because the purchases were made by, and deliveries were
made to, the Plaintiff in this district and division.
FACTS RELATING TO THE SPECIFIC PLAINTIFF
5.
On multiple occasions prior to January 1, 2016, Plaintiff Adrienne Fraser purchased
Defendant’s Epigen Canine/Feline Diet food at two San Francisco retailers, the Animal House and
Village Pets, as well as online.
6.
The pet food that Plaintiff purchased from Defendant was labeled “Made in USA.”
Plaintiff made these purchases relying on the labels on Defendant’s products stating that they were
“Made in USA.”
7.
The value of the product received by Plaintiff was less than the value she paid, because
the “Made in USA” labeling was untrue.
8.
Defendant manufactures and sells pet food in stores all over the United States, including
California. Among other places, it sells its products in the San Francisco area at the following locations:
The Animal House, located at 157 Fillmore St., San Francisco, CA 94117, and Village Pets, located 1036
Hyde St., San Francisco, CA 94109. Additionally, Defendant’s products are sold over the internet and
shipped throughout the United States, including California.
9.
Defendant’s pet food displays on its bags, in all capital letters, “MADE IN USA,” along
with an American flag and “SINCE 1979.”
10.
These labels stating that Defendant’s pet food is made in the United States are false,
because Defendant’s pet food contains ingredients that are sourced from foreign countries. Specifically,
the vitamin, mineral, and amino acid packs in defendant’s products contain ingredients from non-USA
sources.
11.
Defendant continues to sell pet food bearing the label “Made in USA.”
12.
The buying public’s preference for pet foods and treats that are made exclusively in the
United States stems in part from the widely-publicized and widespread recall of pet foods in 2007, when
hundreds, and perhaps thousands, of dogs and cats died of kidney failure after eating pet food that
contained a toxic chemical called melamine. This ingredient was placed in the pet food at manufacturing
facilities in China and was mislabeled as “wheat gluten” or “rice protein.” This increased consumer’s
preference for both fully American-made pet food and grain-free pet food.
13.
For this and other reasons, the buying public generally believes that “Made in the U.S.A.”
products are safer to feed their animals than foreign-sourced ingredients.
14.
The Plaintiff and the class received products from Defendant that were worth less than
what the Plaintiff and the class paid for the products.
CLASS ACTION REQUIREMENTS
15.
Plaintiff brings this case on her own behalf, and on behalf of all others similarly situated,
pursuant to Rule 23 of the Federal Rules of Civil Procedure. The class consists of all residents of the
state of California who, within the applicable statute of limitations period, bought pet food products
from Defendant that were sold with labels bearing “Made in USA.” Excluded from the class are
16.
Pursuant to Rule 23(a)(1), numerosity is satisfied because the members of the Class are so
numerous and geographically dispersed that joinder of all Class members is impracticable. There are
thousands of members of the Class located in the State of California.
17.
Common questions of fact and law exist here, satisfying the requirement of Rule 23(a)(2),
including but not limited to:
a.
whether Defendant participated in or committed the wrongful conduct alleged
herein;
b.
whether Defendant’s acts, transactions, or course of conduct constitute the
violations of law alleged herein;
c.
whether the members of the Class sustained and/or continue to sustain injury by
reason of Defendant’s conduct, and, if so, the proper measure and appropriate
formula to be applied in determining restitution for such injury; and
d.
whether the members of the Class are entitled to injunctive or other equitable
relief.
18.
Plaintiff’s claims are typical of the claims of all other members of the Class and involve
the same violations of law by Defendant as other Class members’ claims. Plaintiffs and members of the
Class also sustained injury arising out of Defendant’s common course of conduct complained of herein.
Accordingly, Plaintiff satisfies the “typicality” requirements of Fed. R. Civ. P. 23(a)(3) with respect to the
19.
Plaintiff will fairly and adequately protect the interests of the other members of the Class,
and have no interests that are antagonistic to those of the Class, pursuant to Rule 23(a)(4). Plaintiff is
interested in vigorously prosecuting claims on behalf of the Class, and Plaintiff has retained experienced
and competent class action counsel to represent them and the Class.
20.
Plaintiff seeks to certify a statewide class pursuant to Rule 23(b)(2) and 23(b)(3).
21.
Pursuant to Rule 23(b)(2), Defendant has “acted or refused to act on grounds that apply
generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate
respecting the class as a whole.”
predominate over any questions affecting only individual members, and a class action is superior to other
available methods for fairly and efficiently adjudicating the controversy. Given the relatively small
amount of damages suffered by each class member, it is unlikely that any of the class members are
interested in individually controlling the prosecution or defense of separate actions. Plaintiff is not aware
of any other litigation against Defendant asserting these claims, and doubts any other litigation outside of
the class action device will be initiated against Defendant. It is desirable to hear all of these claims in one
forum so that the class members can receive a full recovery, which they would not outside of a class
action because of the relatively small amount of damages suffered by each class member, such that it
would make no economic sense for individual class members to pursue individual claims in different
forums. Plaintiff does not anticipate that there will be significant difficulties in managing this class action
that are any more serious than other consumer class actions.
CLAIMS FOR RELIEF
COUNT ONE – CALIFORNIA UNFAIR COMPETITION LAW
23.
All preceding paragraphs are incorporated by reference.
24.
The foregoing unfair conduct violates the California Unfair Competition Law, codified at
Business and Professions Code §§ 17200, et seq. (“UCL”).
25.
Among other provisions, the foregoing conduct violates Business & Professions Code §
17533.7 dealing with “Made in the U.S.A.” product labeling.
26.
The named Plaintiff and the class members suffered injury as a result of Defendant’s
violation of the law because they paid more for the product than its actual value.
27.
As a result, Plaintiff and the class are entitled to an injunction against continuing
violations of the UCL and restitution of monies obtained.
COUNT TWO – CALIFORNIA CONSUMERS LEGAL REMEDIES ACT
28.
All preceding paragraphs are incorporated by reference.
29.
Pursuant to Cal. Civ. Code § 1780(d), Plaintiff is filing an affidavit of proper venue and
attaching it to this complaint as Attachment 1.
30.
The foregoing conduct by Defendant violates the Consumers Legal Remedies Act,
31.
Defendant’s pet food and treats are “goods” as defined in Civil Code Section 1761(a).
32.
Plaintiff, and each of the Class members, is a “Consumer” as defined in Civil Code
Section 1761(d).
33.
Each of Plaintiff’s and Class members’ purchases of Defendant’s products constituted a
“transaction” as defined in Civil Code Section 1761(e).
34.
Plaintiff and each class member suffered an injury in fact because they received a product
from Defendants that had less value than they paid for it, due to the false labeling.
35.
Defendant’s violations of the Consumer’s Legal Remedies Act set forth herein were done
with awareness of the fact that the conduct alleged was wrongful and were motivated solely for increased
profit. Defendant did these acts knowing the harm that would result to Plaintiff and similarly situated
persons, and Defendant continues to commit these acts notwithstanding that knowledge.
PRAYER FOR RELIEF
Based on the foregoing, Plaintiff prays for the following relief:
A.
An order certifying this as a California statewide class action pursuant to Rule 23 of the
Federal Rules of Civil Procedure;
B.
An order appointing Plaintiff’s counsel as Class Counsel to represent the interests of the
class;
C.
After trial, an injunction ordering Defendant to stop its violations of California law as
alleged herein;
D.
An award of monetary relief for the Class in the amount by which Defendant has been
unjustly enriched by its illegal conduct as alleged herein;
E.
An award of costs, including reasonable attorney’s fees;
F.
Pre and post judgment interest in the highest amount permitted by law; and
Dated: January 5, 2016
Respectfully submitted,
RAINS LUCIA STERN, PC
/s/ Eustace de Saint Phalle
By: Eustace de Saint Phalle
Attorneys for Plaintiff ADRIANNE FRASER
DEMAND FOR JURY TRIAL
As to the matters complained of herein against Defendants WYSONG CORPORATION and
DOES 1-25, and each of them, Plaintiff ADRIANNE FRASER, demands a trial by jury.
Dated: January 5, 2016
Respectfully submitted,
RAINS LUCIA STERN, PC
/s/ Eustace de Saint Phalle
By: Eustace de Saint Phalle
Attorneys for Plaintiff ADRIANNE FRASER
| consumer fraud |